https://cloudflare.net/news/news-details/2022/Cloudflare-Announces-Fourth-Quarter-and-Fiscal-Year-2021-Financial-Results/default.aspx Skip to main content Cloudflare, Inc. Logo * Home + News + Events & Presentations + Stock Information o Stock Quote & Chart o Analyst Coverage + Financials o SEC Filings o Quarterly Results + Governance o Governance Documents o Leadership o Board of Directors o Committee Composition + Impact + Resources o Information Request Form o Investor Email Alerts Site Search [ ] [] News Details * Home + News + Events & Presentations + Stock Information o Stock Quote & Chart o Analyst Coverage + Financials o SEC Filings o Quarterly Results + Governance o Governance Documents o Leadership o Board of Directors o Committee Composition + Impact + Resources o Information Request Form o Investor Email Alerts [ ] [] View all news Cloudflare Announces Fourth Quarter and Fiscal Year 2021 Financial Results 02/10/2022 Download this Press Release PDF Format (opens in new window) * Fourth quarter revenue totaled $193.6 million, representing an increase of 54% year-over-year; fiscal year 2021 revenue totaled $656.4 million, representing an increase of 52% year-over-year * Record dollar-based net retention of 125%, representing an increase of 600 basis points year-over-year, driven by continued strength from large enterprise customers * Achieved record operating cash flow and positive free cash flow for the fourth quarter; operating cash flow was $40.6 million, or 21% of total revenue, and free cash flow was $8.6 million, or 4% of total revenue SAN FRANCISCO--(BUSINESS WIRE)-- Cloudflare, Inc. (NYSE: NET), the security, performance, and reliability company helping to build a better Internet, today announced financial results for its fourth quarter and fiscal year ended December 31, 2021. "We had a most excellent 2021, capping off the year with fourth quarter revenue growth up 54% year-over-year. The full year represented a 52% year-over-year increase in revenue growth and a 71% year-over-year increase in large customer growth. It was also the fifth straight year we achieved 50 percent, or greater, compounded growth," said Matthew Prince, co-founder & CEO of Cloudflare. "Our continued success is fueled by a culture of relentless innovation on top of a highly scalable platform. That's why we're uniquely positioned to extend our network, introduce new Zero Trust capabilities, and grow our total addressable market. We've never been more motivated to take on this huge opportunity as corporate networks transition to the cloud, and developers line-up to build on our edge." Fourth Quarter Fiscal 2021 Financial Highlights * Revenue: Total revenue of $193.6 million representing an increase of 54% year-over-year. * Gross Profit: GAAP gross profit was $151.1 million or 78.0% gross margin, compared to $96.9 million or 76.9%, in the fourth quarter of 2020. Non-GAAP gross profit was $153.3 million or 79.2% gross margin, compared to $98.3 million, or 78.1%, in the fourth quarter of 2020. * Operating Income (Loss): GAAP loss from operations was $41.1 million, or 21.2% of total revenue, compared to $24.7 million, or 19.6% of total revenue, in the fourth quarter of 2020. Non-GAAP income from operations was $2.2 million, or 1.2% of total revenue, compared to a loss from operations of $5.5 million, or 4.3% of total revenue, in the fourth quarter of 2020. * Net Income (Loss): GAAP net loss was $77.5 million, compared to $34.0 million in the fourth quarter of 2020. GAAP net loss per basic and diluted share was $0.24 compared to $0.11 in the fourth quarter of 2020. Non-GAAP net income was $0.1 million, compared to non-GAAP net loss of $7.4 million in the fourth quarter of 2020. Non-GAAP net income per diluted share was $0.00, compared to non-GAAP net loss per share of $0.02 in the fourth quarter of 2020. * Cash Flow: Net cash flow from operating activities was $40.6 million, compared to negative $8.8 million for the fourth quarter of 2020. Free cash flow was $8.6 million, or 4% of total revenue, compared to negative $23.5 million, or 19% of total revenue, in the fourth quarter of 2020. * Cash, cash equivalents, and available-for-sale securities were $1,821.8 million as of December 31, 2021. Full Year 2021 Financial Highlights * Revenue: Total revenue of $656.4 million representing an increase of 52% year-over-year. * Gross Profit: GAAP gross profit was $509.3 million or 77.6% gross margin, compared to $330.0 