Cloudflare (NET) 3 Aug 232023 Q2 Earnings call transcript

[abrupt start] Matthew Prince, Co-Founder and CEO; Michelle Zatlyn, Co-Founder, President and COO, and Thomas Seifert, CFO. By now, everyone should have access to our earnings announcement. This announcement, as well as our supplemental financial information, may be found on our investor relations website.

As a reminder, we will be making forward-looking statements during today's discussion, including, but not limited to, our customers, vendors, and partners, operations, and future financial performance, our anticipated product launches and timing and market potential of those products, our anticipated future financial and operating performance and our expectations regarding future macroeconomic conditions. These statements and other comments are not guarantees of future performance and are subject to risks and uncertainties, much of which is beyond our control.

differ our those forward-looking may in or results of any statements. actual significantly projected from suggested Our These forward-looking views statements should not apply as of on as today, them representing our in future. rely the and you no undertake this obligation statements these We after update call. to

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

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

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

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

be and Stifel's August September We Summit on Goldman Executive the Xth. participating in Technology to would we also like Conference XXth, Tech Communacopia inform Sachs and you on will that

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a macroeconomic million, we in those year-over-year. Phil. quarter spite year XX% more you, strong that XX% pay year-over-year. continued X,XXX up revenue We achieved new We have $XXX,XXX customers, added large us of large Thank and per a XXX up QX, customers, had of In than uncertainty. now $XXX.X

After go-to-market had QX, Our already focus saw XX% year. levels we last return we improvements saw closer increase paying to disciplined on cycles off. them sales deals is in around to what

led record prospects be a careful spend, very execution and improved around bookings. to customers continue IT our in to new While our quarter ACV their

buyers quarters, that for IT does first be still it And challenging, to among the appear My is worse. to is several is in customers while the not sense, environment macro getting talking time stabilized. sentiment

is Dollar-based indicator. a ticked quarter-over-quarter. X% a dollar-based to down net retention XXX%, Our lagging down net retention

reflect the So it are seeing. improvements go-to-market be slower we will to

of dollar-based not to customers. some did competitive expansion slower It's Instead, lower from or the the any we new important to note our retention pressure net is churn that throughout see existing quarter. also due

will excellence time. improve operational go-to-market on focus our over this that expect We metric

Our in held million, at consecutive a still record stable with profit We above XX% target our XX.X%, with and our last line operating margin quarter. profit. long-term to $XX.X quarter an gross XX.X% of fourth of XX% operating delivered

during represents good flow, free in We also generating be cash times, our million also flow outperformed a free quarter, challenging X.X%. deliver I'm that while which on margin we're cash but $XX only team not we operational improvements times. proven the in execute of meaningfully disciplined and proud can more has

generation. very growth. was We pipeline strong continue new to pipeline QX see record for another

underperformance. changes to last our we significant As well, team we discussed proactively sales very in both made and quarter, address That qualitatively went quantitatively.

top the a average invigorated. productivity. we've We training implemented At robust programs. saw and same in improvement are marked the time, performers enablement, executive account onboarding, Our

we for the we're us our sell. Secure armed team sales Gartner of were Area to recognized seeing new X, the formula two recognized quarter sales build leader. for product, alone, and edge security Combined Zero as Service worldclass a applicants reports, Trust right recognized the network the is as by IDC our this email a Last with in Forrester Edge. for products number for makes security-as-a-service, and leader with only to record vendor roles, organization. And great

stores RX quarter-over-quarter. XXX% customer XX% up of and explosive Cloudflare XX growth. Workers since continues now developer up in Workers, applications grow active over Our QX, and its to petabytes December XX platform, continues We reached year-over-year. million XXX% data,

the as to customer customers wins adopt object RX it We name and their customers That have a like subscription, other segue name XX,XXX are quarter. distinct to paying seems storage beginning solution. in with primary good brand some

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be training to that inference continuing which positioned to win we invest market, than area larger the market. in will believe we believe the are are substantially and this We uniquely AI

we for in Workers announcements QX, shovels picks In the XX provide lot companies AI to major annual developer and hosted company. build Cloudflare our features to highlighting future. platform a our QX enable as preeminent to week, to will extend feature leading store we the AI and more Week, the Developer and have birthday

