Cloudflare (NET) 27 Apr 232023 Q1 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to the Cloudflare Q1 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. And please be advised that this call is being recorded. [Operator Instructions]

And now I'd like to turn the call over to Mr. of Treasury President Investor Vice Winslow, Strategic and Finance, Relations. Phil ahead, sir. go Please

Thank access Cloudflare's the to the us CEO; you joining for President Co-Founder, discuss Matthew Co-Founder found website. well Thomas supplemental of as Seifert, and have With Michelle financial now, Zatlyn, on have announcement. Relations first earnings information everyone By XXXX. financial and me our This be we on call, Prince, and quarter for results our our Investor COO; should may CFO. to announcement as

including, those operating forward-looking launches As product not a products, our and be vendors future will our performance, reminder, and financial expectations regarding and our of anticipated our and conditions. to, anticipated we future the future statements financial making during partners macroeconomic performance, operations timing today's discussion, and and limited customers, potential but market

beyond risks subject These much of comments and statements and other is are control. not guarantees performance and uncertainties, future our of to are which

Our actual any from or results statements. projected significantly our forward-looking of may differ suggested in those

statements These this of no you on rely obligation not We our today, update the as forward-looking representing to these as should them views undertake and call. in apply statements future. after

earnings of discussion release. For a today's that condition, our could impact operating risk more complete results see filings press the well with in as as certainties our future please financial and the SEC

will be adjusted noted, otherwise an about all today, Unless on numbers revenue, we basis. than other non-GAAP talk

earnings financial website. on Relations that You'll our reconciliation find are included to a release in our GAAP measures of non-GAAP Investor

information found referenced be reconciliation financial a a supplemental historical GAAP ago. periods, For non-GAAP the can to few moments in

Jefferies in Conference XX be that on we also on would inform and like Conference inaugural TMT We Software XX. participating May MoffetNathanson's May will to XXXX you

Investor before accessible also A New with Investor up, from to Cloudflare held Relations is website. which are webcast user being wrapping will our be our live on in York in host City. conjunction we May Day Thursday, conference, X, excited Now Connect our

that, the Now to turn Matthew. with over like I'd call to

a million, of We was you, $XXX.X quarter contrast. XX% revenue year-over-year. QX of achieved Thank Phil. up

was margin to of gross from XX% our target range Our long-term XX.X% again, last and XX% XX.X%, quarter. up above

quarter, the large pay more those up per XX% year us have $XXX,XXX than large new now that added customers, and During customers, XXX we X,XXX year-over-year.

net dollar-based down to retention fell Our XXX%, X% quarter-over-quarter.

see saw did from a we across existing we in Importantly, More that customer Instead, not on elevated base. slower broad expansion churn second. customers. a our

saw and continued business plan the tailwinds Throughout our a this we The quarter, new second during and reacceleration quarter we exceeded again pipeline this our meaningfully quarter row. XXXX in of half of of the pipeline contrast, headwinds. second for

rate remained high win against the signs. rates the Those levels, were levels were experienced quarters. and all consistent record positive over at the Our with X previous competition renewal high

intensified in the to strong you closed saw back-end almost quarter half even the a which last rates new lengthening QX the the X is side, cycles, of course macroeconomic rates, uncertainty, give flip of close the very which resulted win of weeks in every of the with On over us. a material challenges, sense, quarter, some decline new nonlinear weighting in significant quarter. an the sailing as held sales and for bank extreme business To

of were growth. factors reminded The QX paralyzingly COVID-XX. of businesses XXXX put of of All when about on nervous these pressure quarter most impact me the

QX. rough to that sail not we the a through new own their seas closely of close with to most companies economy, I And committing nice team's continue businesses to characterize be watching parallel have. a are than shows uncertainty later just the expected proud must-have, think did, of Thankfully, our before we in this spending. to how to we I'm the deals expected. ability

Hawkins Mark every nearly current term, and the as the likes tough. say, going are poses gets to uncertainty for profitable, toughs Board Although we tough, economy in get and business our near when the

of quarter, spite margin we in of of are of firmly and of operating million cash the tougher operating free million, flow, X.X%. in collections Furthermore, in representing our the hands profit on have in conditions tiller to able of our a rapidly to We $XX.X order of particularly X%. a free cash the record deliver business evolving adjust representing $XX.X generated margin month market to March, flow

on continue flow be to for XXXX. track be to cash We positive free

industry, and challenging and opportunity to business period a an the with external our improvement perfect organization. steps of within create productive areas As presents fees even of macroeconomic we us be reflective, taking uncertainty identifying this proactive navigate successful through our to facing internally more

stock, I our pipeline size sales products, are by we are ability market of opportunity, not we not take by for by capacity. to limited not the innovate, our As are limited are we we not our by limited limited and

we So are what limited by?