million, or 76.6%, in fiscal 2020. Non-GAAP gross profit was $515.9 million, or 78.6% gross margin, compared to $334.6 million, or 77.6%, in fiscal 2020. * Operating Loss: GAAP loss from operations was $127.7 million, or 19.5% of total revenue, compared to $106.8 million or 24.8% of total revenue, in fiscal 2020. Non-GAAP loss from operations was $7.0 million, or 1.1% of total revenue, compared to $33.9 million, or 7.9% of total revenue, in fiscal 2020. * Net Loss: GAAP net loss was $260.3 million compared to $119.4 million for fiscal 2020. GAAP net loss per share was $0.83, compared to $0.40 for fiscal 2020. Non-GAAP net loss was $15.1 million compared to $35.1 million for fiscal 2020. Non-GAAP net loss per share was $0.05, compared to $0.12 for fiscal 2020. * Cash Flow: Net cash flow from operating activities was $64.6 million, compared to negative $17.1 million for fiscal 2020. Free cash flow was negative $43.1 million, or 7% of total revenue, compared to negative $92.1 million, or 21% of total revenue, for fiscal 2020. The section titled "Non-GAAP Financial Information" below describes our usage of non-GAAP financial measures. Reconciliations between historical GAAP and non-GAAP information are contained at the end of this press release following the accompanying financial data. Financial Outlook The following forward-looking statements regarding our financial outlook are subject to substantial uncertainty as a result of the ongoing COVID-19 pandemic, reflect our estimates as of February 10, 2022 regarding the impact of the pandemic on our operations, and are highly dependent on numerous factors that we may not be able to predict or control, including, among others: the duration, spread, and severity of the pandemic; actions taken by governments and businesses in response to the pandemic and the resulting impact on our customers, vendors, and partners; the timing of administering COVID-19 vaccines around the world and the long-term efficacy of these vaccines; the impact of the pandemic on global and regional economies and economic activity generally; our ability to continue operating in impacted areas; and customer demand and spending patterns. For the first quarter of fiscal 2022, we expect: * Total revenue of $205.0 to $206.0 million * Non-GAAP income from operations of $0.5 to $1.5 million * Non-GAAP net income per share of $0.00 to $0.01, utilizing weighted average common shares outstanding of approximately 348 million For the full year fiscal 2022, we expect: * Total revenue of $927.0 to $931.0 million * Non-GAAP income from operations of $10.0 to $14.0 million * Non-GAAP net income per share of $0.03 to $0.04, utilizing weighted average common shares outstanding of approximately 352 million Conference Call Information Cloudflare will host an investor conference call to discuss its fourth quarter and fiscal year ended December 31, 2021 earnings results today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time). Interested parties can access the call by dialing (888) 330-2022 from the United States or (646) 960-0690 internationally with conference ID 9501812. A live webcast of the conference call will be accessible from the investor relations website at https://cloudflare.NET. A replay will be available approximately two hours after the conclusion of the live event and will remain available for approximately one year. Supplemental Financial and Other Information Supplemental financial and other information can be accessed through the Company's investor relations website at https://cloudflare.NET. Non-GAAP Financial Information Cloudflare believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. Reconciliations of non-GAAP financial measures to the most directly comparable financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future. For further information regarding why Cloudflare believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section at the end of this press release. Available Information Cloudflare intends to use its press releases, website, investor relations website, news site, blog, Twitter account, Facebook account, and Instagram account, in addition to filings made with the Securities and Exchange Commission (SEC) and public conference calls, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Forward-Looking Statements This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as "may," "will," "should," "expect," "explore," "plan," "anticipate," "could," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential," or "continue," or the negative of these words, or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. However, not all forward-looking statements contain these identifying words. Forward-looking statements expressed or implied in this press release include, but are not limited to, statements regarding our future financial and operating performance, our reputation and performance in the market, general market trends, our estimated and projected revenue, non-GAAP income from operations and non-GAAP net income per share, shares outstanding, the benefits to customers from using our products, the expected functionality and performance of our products, our plans and objectives for future operations, growth, initiatives, or strategies, and comments made by our CEO and others. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: the extent and duration of the impact of the COVID-19 pandemic and resulting adverse conditions in the general domestic and global economic markets; the impact of the COVID-19 pandemic on our and our customers', vendors', and partners' operations and future financial performance; our history of net losses; our limited operating history; risks associated with managing our rapid growth; our ability to attract and retain new customers (including new large customers); our ability to retain and upgrade paying customers and convert free customers to paying customers; our ability to effectively increase sales to large customers; problems with our internal systems, network, or data, including actual or perceived breaches or failures; rapidly evolving technological developments in the market; length of sales cycles; activities of our paying and free customers or the content of their websites and other Internet properties that use our network and products; changes in the legal, tax, and regulatory environment applicable to our business; and general market, political, economic, and business conditions. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in our filings with the SEC, including our Quarterly Report on Form 10-Q filed on November 05, 2021, as well as other filings that we may make from time to time with the SEC. The forward-looking statements made in this press release relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. About Cloudflare Cloudflare, Inc. (www.cloudflare.com / @cloudflare) is on a mission to help build a better Internet. Cloudflare's suite of products protect and accelerate any Internet application online without adding hardware, installing software, or changing a line of code. Internet properties powered by Cloudflare have all web traffic routed through its intelligent global network, which gets smarter with every request. As a result, they see significant improvement in performance and a decrease in spam and other attacks. Cloudflare was named to Entrepreneur Magazine's Top Company Cultures 2018 list and ranked among the World's Most Innovative Companies by Fast Company in 2019. Headquartered in San Francisco, CA, Cloudflare has offices in Austin, TX, Champaign, IL, New York, NY, San Jose, CA, Seattle, WA, Washington, D.C., Toronto, Lisbon, London, Munich, Paris, Beijing, Singapore, Sydney, and Tokyo. Source: Cloudflare, Inc. CLOUDFLARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended Year Ended December 31, December 31, 2021 2020 2021 2020 Revenue $ 193,596 $ 125,926 $ 656,426 $ 431,059 Cost of revenue^ 42,496 29,065 147,134 101,055 (1)(2) Gross profit 151,100 96,861 509,292 330,004 Operating expenses: Sales and 96,219 63,552 328,065 217,875 marketing^(1) Research and development^(1) 61,762 34,757 189,408 127,144 (3) General and administrative^ 34,183 23,293 119,503 91,753 (1)(3) Total operating 192,164 121,602 636,976 436,772 expenses Loss from (41,064 ) (24,741 ) (127,684 ) (106,768 ) operations Non-operating income (expense): Interest income 668 846 1,970 6,588 Interest expense (16,108 ) (10,062 ) (49,234 ) (24,964 ) ^(4) Loss on extinguishment -- -- (72,234 ) -- of debt Other income (426 ) 113 (794 ) 171 (expense), net Total non-operating (15,866 ) (9,103 ) (120,292 ) (18,205 ) income (expense), net Loss before (56,930 ) (33,844 ) (247,976 ) (124,973 ) income taxes Provision for (benefit from) 20,571 177 12,333 (5,603 ) income taxes Net loss $ (77,501 ) $ (34,021 ) $ (260,309 ) $ (119,370 ) Net loss per share attributable to common $ (0.24 ) $ (0.11 ) $ (0.83 ) $ (0.40 ) stockholders, basic