QX. Cloudflare’s Beyond another winner were Solutions Zero Trust big in AI,

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with provider under, healthcare $X.X a leading three-year contract. expanded million a us, relationship down signing their Sticking Australian

vendors first consolidate hodgepodge their customer isolation, generation and a replacing seats CASB, X are This and Trust of Cloudflare their vendors network access, We data solution. example of protection, Zero to looking email gateway, for XX,XXX security. holistic another of with security loss browser Area is choosing

social Fortune another and three-year increased product they a Cloudflare using of their security with again became They us the on building us one only Gateway authenticate in our and our our one the A $X.X a contract. with one. standard, of solution. signing Cloudflare, other Here's truly looking on scale. another their as Oblivious as to of customer view relationship network that HTTP global understand They approached network Workers cool based admire Privacy They products. of of XXX the add ago, expanded messaging privacy year million onto initially top a to a companies leader co-development privacy

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end with AI customer So one let more me win.

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over it it that, to turn take I'll With Thomas, Thomas. away.

thank And Matthew. for joining you everyone you, us. Thank to

share to we've seen from pleased in that During last the the quarter, improvements quarter. of impact that challenges the highlighted second we I'm terms external

and levels, somewhat the still efficient processes implementation sales cycles due tactics. of from part in historical more also to Specifically, elevated shortened

we Our operations. pipeline as our continue go-to-market have shown refine and close improvement to also rates strategies

believe rebound confidence Furthermore, collections uptick we which a in in receivable, our stability. we financial observed and customer a accounts on notable reflects

being maintain fully of capital. of consecutive commitment and our continue fourth We as strong also stewards record delivered We investors' our operating good profit. to quarter act to responsible

value focus We our shareholder during the also capital quarter. XXXX convertible retire action with a on maximizing second allocated notes taking prudently to by

and increased XX% an XX% XX% APAC EMEA EMEA see both in in the revenue. and of APAC revenue and notable primarily year-over-year. revenue become and by year-over-year. situation deals, even EMEA in are second second Total represented year-over-year the quarter. quarter to in to customer geopolitical large We XX% seeing performance revenue, revenue priority to increased represented the strength represented and security pleased The ACV given XX% bookings a US region. $XXX.X geographic XX% regions of with increased Turning From XX% record the in achieving the million. perspective, for higher the APAC driven increased we year-over-year. was were new of

Turning second customers, the an and year-over-year XXX,XXX customers, addition customer representing XX% We metrics. an paying representing in customers X,XXX to ended of XXX with quarter, of the had increase XX% year-over-year. we large quarter of In increase our the an quarter. large

than to more on annually, basis with quarter spending In fact, one also was $X an spending customers, largest customers $XXX,XXX added record our we the a Zero date. of our second Trust highest number contract of of more Cloudflare. million And annualized additions quarterly including than

Our was sequentially. dollar-based during net retention second decrease rate representing quarter, of a XXX basis points the XXX%

average second quarterly driven all-time in Instead, in decline of quarter. calculate Importantly, DNR customer the same most was customers for our from the expansion by was were to renewal quarters, to recent the set in four DNR two quarters customers slower with paying the rates by the XXXX, revenue comparing the annualized similar which We analyzed primarily the quarter cohort. company. in consistent revenue prior the an last high in from larger the again

underlying be a the business we will lagging DNR indicator a result, this trends. is bottom. Cloudflare’s nearing Based in visibility, believe on of a deceleration our As

gross to margin. Moving

XX% Second basis a the XXX second of revenue year-over-year. points a of and representing quarter. Network points XX.X%, decrease in sequentially basis XX quarter margin gross represented decrease was CapEx of

workloads, underscoring XXXX, even of fiscal expect efficiency now as to of XX% be including and network XX% our onboard CapEx new we the revenue, scalability For we AI. to network

operating the expenses. to Turning

quarter expenses decreased remained of as consistent a sequentially operating to revenue by XX%. percentage X% year-over-year and Second