our As significant our I identified and dug our go-to-market retooling teams. said efforts efficiency President of to improve quarter, last and Marc has sales of opportunities performance into new Revenue, Boroditsky,

orders. we've Although to Fortune every our jumping we fishermen. so of customers, right you success were good solved very to boat, be just the real allowed faces. and need on a a When don't of good with enterprise team That we're that honest lot our the saw X big fish with ourselves, succeed XXX problems company products largely in X/ sales our our many taking by won are the if customers because

our work. as a shorts. dressed identified Marc, at wearing out, with tide XXX force clear and put, watering been aren't metaphors, we've has who's have a a of sales view our measurable one on solution. But has this percentage missed environment But team performance with in and a for expectations. significant actionable risk particularly you team on people sales our than of problem. gotten not on consistently more harder, critical Simply obviously underperforming That's seeing goes we're Digging and macroeconomic repeatedly based the environment some who KPIs. in available get The the it's mixing that targets

members success, grit of who and process been those the proven with and team cultural have of out record salespeople a in of in have now a rotating bringing strong who track underperforming fit. our new quickly are We

To annualized last XXX-plus these the year. business people X% contributed give you of new approximately sense, sold some over

optimistic we're make can upgrade significantly capacity. this team sales without we impacting So

good are tech upgrades this a us A was team is hard, extremely the time to market always While ago, labor for uniquely do tight. this. year

which eager X.XX That's Today, there in talent sales than of received is more for XX% an received positions. applications were abundance more than In QX, applicants, Cloudflare. XXXX. work we to of million approximately we of all at

in at volume, applicants positions. the In history, of the receiving than any is for go-to-market our especially addition point the we're higher caliber we've to seen

we're While great off, records the other are track bringing to enterprise laying on to our raise companies be go-to-market proven team. going people of capability with

performance of culture at Cloudflare. a had always We've high

with However, most performance understandable management. and but of the That time, value healthy that the Internet. functioning for The ahead around we opportunity hindsight, was got think of other businesses bit a is I crisis important work COVID of the over. vitally the massive. at soft is The time us the we during do is

amazing the expectations. opportunity, people team we current have of our are incredibly on and looking executing long to proven position that day to living aren't realize in to every We talented who an fulfill line have up step some other people where team of our

Our slowing pace not is of down. innovation

Now unique differentiate and develop to value more offerings our us that to customers the deliver than ever, it's and competition. paramount from we innovate continue

so every that. great is revenue, I dollar Innovation be are profit long-term a at into enable now put productive and productivity competitive address to action more value. before. and will We do our us in we advantage, inefficiencies at too. and to want our organization Cloudflare shareholder driving new capture profitably to go-to-market is Taking predictably but more expand even productively, opportunities and customer base than better

half story. that's about underperforming, that's While our the I've only talked team

results of bringing salespeople current be can top our of if ramp right we and last them delivering within the and hire products know in over of a the full people, They're XXX% average, we and quickly XX% with incredibly months. last quarters. successful approximately On they achieved consistent are terrific. Our XX that new handle. the expanding XX% logos, We bag have X sellers started customers of top quota the at

company deals expanded spend let customer XXX and In one contractors, Fortune its X-year of our their into this Cloudflare, our services A and this a Trust application bringing signing that them. of down Zero some our about licenses performers million. A of spirit, company with to expanded competitors from and browser portfolio tell of X performance $X.X total access annual the with XXXX, relationship Zero since top and deal Trust quarter. even turning thousands security me for displacing their isolation $XXX,XXX media closed you X

only potentially could complex the the employees. deliver the to than the competition during requirements Trust customer, roll only This but of contract out needed. plans tens is not thousands company to better iceberg products only the we Zero the of which on that with Cloudflare's performed tip were all their of evaluation

in Responding and was and competitive to $XXX,XXX in a to a first-generation Cloudflare's X on as appreciate also with WAN is able One, going with The Gateway, looking Cloudflare machinery our and by a Access, X-year expanded modernize competitors. a Area with manufacturer displacing a leading The and signing campaign, One CASB, security Zero industrial being With infrastructure were unified on e-commerce vendors, modernization drawn versus Cloudflare multiple of technology reduce their and all to consolidate Trust X-year Magic increase their is platform deal. flexibility Access, descaler their Magic relationship all competitors. Gateway, deal. platform. going needs. global Cloudflare's Europe key glass with They're expanded A WAN, differentiator us in transformation DLP Magic network signing Cloudflare relationship company They as WAN. their to pane to company costs consolidate company $XXX,XXX security

A and their super unique to company neutral manage X-year a relationship security performance platform Cloudflare SaaS deal. environment. and a across data Fortune private signing GCP million expanded their center application position with accelerated XXXX company recognized and The $X.X AWS, cloud their posture strengthen as SaaS Cloudflare's

localization XXXX $X.X and IoT government commercial a with one Additionally, us, Cloudflare a FedRAMP no tunnel its relationship global services business. for a suite expanded could X-year and data simplify deals customers' application two compliance for for IoT since been compete regulatory with to has requirements. security one and leading customer company combined core using the solution other their our for million, A Cloudflare devices. company its The business

egress posture. our their and of federal business objects, scale increase They platform services, four Drawn and their side innovation, platform, to Zero on high pace RX, our both Cloudflare XX products to of including and vision, developer combat customer bought Trust durable into fees over to this now using our authorization use security store operations plan Cloudflare's FedRAMP AWS. commercial across object from and application the

our replace to also services a current knowing Fortune bills XXXX signed of and contract company dissatisfied The industry. the been for to $X.X RX. wanted issues Cloudflare's our and all application approach existing ease has of retailer vendor. with XX-month of and from bot-related their use universal They A million Cloudflare, core vendor were the unpredictability traffic to platform their top protecting the switch added to

company latency impressed that fees by SX were with application how eliminate incurring management. The A centralized competitor that application a services. and spending looking their with expanded from APIs tightly better would company The egress leading core X-year was a a and signing and customer customer RX's Workers services. to from they were could for integrates well contracted the particular, a pay-as-you-go with with easily gaming realized month scalable Cloudflare, storage In outperformance for and our their $XXX,XXX platform integrate $XXX RX lower to for deal growth. throughput they a exponential as as more customer support relationship moving RX, RX, and moving they

data, activated Traction of platform, months. and our breakneck nimble among innovation large We Workers and customers have on be storing modern, at up developers quarter-over-quarter. paying Cloudflare up why, continues petabytes RX XXX% are the to than running XX,XXX last X more have cite X.XX rapid build companies, neutral and continue our pace. million them environment. over now strong. development applications XX% X AI position, a they to When on small, ask we

support our first built more and productive. company at around age infrastructure One month. announce upcoming to called lot "The we announcement I a AI." a next the ring last of about how We'll developer of And Week cloud like that. I'm Developer any make excited us month AI for extremely

make We and industry at making changes of our the team best and in to we we're innovation are sales, the in in the industry too. be the need best the investing to

by I about quarter, back what a As step and was challenging I'm think our opportunity. struck

market for the limited by our not are We products.

not innovation. are limited by We

opportunity. pipeline by not are We limited

limited we are go-to-market We limited by by even we Instead, performance. not limited ability sales are And are our our not by to recruit. capacity.

the headwinds opportunity and we Cloudflare into management something in our positive we by we committed elevating talent, of can for a is current turning all are investing to on at catalyst performance in That's the the top have we productivity refocusing fix, seize which team ahead, massive. growth and know change macroeconomic to our

to the Thomas, that, I'll financials. over take to With turn walk it it away. through Thomas

back-end thank quarter, related in the cycles, increasingly numerous when in joining macroeconomic to our broadening business we for cautious In which Matthew, areas companies including in everyone and and weighting and challenging material banking first of for the which of uncertainty, negative delays you, to significant you witness significantly a business environment, sales intensifying emerged Thank headlines more the quarter. impacted continue us. the With linearity became business, outlook. SVB, crisis deteriorated field, in to scrutinized collections worsening the the deeply March a lengthening

remaining context, further of by Also, largest e-commerce customer and control, these products focus control, and is our and maintaining to we need Cloudflare revenue. committed our services on that impacted to financial some remain capital. growth end can investors' technology, good our customers to being outside fiscally that to For that controlling revenue verticals strong headwinds commitment great also while of we stewards building what responsible

delivered profit flow. quarter margin and terms significantly cash As a free we such, of on outperformed record and operating operating in

maximizing We a prudently on also continue with value. allocate to capital focus shareholder

year-over-year the to Total million. to XX% Turning for quarter first increased $XXX.X revenue revenue.

growth remained consecutive third for trend strong pipeline our growth in second for pipeline the quarter, first the quarter accelerating new in internal exceeding continuing New again the plan in consecutive generation quarter.

the quarter, caution weighting customers in extreme primarily exhibited sales rate a first ACV significant which were pronounced the impacted both during cycles. back-end in the bookings of of longer decline by aforementioned close by and incremental resulted However, our an

XX% the which were More quarters. specifically, our longer than significantly quarters. with longer X the average increased the cycles during the sales previous the average cycle customers, of average quarter X most first deals expansion contracted Sales was in previous XX% of our than

competition rate win our against high. remain However, the

U.S. represented XX% year-over-year. XX% XX% XX% represented From increased EMEA and of revenue a geographic perspective, revenue the increased APAC revenue XX% year-over-year. of XX% increased year-over-year. and represented of and

increase had XX% XXX,XXX Turning quarter, year-over-year. paying customer to our metrics. customers, first representing an In the we of

of an X,XXX customers. increase with Turning year-over-year and We in large to customers quarter large ended XXX the quarter. of XX% large customers, the addition an representing

of Our of the quarter elevated year-over-year. first driven rate renewal decrease for during previous with larger D&R dollar-based high net the on year, points which our levels with XXX retention rate quarters, a to experienced the X experienced last of the was average an Instead, We've company. customers. delayed the over expansion all-time the fourth XXX% rates was primarily again were decline first in basis as and the consistent similar was in percentage points quarter, representing XX not a decrease sequentially quarter churn by

gross margin. to Moving

basis margin sequentially decrease First basis in of represented increase CapEx points a representing an XX revenue year-over-year. and quarter. first gross was X% of points XX.X%, of Network the XX quarter

be fiscal CapEx expect For XXXX, to of network revenue. XX% to continue we XX% to