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

long-term increase growth, low performing facing sales with on quarter, and customer consistently upgrading drive focus the our success. talents addressed to During a productivity second improve capacity we

market. based and conditions market to will for pace We bar the the committed new high continue additions the year raising talent on given on in opportunities to hiring remain available

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

loss last the income Operating $XX.X operating an year. million $XXX,XXX in was compared of to same period

Second and long-term more basis a operational points was macroeconomic competitive an margin the increase of efficient also results becoming just is uncertain quarter highlight year-over-year. more backdrop, operating during but continued focus efficiency currently our X.X%, productive, advantage. XXX These because on not

income Turning balance to the and sheet. net

same last and quarter $X.X quarter in in revenue diluted net the income or with period $X.X share net million flow ended Free of of securities. million X% cash, Our X% the $XX.X million available-for-sale or $XX cash $X.XX. the or a revenue to the cash quarter income year. We second was equivalents, per billion negative was compared second in in of

$X sequentially XX% total increase in XX% RPO. an Current year-over-year. billion, performance at representing and RPO or Remaining was RPO X% obligations of came of

for begin we Before outlook. I in guidance rates, macroeconomic predict. encouraged signs delivered factored close as mixed to be full that improving to and by the quarter in year, expectations a forward with this sales business like we a are and into the cycles operating second moving have during to environment quarter progress challenging the our we serve that and points third showing continue Despite the would to reminder shortening of thought provisions stabilization, of being terms data

our we strategies As continuing remain tactics cautious half year outlook in in adapt these prudent committed of are and second the variables. fully response to for a result, and to external to we and our the

Now turning to guidance.

in For quarter, the representing million, expect of revenue to XX% we $XXX of increase range $XXX year-over-year. the third million an

$XX expect shares diluted income approximately We million of and expect to million per of operating in income we share $X.XX, outstanding. the net million range XXX $XX assuming

effective an XX%. tax expect of We rate

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

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

first this We expect last both achieved second XXXX. generating in cash an and we free for the during cash flow flow full anticipate effective the XXXX. tax and again, for year X% having significant free rate second half of After year, of of the positive year quarters

trend an but flow upward to ongoing in free to continue cash our For variability modeling quarter purposes, flow expect we cash to generation basis, on anticipate free quarter.

remains thank to significant customers, long employees your value. continued value we committed to operational driving ensuring support. closing, shareholders, team our greatly growth And to term dedication and In our our their excellence, and shareholder delivering I'd mission, partners. to continued like our for

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

take Thank you. will Eyal Cowen. from [Operator TD our we And first Instructions] question Shaul with

open. is line Your

see do the is And AI you. this will some the results Thank quarter? rates? afternoon, about you. Congrats activity you Good on Matthew, and displacements you and question Thank second outlook. guys. win be, of the your part your maybe can displacement talk my of accelerating

appreciate had question. lot a operator. the the We've really on line of I the noise from Shaul. Yeah,

muted. So hopefully, we Apologies get can for things that.

different that across really think I our it at of we So is parts when look displacement, business. three

those various the our application And balancers, funding of application in space, vendors, services area web we had So firewalls, number displace are in continue is people who conditional people areas. a -- those business. first providing the to load traditional in that place hardware security that

time. significant their that We by also things, just doing see point -- pick amount a some of cloud solutions are the where one very that's for quite can business. getting we of And us that case much been up those displaced

more the business. your is head-to-head In is our door of of of door first which first -- Zero sort Trust data. In front generation Trust we're back and other that protecting The is about Trust more the Zero and employees Zero business with going is the the business, the of our business, business, your second kind of case, second providers. part the our

I Palo generation much Alto made of for, to on Networks, in first And, user were space. the more takeouts, Zero the we most that we performant network. I'm bets we Trust ROI, better specifically, world. people wanted us like better upgrade really cited, faster, competitive where cases who a of think again, were our And doing the rates I about. actually examples of much number providers Umbrellas in solutions that to or either So of the have one and experience, areas in Zscalers, some that there, the win a Cisco in And this excited that's the

business, data on is that takeouts area is depends our also of which just are in object moving, RX going on our space, more of off object And The times, really applications is or stores we're to store. people from that third individual it developer in individual our doing onto where platform. moving lot which traditional functions, a we're But store object Workers' really increasingly, what's us.