We of Turning compromising We aspect opportunity us improve ahead changes that of and being to conditions success measures without is efficiency effectively all to the near-term expenses. the massive. operations spending. understand manage we our crucial operating again adjusting our responsive proactive first is our accordingly and operational to long-term during commitment know in a market to quarter which took

first XX%. actions, year-over-year a a decreased sequentially of as to and percentage result As consistent these X% operating quarter remained expenses of revenue

at number total headcount XX% the our total of approximately end to X,XXX quarter. year-over-year, bringing employees the increased of Our

to market the will based for hiring year pace We continue conditions. on

sequentially marketing $XXX.X revenue of and development consistent expenses percentage same to $XX.X Sales from and remained Research quarter compared million remained quarter same by the revenue Sales year. XX% quarter. in in quarter. last XX% and marketing X% consistent year. the increased last percentage were of a for as were the expenses and as at R&D and decreased XX% to a sequentially the million

for expenses income year. XX% G&A period in income an a quarter. million were million the of from last administrative to $XX.X same revenue last and the year. as was million the $XX.X consistent percentage General XX% of Operating decreased operating to compared sequentially in remained quarter $X.X same and

margin Cloudflare operating success. X.X%, points quarter the elements key of was First an of XXX increase basis model, efficiency of year-over-year. highlight and remain results elasticity These business which our

balance Turning sheet. the to net and income

quarter the or million income was $X.XX. income Our $XX.X a diluted share net in per of net

and and related successfully a taxes first the cash tax other to taxes. initiated able to were we [beat] we planning strategies, reduce During quarter,

for As the the $X.X a We available first in cash, quarter for $X.X negative Current X% of same the flow to $XX.X securities. expense last for increase was period XX% or XX% year. sale Remaining RPO. tax obligations, Free million and or of RPO representing sequentially ended was quarter year-over-year. quarter revenue was billion XX% an first compared equivalents million. cash X% result, with revenue of and $XXX in performance $XX.X total million, of cash came million RPO, or in the

have Before to second first guidance expectations and moving Last with to XXXX. provisions sales factored lengthen full would I cycles guidance. we quarter and for highlighted the our for our we like to quarter, for year both expectation the full continue and quarter into to year, begin the

elongation However, our revenue unprecedented in entering the experienced surpassed the was pressuring first level and far growth. forecast year, quarter of the

a continued of the competition, win elevated generation sales for assumed despite experienced in-period quarter. recognition at to close result, of remain weighting new for ACV have rates levels. the against assumed booked our a we remain pipeline at therefore, the a incorporated the cycle the second and levels we've linearity assumed From the As also revenue back-end first high reacceleration have, perspective, minimal therefore, rate and have, quarter, second continued our low continued quarter during and

cycles currently when that we nature, by will the cannot close the predict believe we depressed increasing temporary Also, and customers elongated sale quarter the in is first recover. exhibited during rates are caution

will through have in such, headwinds, the fiscal assumed month March which persist these of As of identified we the end the year.

Now turning guidance. to

to second quarter, the $XX $XXX [Indiscernible] expect of income and effective common we expect in million, $XX of the of $X. increase XX, diluted the to strategies, $XXX X%. net million, XX% rate of of million tax we million approximately an an revenue $XXX planning Due income expect share to trading in per million aforementioned we $X.XX range outstanding. tax shares representing year-over-year. assuming range For our to

For revenue the full of year billion midpoint. $X.XX range XX% in we the expect increase of the $X.XXX year-over-year XXXX, billion, at representing to an

income diluted expect the We per the period net common outstanding. of expect over million the year operating share to range $XX and in assuming range shares million, million to for that XXX $X.XX we in full $XX of income approximately $X.XX

rate X% tax effective XXXX. for expect We an of

cash anticipate achieved of having again After the flow the positive being free year and flow last to of during free second cash this the we XXXX. year half positive year, continue in full quarter for first

on cash and due upward generation of the the to first expenditures we anticipated payables. free free second be other ongoing with to quarter to basis near-term the lower our For timing purposes, flow an variability capital expect than flow modeling trend in cash anticipate but quarter

of In as and enormous in our the model. closing, remain us opportunity we confident durability of elasticity as ahead the operating well

also more dedication efficient efficiency the also and employees and continued just not macroeconomic their is to a backdrop, competitive partners. mission, on during customers because thank focused even challenging productive, our long-term for advantage. becoming but I'd to operational are our like more We currently

questions. up And I'd open like to it with that, for

Operator, please poll questions. for

Sterling We'll of Nathanson. to Instructions] Auty afternoon [Operator Moffett first go this

the big guidance. the around think I question is

the think rates factored you guidance of aggressive out that of and alluded close in. was the was to the perception had that you I last kind quarter, coming actually

and with confidence in can deliver elements to changes the are on the light outlook? being changes sales to Now investors see in look what especially that that make, you're able the of you've the revised seen to looking the

half the Remember, quarters continue. to last have we year, get quarter the than first at in close expenses, when our up forecast said last deteriorating assumed Yes. elongation would and the the before, year. Maybe challenging actually second elongate are us. looked cycles now of the here. started I more and surprised we guidance, We then beyond on gave third rates set quarter, that I later the we as what during But and environment to really XX% We the close average sales of far XX%. saw of and fourth seen

assumptions this the in the differences we material year. were beginning those at had So of

that from the think second I have deterioration into account any and guidance would assuming took hardly in-quarter quarter, continue we for adjusted the first we quarter seen revenue generation. also we've linearity the now ACV in this carefully recognition specifically, assumed

is this, prudent I we what think, of seen. So in light have

this impacted contributed Matthew terms salespeople results. overall from generation the of current to heard ACV little You are that by the in that our measure very

So is forward. there positive capacity over we continued there more now pipeline in downside quarters impact on sales to the point has that quarter. than and The in out, that improvement the first is have terms good seen in is upside again, thing we however, in think transition moving this consecutive of performance

as Matthew extend cycles will mentioned, of but it's see So in slowing limitation opportunity, down. pipeline sales a not we not

the in from material the deterioration the was cycle now first on But especially are a impact and that how in about we've perspective, time. reflected I of the quarter, encouraging guidance year. we So a results seen think think rest sales on prudently very had the the

opportunities that for follow-up the Matthew. Can through from us in characterize give And the whole, of you rest particular example. traction base it when maybe how seeing customer we quick look the one as at one are you year? you opportunity us a it just think And the to the about AI But should what track? expansion for in

infrastructure What in just us us. to AI terms the AI from continues that hearing to us. not companies seen surprised X, quarter-over-quarter We've from The just that but is something of from last quarter-over-quarter impact Sterling. north companies And growth Yes, when positive substantial the that's that it's use AI we're X surprise companies I have small. revenue is from it the as that going use they helping compete, we're of part and a to is can with go their fast, of fraud start that significant them they look positive face. something that Cloudflare for to the most to efficiency, and that some clean us. and cybersecurity able risks be for who get that they think slate, quarter large that they're growth XX% the to themselves really AI And from or a results large delivering of coming protect continues be is

you're and month I AI going ways us stories some our innovation that during think see highlight May, in to Week to in Developer these companies Cloudflare of forward. that using next highlight order customer push are

a So has be I that and accelerated has real for to from that, even think us, positive only that continued QX.

Thomas now We'll Blakey next of Instructions] go KeyBanc. [Operator to

like of lot and Maybe it's sounds a making demand, churn new It there's for gross records. pipeline pent-up Matthew.

there a You kind have. on long -- terms much some how these nice are but access thought. you What to like waiting be not security needs and maybe this talked pause customers looking my so first about sort Matthew that in these would will explaining of take that of indicators terms it of of question. in are to critical to for

Yes.

everyone with -- to continue they they that invest us. us that that communicate continues want to think I to are to

projects they do in. that is and asking to from what invest at have their versus seeing we're what they're projects budgets critically very themselves looking organizations what can they all IT think delay I

Trust when the are that beyond So under large the where cycles else were But people on environment that project closing initiative would or we something are deals before. under when a times moving companies where those a are extremely those duress, attack, sales continue they're around initiating be are projects to some Zero a new see extending that of larger they to quickly.

peers think cycles I the unique average, one things cycles, of is significantly with about even to, extended tend sales our in sales be our the faster on industry. the that's Cloudflare than

could sales early in we And then down. slow so cycles now. back the -- the they up, but the because down see back first call are the were again, That in among to picked economy we slowing XXXX, slowdown right

we always think of that our has we as is characterized earlier real how look that think some think peers. than I see of business we things forward. And one I our tend prudence about that to the

is getting one telling are cancelled any way. projects no in that So us significant

saying But than we're we even we people seen more saw through taking and back have longer sales are budgets that to than is cautious, being our the tight, historically be longer cycles half XXXX. elevation that the are and of

to us we're to prudent not But They're in to how think about tell switching So any haven't trying loss seen we we this. another -- continue elevation not about be competitor. they're very customers measure rates to the we're competition. to spend, opposite. cautious causing Quite that's saying before twice IT being with you, the to invest just they People cut with are we everyone and want our one.