it's so us But a public working cloud. traditional alongside can a not hyperscale together. people see use complete we will more Oftentimes displacement. And that

AI areas cost space, that there’s significant capacity, companies and what AI the it's training again, hyperscale cost new need. the know we're that with public the think cheap scarcity moving clouds to are big and around we're GPU as I GPU GPU around two where In don't space such or they makes that that, in wherever the capacity traditional prohibitive. even helping is a first it data much available get displacing as I just And people particular,

any lot moment from. of real just able for wherever don't AI again, be area GPU the in charge can has growth that of at adopt come time. to a And that And for so where it’s because RX, companies a they lot to an we been has boon cheapest egress, a find

be areas. to inference two between really going the is that is to itself. think we your device One increasingly, market fought on be then And going

a kid to it, go street to chasing not a you the don't for after If is to the the have want that brakes now. driverless is out have whether you on to car, down ball or when network and put bouncing the on decision

to live in the that want itself. You car

in so be in either think or access they on And if on from capacity, run space, we they're itself. they that -- models run inference cases, Cloudflare that make devices, the market of to large, if uniquely edge need too inference if of on to innovative more really themselves, it's in these that's run if the And of run the sense is win sense, they're -- makes positioned devices. in device sense exactly can a out the memory in a or it network lot much at to not starting network. more GPU and and for those have what see from sense too a AI models network to But run we're going to those the not that model more startups. that complicated to make And

it. you Thank so you Got much. all. to Speak

we with Capital And our RBC Hedberg take Matt Markets. next from will question

is Your open. line

for there I a Thomas, Obviously, Thanks question a was taking good portion your of results my And Great. optimism this you. the quarter. prepared for question, remarks. had in guys. lot of

guidance are increased giving macro improve for at of that you it's what or about, growth shorter stay bit? like a than higher of the sequential And half? the half. are deal we first cetera. even what factors assume QX, I of little -- look though cycles, talked et second sort rates, sort those sort You When optimism and a in that saw does QX constant some for bit maybe main win I just the of better

said, We into points then me our this one first it do made of not we over-interpreting the we think thank what our data to a just apply still We point. point more One mixed that is to And sets the assume At doesn't points bit prudent point, think, make therefore, portion caution trend. you saw need We data we significant factored you, guidance. improving not significantly. be see Matt. we macroeconomic -- data and data environment a macroeconomic outlook. that -- good we really as cautious, it, Well, a data call optimistic. that, still on

That's just it. Got Maybe quick helpful. follow-up. a

lot benefit the Have double Sort quarter, about, board there sales improved conversation Marc, on shorter was sort quantifiable CRO, noticed win maybe any come rates. of that and from focus? your clicking of saw the cycles, you on this as a new sales of strength better he's you

progress, But our in ramp good bit making time, remind new bit shorter enterprise restructuring team, to how tactics mid-market, both in longer that, you of adapting our We're little a terms the have strategies, -- little team takes a in remember and bringing upmarket. terms on segment. of the move people in we

of and them year. most seen of we course to this see -- expect improvements those not do the yet, over have the not We the over of remainder

So we've making of good that half. second terms the in, factored are we've the cautious we really what guidance given in we've in been but, progress, for

guys. Thanks,

take next JMP will we Walsh And our Securities. with question from Trevor

Your line is open.

become Maybe, the perspective? bit Act the Great. game to the just as the Workers for you around a Does of taking which of more X. of the, part accelerated platform? question. talk of from have Act A specifically, X your focus first. for you, kind that just something lot changes and Matthew, of that about into maybe AI of comments piece part you for little around more Can Thanks developer more that my kind your of seems

Sure. Thanks, Trevor.