like XXX% to segment back even of there, just March, any maybe this gauge April. from up in long-term in, when Thomas. conservative of helpful, end conservativeness actually and the terms indications numbers what of guide. it's from increasingly It's of And maybe we this in from to would could to be sounds coming kind a trying It been of seeing perfect get terms a follow-up, month a of Thomas, the maybe as in he's

indication the neither nor -- negative, change We quarter there indicate early the not positive. the a to to the on second do material

better. gets indication said, materially But either. as that I we But cruising it So it's are that deteriorating indications along. no no

We go to Thill Jefferies. at next now Brent

got kind the -- of team? are the forces? new is on kind just of when revenue What's this and I this on sales about happens transition more how out longer ultimately the that giving in external current team you a is view isn't there of think execution than right existing head you what and change you you internal the side, confident that fit, with when place, maybe that you've the mean, happening what's -- Matthew, I guess,

it's think combination I if things, those we're of a honest. both Well, of

our you I don't successful along were combined in -- think combined COVID, the of Cloudflare. happened market in some terms a to who people of tech And hesitancy our some place opportunity I of When macro have really on that sellers people some a what weaknesses weren't combined be where just be we to disciplined exposed to the gotten our the the were the a harder number to of performing. was think that, of costs have order all get fact what seller cruising when again, in that, employment overheating, had in team. in with on during at that the things XXXX, economy of the us has terms replacing team with

incredible sellers, is decelerated the top top people done at a have substantially has off. at What identifying incredible people are of you starting that if seen where Marc sellers on see, enjoying lowest sellers the slowdown, and our who specifically team X% during I and decrease an the really around process are look those productivity. job though, the their think I And in moving macroeconomic success they our performing those

which And bringing with he incredible are to so and of what indicates the like Cloudflare. that that on new the, that talent leaders is is is some and me applying to Marc on who board

want well to off. people successful Marc a do is themselves can for volume be pay which and out of at can any productive work and for The I X.XX that who work other us that SaaS QX. is that And discipline don't sellers. company there. Again, think is People talent million applied in us. focus are extremely people is to as to come seeing Cloudflare know of a going I

much actually is, capacity as they us our that the we think I people, to I are that moved look terms very I team increase we just we're care Marc, do to performing encouraging boy, the out. can in doing going thing out we that at to who type team hiring that that us. get replace an bring are that but that at of performers be I as that's, small very taking give we and identifying that what that performance people percentage -- on want they to the contributing our to think that of a this such And excited incredible to we about think those want only we people But incredibly deliver to of higher and high performers we new asked obviously not this job by we something talk is of will only like we're when not has have. -- the very to any able that transition thoughtful capacity, replace be humanly the change think, But

a years this right, just at the was sequentially. for It in you've And seen the quick looking follow-up net looks number enterprise if accounts like, new at X of I'm lowest XXX Thomas.

of stayed it frame to the guess -- saw like wasn't it both stronger. kind and enterprise seems it, you . I there way sector is SMB one that even across that So

I think that read is correct.

next We go Markets. to Matt now of Capital RBC Hedberg

on pay-as-you-go question more Maybe A or of macro comment side same business. that a your follow-up Brent. impacted by that the to less sort the of the from enterprise? being Is last as

revenue. less Pay XX% than our I you is think seeing the remember, what space. we're of business, that again, entire relatively is, of overall percentage weakness go, across as a small

downgrade. seeing one we're are needle seeing in of of that not across a the there is move our definitely rate that time, million there are rate doesn't fact traction we're What business. the direction running lower same applications it lower X am that at upgrade. But on across I excited we or is closing that platform. the the The developer another. we a So is by But seeing

And of are the pipeline where those That from pay-as-you-go coming success. a majority that of we see be to -- continues lots developers.

and we year a the customer worked have to dollars cited a upgrade had we with that a where examples us. customer of thousands spending hundreds was in also remarks, paying month an We like $XXX that that with were to enterprise of one identify able prepared the us

lots to of continues dividends. pay pay-as-you-go So

much think of don't where our But people low significant difference same that see business their are end watching budgets just carefully high conservativeness I entire up across more space. the we and end And at that versus the -- the the of shows the a business.

below of that's And target reduced XX.X%, the midpoint, a X-year implied quarters outlook, 'XX of think -- that sort then, the Thomas, guys the I talked ago. about you in couple $X billion with

maybe Just to -- thought updated billion years? thoughts on your Or that? X that thoughts environment does this on in change on just any $X some process getting

some now. not temporary and in headwinds from don't limiting be that the the us. the are pointed rightfully is enormous opportunity is limiting. out, They Matthew us. front but take As opportunity is us not away they It's nature, There limiting of will market in

us. is to change our doesn't take it So this where journey thinking going around

Next now to Keith Weiss of Morgan Stanley.