can is bring think need many how seen developer across -- would pleasantly security, as Trust X is not, say very that have mean, Workers. surprised we've that adoption. the Act studying time, quickly is would history, think really Workers' that We you it platform possible. say platform acts we Zero Act as what taking of order I X But been think out that I of application I this how still that dollars I at what we off. the is is optimizing Act is, is the is are I X But at platforms for -- we and pretty

new is when by single I'm turning take are that AI people like starting, what are to that trends so, off when new every has, encouraged this. companies day, And

a the pan. This I isn't real, going of is it's I new for that And that in wardrobe little is that This think but while, think this a kind polyester -- to platform don't to that to the companies, fade. able flash turning quickly more order deliver that's look a good is Workers' traditional experienced that the seeing and in they and more hyperscale can't we're from be and are something to clouds. more more something public developers get

that I fiction so, work otherwise, that the the or great in of some comes And -- think later any of the often excitement chapters.

And -- and so that it's we products also I I had it gains that I opportunity that this diminish by as our to don't three, lose saying want many to we're X act there's making space well. want into incredible the year dive I really think huge fact in Act and there. customers that but don't a But

think a I really got and So we've exciting third second act.

or like, little large a that just Awesome. the general of even where us new that of threshold customers in color customers Maybe pool of you from? could Thanks, give around Thomas. kind size? landing crossing Of of or are current coming for the provide split a preponderance added an there just Can the you sense those is customers a you just XXX into customers that a is of that Matthew. color. maybe of quarter, follow-up quick bit kind maybe of Appreciate even, --

would new quarter beyond probably in even, customer had the up right last the on between pretty was $X new signing customers I we specifically, fifty-fifty the the expansions. a sign past, larger in say, million. it share defender of In

away it a from logo into expansion So sign slightly shifted new on.

Awesome. the Great. Thanks questions. taking for again

question take Ho we from next Blair. William with And Jonathan our will

open. is Your line

be remarks go-to-market the to for I a is I'd indicated impacted prepared rate sales and state, should like that your was benefit that retention taking said indicator better Jonathan. in I correctly, sales what afternoon. I customers go-to-market and clarification could believe large by parts lagging existing most But your your to Good them lot would customers you that get question. quite some some that if a would would you wouldn't rate, and retention large initiatives are John customers large then replacement Could This or by be. me Thanks understood largest wouldn't is from -- Weidemoyer cohorts. retention -- kind impact the I you of for there? understand what by you how such. impacted. also customer help moving as on, in or my be I had net of your so if much of think that your rate the because expect impacted

remarks, indicator from that a right. sure, the high. cohort customer little four for answer the to a as on. pretty prior is expansion. growth the large rates more in my quarter. make look pretty to It's is lagging. much back the Expansion said lagging stayed the the far just we because compare much I also All a That in bit it my sign prepared Well, to coming prior as Expansion, saw as you expansion coming in what biased towards new was That logos quarters. than of it's previous large was what the already reasons customer one was

any DNR up will take -- we So existing an quarter, time think we DNR. are in we development. see bottoming seeing to show in see movement of We the

So we customer because cohorts. measure indicator. we we where from. move DNR, are across all It's upwards and quite for came much how we lagging we'll that in a where an it’s so conservative beyond very are all-in to But

going getting show will that DNR. we So it initiating in improvement while a all up the expansion in take are before again will

and I fully year. what Can productive fully since of your you where identified end on talk you at the through talk you done, see of ago? sales processes, wouldn't improvements progress point just might quarter have being expect Okay. you're implementation think you time Thank Thank if you. sense. halfway you process you. the sales makes the done, new folks about in last when And, to the That initiatives, mentioned who for, ask further kind are -- could that our a these some of of not the

Yeah.

that. take I'll So

a doing really the organization. great is Marc that think looking I across job

they I the training that last the kept that's fingers that underperformance team. make see hearing met we tools very can, I enablement And think we have addressed think of of things we're need course the sure org. careful, pipeline. invigorated. sort had, very with deals. appreciate I the some great still that. I'm close you'll strong sales over quarter what the to implemented. a in order the last months, we've that we, that, of is of on I, are what seeing, one They that have ton existing And our super team that have get team they think And was the from And that again, those with forward. gets is very our that highlighted that's organization, reps. And was pulse bullish And -- across my we three reps going is more we really enablement reflected as additional our that what I as for the we something that, they're of that new What on do have we the that and coming

Thank you.

Brent will take with question We from Thill Jefferies. our next

is line open. Your

starting seems starting just second to out Good see see it of afternoon. how and to stitch gaining security relative Matthew, curious some half back platform. if you I'm view. you in your if the decay and half a I'm your and slowly take a to some at feel maybe It you're year, can like are your crystal you lot if you XX,XXX-foot kind here perhaps the together share of improve? of architecture things peers curious are the the ball

still QX year seasons that, What got more real feels wouldn't sales very don't the my returned how us. XX% a companies came really to things QX elevated one there IT had The be think was It that I I in is. fact call cycles buyers, sales in Yeah. improving. -- that But think many I across was XXXX. plateauing. was back pretty like earning with things reflected by quarter was in seeing And crystal it we we to in years, we cycles say we and that. in are several what that, hard. that are increase that that feels but ball were after last know line like to big was frightening that occurrence. that early in concern were XXXX prior accurate a I saw

forcing So in entire but that going And, Cloudflare what it's for And digging you're is and And efficient sure quite to across towards they're be excellence. hard, to operational it economy. hard, grind. me us like people working think possible. that well the that is process it's think our that across is making actually in, a that right. as serving is because not entire us grind I are they're in particular, every it team, as I feels we're And but

at doing, ROI things of best the and they number think products as out and been to really to ready, differentiated that's to is customers everything ways turning is gross the versus products. have our unique us find we've are of get And they're is, more vendors, us, are the -- platform. looking indicators for the One a of that a we of very high look as have our right that I team margins, how to we best that to their others consolidate about achieve we one able

I to a it's it. of company ahead be it's that is so to, that going result as a actually but hard, looking to something I think grind I'm and forward we're something -- become And think the that's better going

you. Thank

next take will our with Keith Weiss from we Stanley. And Morgan question

Your line is open.

into, call made, inference. to of trying why the think? pretty taking and with a the dig I comment why It's Thank Excellent. these about technical for both plays guys release early days Cloudflare question still you of that -- time. to really stabilizing. for and technologies, still and being and the Can sort out you us hear the underlying about, platform are we're things you over press to Workers conference Matt, the how talk to on glad definitely in out you want good figure inference

conversation view of So, helpful industry well are would on to I the well why Cloudflare conversation you think guys your as overall be positioned. the as kind

follow-up thinking over this GPU It impacting margin term. Thomas. stuff computing we're lower a it's type that that impact days like because the this this be Is small pretty we this intensive comfortable And relatively and intensive gross and Whenever early typically ramps, still could, near is is just then should that volumes, the time? hear in that we Thank or potentially the gross margins gross thinking you're for sounds and inference, isn't bigger relatively have could you. as this margin.

So, Keith, that They're questions. this really I really, we have appreciate both important understand space. to advantages the in

really a And doesn't there deal. I all, like is are think a bigger I shape bigger think work deal. the they, a One think not So deal probably and inference seems And that we actually out. market like what big is big as how inference? to a is but really other the going are first with seem two. deal, And of the both, in challenges it it's

one that's you if the between and various and like you're it's you're trying back that between when platforms. submit bigger AI bigger performance, that which with that wait is around the something, to of time you playing response, a a to AI So going kind if do bigger become generative deal differentiator different query a companies, when is feels get a

And so in possible anything is order as fast can that as you that make advantageous. to performance do

as one And inference actual to ways that it. the is as requesting to person do of possible who's close to the move the

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Yeah, super helpful. you. Thank

competitive the understand there, of efficiency remind of always the truly and business I is, model. to add people would I what Keith, the mode Cloudflare

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and So model. training requires the less power computational -- it than