I the giving, think When crisis are not X banking the a getting was of of guys little here, quite I think you like some explanations the first I'm dense in weeks what in happened quarter. through March. that the

linear tend pretty guys have to business. You a

impact comment would the I in like the business if the of was only that closed our like weeks, So have what to X XX% last expected be was.

all -- while, And operate there, a it to an with nothing XXXX, and Matthew, out you changed? good there's get incremental throughout like ROI of in in they it changed there. a And proposition, which called quite really market a like guys frame what QX if don't salespeople, been say, really ones you macro value really focus last then but and good out hey, and environment earlier year, the bring you area a were productive to to the weaker guys were you effectively for hadn't I you listen, in have able cost really time is the been and like one

think length, on that thing floodlight XX%. a than as changed I more cycle that Keith, put it, the biggest is sales we've

the in would quarter. close quarter. lot half And We last our so of what business the of of about that happening in the a pushed see was typically back month

very fact of purchasing got banking customers but -- Credit spaces of where think Suisse, you wasn't again, nervous that it the was the it I or I departments SVB uncertainty with. entire regardless just were they bank. had who mean really the said they around And

push a closing it And lot we outside March of the pushed business business half some on last within pause more the and pushed saw That -- of that. our just companies of of quarter. into the our of

feel reality, And want which we I about whether new again, back not March things doesn't think getting don't don't we're is if world the think we or as forward going fairly like are business see better. it's but seeing case, the again, -- significantly know how so also in the is significantly worse, we The what to be getting prudent snap quickly. reads very it we're early we that that will

of win shown we've a floodlight changed was did. changed on But length that in didn't close of cycles, as what that, but rates the the again, rates change the change, what it sort sales the is a material

any that small large and you worse of better than Were you both families on sustained that that mentioned there saw or customers the customers. there -- was equation? Was It variance guys side product any in others? that

think we I is when under continue fast someone rate duress. to extremely have close

that see there address they to they -- problem when a they and it. need So need is

change I obvious I for, think -- think, doesn't that and quarter-over-quarter reasons.

data to We close of bring are showed -- over increasingly offline, we back a often were customers The large the of sets. things larger that other hours. larger And RX, in lot someone's and where things matter respond very them quickly, that able promise quarter bring deals and online. a things seeing we're like

sort saying in that were we cycles. board, IT anything What increase a cut commitment, there customers that they again material requires and were of sales I the across one, twice a But was before measuring larger is things and us we're about increase sales faster still with other different the XX% see is than of significantly cycles even lot other that most because cycles, we a companies. faster think SaaS companies sales in

procurement goes. what trying again we are radical see anxiety think we a guidance? don't is we is change is think a about to cautious extremely And March as be be we we IT out around it what sector. the think I and are about things prove I something we that earlier, just of when and the of going was thinking think this that prudent the short-term about want around will Or to effect know next so things And quarter spending. -- that sort But in to banking departments there's prudent how forward. That quarter which direction

now next go Piper We James Sandler. to Fish of

your try process maybe smaller to you larger taking that little to deals gross just Matthew, and try talked bit longer. holding discounts On that about margins, thought as near to And long-term commitments maybe here to there higher actually land above are offer average these here? a well. get a term kind are of land Is the smaller you fact just

think been have we ways that's broad I find I think I are of of And our products playbook. is a that we -- to because lots of always part set of the account. we're do what into able different customer's think that

target think, that -- maintain gross I able that we I something can that's our range. do, XX% think XX% is, that a we're to within to are and so margins And

that for bundle even we actually gross margin it's then and we have that take expect. think us deliver think of But after over small a that down go time. and gross that have discount use I dramatically because the to in to we we order can rate the margin mistake deals I the profile that and margins engineering still

targets what we're are. our changing gross So not margin

ROI losing We deals an extremely to deliver and able not competitive high And while extremely we've gross price. be on continue are been also margins. to delivering software

to potentially of assuming? kind sales this you're seeing Or Is a get get the from about on And the magnitude how there around here? difference it But here? of way bottom could I you're the appreciate Thomas, rates, details cycles lengthening. another close you it think all guys? that for rates worse could And step the close much lower

when say about we are talk guidance. We prudent our about always we

account I this in We quarter. think be those into non-improvement or And we thoughtful seen the how try we try build to for prudent to improvement in quarter. take around we're variables. what have first we

nonlinearity significant. to we in So was the the be saw quarter going

any not significant improvement. We incorporate have

revenue second second assumed ACV the from in significant recognition said the I we quarter, have during quarter. As not any

started been have lot I looked at So for especially the started quarter, just want I set we more this year. the our the about year, remainder we how think outlook. guidance we what we for When it. thing of said. is to a how thoughtful we Matthew reiterate perspective. -- At point, of the framed probably the first that than how think I That's we challenging from

quarter. first is of If the of -- off the guidance our nonlinearity impacted slightly at we came quarter, midpoint in primarily because that first of guidance What you cycles. look the the elongation a the forward-looking of sales into range

over And of And looked we and that that going the that wave course have the of wave, out. significantly we to not push ACV you is -- so year. in a further it's at pull assumed

thought I So guidance together. thoughtful about we how put the have been we

Truist. next Fishbein to at now Joel go We

change of on that established and just and those appreciate give a to SIs the are about change seen Shields to with making some of how for Accenture you're And I go-to-market us that but Matthew, any you the some go-to-market? update the you've global one and you've wanted ask if color just on partnerships factoring? in the like really an see Up maybe efficiency,

we're has which to think that, the us win days we able that to to of other of with to partnership but still incurring number in continues and them market given were And early Accenture. a that confidence in a I expand in federal global take deal, partnership deals.

the serve begets market of thinking think about what I to we of are bringing in terms the what and directly on partnerships that has versus great that Marc want market parts are been focus of the we real with parts large the that And the win these thing serve our large as to more other the we want have wins, integrators They're systems partners. ability and same early partners. global with seeing think are. that that I we to

pronounced space. very seeing to IT When we spend. they're the That, is talk conservatism -- in around think, I much them, when less I a talk security

the seeing that when other multiple to high from times so especially think are they're market, willingness But conservatism measure and cut sort you I systems with work I there before the customers. same end at partners, is more and And the of of we eagerness us. they reflecting large the that their that think to talk of integrators

Trust large think actually Zero a seen I optimal is place that possible. we sure where we've think that in opportunity and especially that, a that, continues look them. that But making and we're can as be it deliver shops being to that with Workers ways And seeing more IT of as at something I they're

partners? to than a bigger landing with organizations they these follow-up. sizes the you're it since Are deal seems your size quick like as generally be are normal Just larger

be Yes. They we on deals land well. million-plus own our than to tend larger deal. $XX But the average as

use other more deals us, those make accounts with see work way some as SIs together. I deliver more again, integrate think into make sure and a that we of and them can inroads larger partners and larger to the over solutions to you'll time, help closely

again, think that is So us. something a it's for priority I

continue I to think need now but programs. to we have the we those wins, scale early

We'll of final question from today take our Mark Murphy JPMorgan.

side Thomas, the on business or were CDN impacted side bookings of or heavily perhaps security the the more elsewhere?

never situations We back I products. the under in Matthew I to come difficult are talk risk, be about products Those customers CDN. tend what would security If said. say, we to onboard fast.

And so product than the statement better if security application suites there's a product-wise all, that are at doing services.

Matthew, a more was last then, Sales the and And of introduce to change bit earlier, the Head back when this but Brent about goal think asked you in look rigor November, position it, I and discipline. on

think I take at that time. time those can you changes the acknowledged

stabilize you lines, from actually in I'm the disruptions have little mapping those could assignments sales along well, changes, actually say, curious look this or a commission you anything extent year. whether and at be or seen it what later which to account or territory org might might structures

Yes. that if that, right don't would point I now. handy what we're be could I seeing understand we to that's think that that.

we have actually our sellers that productive. top think seen I be more

that. these really think have And handle changes are place that Marc our changes obviously introduce that now. around in I uncertainties. that the putting We think is starting does we with

planned I think extremely that we've well.

have. who top I how we invest much like board think look a that today the performance we we and and on quality people can is again, the than growth reaccelerate more way can us an bring look is getting just that to to today, our in for performers what the caliber sales of much our out of And bimodal as normal more extremely a we effective distribution at distribution

the so changes. are making the right changes Marc that And is

every on leaning day additional forward amount highest may great and rigor have performing me on the the The an our positive. extremely that team individual right across is is These getting person right time. along of are and team, be Marc is about feedback how managers to Our team. are transitions I we it do road. e-mailing take the think and But There our contributors the bumps path. discipline. we're

market even We're by not capacity people team. of We're products. we're limited by as not We're not sales limited again, And even pipeline. the by transition our our really for innovation. limited limited off by not we

from sales excited see will able deliver And confidence of we're so we our I to pressure that the am as forward to a while engine be company. conditions going I innovation continue gives am what for we the engine, macroeconomic as really our next over -- match that going a have year, me lot to

conference and ladies is closing you. like Thank for all back over I'd And afternoon. your any questions for have to Mr. time comments. to we that the Prince the turn gentlemen, this

it Cloudflare to from much. has incredible Thank call. appreciate of hard definitely a our of for been all a all tuning opportunity This the you but so quarter contrast better Really team. the to is everybody in an company. I appreciate work of us for continue make

to of incredible you the a make excited the announcements of sure X, Day at on week are and coming. see ahead. for We Developer or Week. quarter number Thank hope May are much. I tune you in following to There our so many Investor

wish evening. us so call. Cloudflare XXXX to all thank the that Mr. all for we'd joining like and gentlemen, you, conclude Again, will Thank Prince. Ladies you a Goodbye. great and QX you earnings much