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you. Excellent. Super guys. Thank interesting

question And we will take Wells Fargo. our with Andrew Nowinski next from

Your open. line is

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seeing terms wondering in the competition you're I'm just Entrust solutions. with what So new of

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think I to so Cloudflare. Microsoft a And partner has been

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much. That’s very great. you Thank

Mark JPMorgan. from question Murphy our take will we And with

open. is line Your

since you that of help some your that And the the and there that generative model. OpenAI control land you having mentioned, there Thank tremendous have partnerships AI opportunity some role sensitive kind add on companies you elaborate I’ll can maybe that you Azure service? Microsoft my you, try you've and play flows how is area, protect data Matthew, directly of from traffic of leaking in that see? OpenAI can in a for congrats. to and a data can vision out to What Cloudflare is so do to and inside

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leave. sure is doesn't that actually really key data making the so And the

protection making piece And you such products, -- tag here's created products, is way I we've to specific from marketing fine data AI train and Zero to DLP leveraging to with loss in a so that. information, going public, it's our a Trust can them that existing of maybe what data say, the and totally website. actually, Trust, on out Zero vendors to this am not public out our that being able the

messages. fact, on great In it's trained if they're marketing my

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helpful. extremely It's you. Thank

question will Henderson with final Alex And from we Needham. our take

Your line is open.

was out change of much. fairly in much give tone, so little the improvement of a out last you bit to massive was the it call metric would And XQ you're, maybe some pretty Can coming that and called us granularity an where it call as improvement to and between from? you've ultimately, tone in change enterprise, various mid-market if, the changing, talk love in that the I every tone highlights in some also could SMB about know was call, inflection you over where differences the seeing Thanks one you're [indiscernible] and the year. large the is track? in the market? that between is Great. current that you because And hoping whether advanced which the geographies, specifically

some Yeah, more. and then Alex. have start will I'll Thomas

around or that, around of -- that increase that course seen XX% XX% QX increase, I something entire think I in a quarter, of a single in but we've scary, I mean, an having sales -- over because a think was your cycle of sort XXXX. the

again, sales -- back not But spiked know came feel And a it's super optimistic It about that's back so the that macro. were down. in we to to to thankfully, wouldn't cycles going where when what And happened. that come we longer I that QX, what say -- point down and whether be in going we didn't was then XX% was QX. in another whether

just grind. I I a is and -- be saw sales lot that is the think have to in the peers still we the industry think But in other the a and going we hard next QX. of time explosive macro that expansion it in didn't very of same period cycles

think what a again, optimistic that I that's in think or is, QX, seeing that not, conservatism more -- that least we what to had Q in a led of in seeing what think -- something, the what perspective but as back is that driver we returning the so it tone. that as QX. been, you that's maybe terms put is were has And at still -- I from is what in around but which, I primary And my to we're that's what to elevated,

any Any geographies, sense or specifically any changed that verticals size any or or most categories of dramatically? -- business,

Let forward color. this. a me improvement. saw We We talked some more lot saw we give -- you about

carry. the then of promising saw it to that is We say. but lot else. -- was more a lot in East, terms performance we to very Vertical about the driven very America were underperformance. But of pick half wise, second We much also I And as from in. performance, consistent Americas America, there's muted is especially large before, in encouraging, Middle also much very muted more it. would good because was general. not in a was The saw geopolitical saw harder in deals, not this made very probably and very vertical There's in business the European in to talk performance inconsistencies coming of I specific, overall it we going out a would one the very probably what the really APAC said than North anything South lot APAC. predict environment situation very security Europe and specific of that was

Great. Thank you much. so

conference turn Matthew now to would for and to the Prince Ladies back closing gentlemen, remarks. I like

incredibly better take mission to continues to stepped help working excellence. is up has executed our up Just helping at everyone macro as of proud challenging, Everyone hard to to and want Cloudflare. a team operational live a internet. of be environment how second Again, our thank the towards build to I'm

our the to all to us. everything employees, that for the and and doing all of really customers you appreciate thank investors you're So all of to Cloudflare we

concludes this your And we gentlemen, today's for participation. and call, ladies and thank you

disconnect. now may You