and diluted Weighted-average shares used in computing net loss per share attributable to 320,331 303,813 312,321 299,774 common stockholders, basic and diluted ____________ (1) Includes stock-based compensation and related employer payroll taxes as follows: Cost of revenue $ 1,337 $ 478 $ 3,703 $ 1,466 Sales and 10,184 5,363 32,869 17,678 marketing Research and 24,747 9,080 61,056 30,497 development General and 5,830 3,404 19,706 13,875 administrative Total stock-based compensation and $ 42,098 $ 18,325 $ 117,334 $ 63,516 related employer payroll taxes (2) Includes amortization of acquired intangible assets as follows: Cost of revenue $ 846 $ 950 $ 2,946 $ 3,081 Total amortization of $ 846 $ 950 $ 2,946 $ 3,081 acquired intangible assets (3) Includes acquisition-related and other expenses as follows: Research and development $ -- $ -- $ -- $ 5,725 General and administrative 380 -- 380 554 Total acquisition-related and $ 380 $ -- $ 380 $ 6,279 other expenses (4) Includes amortization of debt discounts and issuance costs as follows: Amortization of debt discounts and $ 15,686 $ 8,764 $ 46,174 $ 21,629 issuance costs Total amortization of debt discounts $ 15,686 $ 8,764 $ 46,174 $ 21,629 and issuance costs CLOUDFLARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited) December 31, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 313,777 $ 108,895 Available-for-sale securities 1,508,066 923,201 Accounts receivable, net 95,543 63,499 Contract assets 6,079 3,538 Restricted cash short-term 521 2,591 Prepaid expenses and other current 29,433 28,230 assets Total current assets 1,953,419 1,129,954 Property and equipment, net 183,736 123,688 Goodwill 23,530 17,167 Acquired intangible assets, net 1,254 2,800 Operating lease right-of-use assets 130,314 43,148 Deferred contract acquisition costs, 70,320 44,176 noncurrent Restricted cash 6,660 6,660 Other noncurrent assets 2,838 13,058 Total assets $ 2,372,071 $ 1,380,651 Liabilities, Temporary Equity, and Stockholders' Equity Current liabilities: Accounts payable $ 26,086 $ 14,485 Accrued expenses and other current 38,085 20,217 liabilities Accrued compensation 65,905 25,410 Operating lease liabilities 25,175 17,717 Liability for early exercise of 4,651 8,603 unvested stock options Deferred revenue 116,546 54,945 Current portion of convertible 12,117 -- senior notes, net Total current liabilities 288,565 141,377 Convertible senior notes, net 1,146,877 383,275 Operating lease liabilities, 109,037 27,309 noncurrent Deferred revenue, noncurrent 4,680 1,891 Other noncurrent liabilities 7,114 9,859 Total liabilities 1,556,273 563,711 Temporary equity, convertible senior 4,439 -- notes Stockholders' Equity: Class A common stock; $0.001 par value; 2,250,000 shares authorized as of December 31, 2021 and 2020; 277,708 277 249 and 249,401 shares issued and outstanding as of December 31, 2021 and 2020, respectively Class B common stock; $0.001 par value; 315,000 shares authorized as of December 31, 2021 and 2020; 45,904 and 44 55 59,239 shares issued and outstanding as of December 31, 2021 and 2020, respectively Additional paid-in capital 1,494,512 1,236,993 Accumulated deficit (680,829 ) (420,520 ) Accumulated other comprehensive (2,645 ) 163 income (loss) Total stockholders' equity 811,359 816,940 Total liabilities, temporary equity, $ 2,372,071 $ 1,380,651 and stockholders' equity CLOUDFLARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Year Ended December 31, 2021 2021 2020 Cash Flows From Operating Activities Net loss $ (260,309 ) $ (119,370 ) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization 66,607 49,387 expense Non-cash operating lease costs 25,091 19,765 Amortization of deferred contract 29,267 17,324 acquisition costs Stock-based compensation expense 90,136 56,334 Amortization of debt discount and 46,174 21,629 issuance costs Net accretion of discounts and amortization of premiums on 8,357 1,642 available-for-sale securities Deferred income taxes 8,738 (6,145 ) Provision for bad debt 3,804 3,368 Loss on extinguishment of debt 72,234 -- Exchange of convertible senior notes attributable to the accreted (29,353 ) -- interest related to debt discount Other 511 1 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable, net (35,848 ) (33,000 ) Contract assets (2,541 ) (1,475 ) Deferred contract acquisition costs (55,411 ) (36,315 ) Prepaid expenses and other current (2,395 ) (11,634 ) assets Other noncurrent assets 1,535 (2,268 ) Accounts payable 2,462 1,690 Accrued expenses and other current 58,897 17,075 liabilities Operating lease liabilities (23,071 ) (20,718 ) Deferred revenue 64,390 25,189 Other noncurrent liabilities (4,627 ) 392 Net cash provided by (used in) 64,648 (17,129 ) operating activities Cash Flows From Investing Activities Purchases of property and equipment (92,986 ) (56,375 ) Capitalized internal-use software (14,752 ) (18,587 ) Cash paid for acquisitions, net of (5,605 ) (13,941 ) cash acquired Purchases of available-for-sale (1,589,265 ) (1,267,015 ) securities Sales of available-for-sale 25,714 -- securities Maturities of available-for-sale 967,519 840,248 securities Other investing activities 53 397 Net cash used in investing (709,322 ) (515,273 ) activities Cash Flows From Financing Activities Gross proceeds from issuance of 1,293,750 575,000 convertible senior notes Purchases of capped calls related to (86,293 ) (67,333 ) convertible senior notes Cash consideration paid in exchange (370,647 ) -- of convertible senior debt Cash paid for issuance costs on (19,797 ) (12,542 ) convertible senior notes Proceeds from the exercise of stock 21,385 7,457 options Proceeds from the early exercise of 115 241 stock options Repurchases of unvested common stock (189 ) (157 ) Payments on note payable -- (200 ) Proceeds from the issuance of common stock for employee stock purchase 14,984 10,923 plan Payment of tax withholding (3,634 ) (8,101 ) obligation on RSU settlement Payment of tax withholding obligation on common stock issued -- (376 ) under employee stock purchase plan Payment of indemnity holdback (2,188 ) -- Net cash provided by financing 847,486 504,912 activities Net increase (decrease) in cash, cash equivalents, and restricted 202,812 (27,490 ) cash Cash, cash equivalents, and 118,146 145,636 restricted cash, beginning of period Cash, cash equivalents, and $ 320,958 $ 118,146 restricted cash, end of period CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited) Three Months Ended Year Ended December 31, December 31, 2021 2020 2021 2020 Reconciliation of cost of revenue: GAAP cost of $ 42,496 $ 29,065 $ 147,134 $ 101,055 revenue Less: Stock-based compensation and (1,337 ) (478 ) (3,703 ) (1,466 ) related employer payroll taxes Less: Amortization of acquired (846 ) (950 ) (2,946 ) (3,081 ) intangible assets Non-GAAP cost of $ 40,313 $ 27,637 $ 140,485 $ 96,508 revenue Reconciliation of gross profit: GAAP gross profit $ 151,100 $ 96,861 $ 509,292 $ 330,004 Add: Stock-based compensation and 1,337 478 3,703 1,466 related employer payroll taxes Add: Amortization of acquired 846 950 2,946 3,081 intangible assets Non-GAAP gross $ 153,283 $ 98,289 $ 515,941 $ 334,551 profit GAAP gross margin 78.0 % 76.9 % 77.6 % 76.6 % Non-GAAP gross 79.2 % 78.1 % 78.6 % 77.6 % margin Reconciliation of operating expenses: GAAP sales and $ 96,219 $ 63,552 $ 328,065 $ 217,875 marketing Less: Stock-based compensation and (10,184 ) (5,363 ) (32,869 ) (17,678 ) related employer payroll taxes Non-GAAP sales and $ 86,035 $ 58,189 $ 295,196 $ 200,197 marketing GAAP research and $ 61,762 $ 34,757 $ 189,408 $ 127,144 development Less: Stock-based compensation and (24,747 ) (9,080 ) (61,056 ) (30,497 ) related employer payroll taxes Less: Acquisition-related -- -- -- (5,725 ) and other expenses Non-GAAP research $ 37,015 $ 25,677 $ 128,352 $ 90,922 and development GAAP general and $ 34,183 $ 23,293 $ 119,503 $ 91,753 administrative Less: Stock-based compensation and (5,830 ) (3,404 ) (19,706 ) (13,875 ) related employer payroll taxes Less: Acquisition-related (380 ) -- (380 ) (554 ) and other expenses Non-GAAP general $ 27,973 $ 19,889 $ 99,417 $ 77,324 and administrative Reconciliation of income (loss) from operations: GAAP loss from $ (41,064 ) $ (24,741 ) $ (127,684 ) $ (106,768 ) operations Add: Stock-based compensation and 42,098 18,325 117,334 63,516 related employer payroll taxes Add: Amortization of acquired 846 950 2,946 3,081 intangible assets Add: Acquisition-related 380 -- 380 6,279 and other expenses Non-GAAP income (loss) from $ 2,260 $ (5,466 ) $ (7,024 ) $ (33,892 ) operations GAAP operating (21.2 ) (19.6 ) (19.5 ) (24.8 ) margin % % % % Non-GAAP operating 1.2 % (4.3 ) (1.1 ) (7.9 ) margin % % % CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited) Three Months Ended Year Ended December 31, December 31, 2021 2020 2021 2020 Reconciliation of interest expense: GAAP interest $ (16,108 ) $ (10,062 ) $ (49,234 ) $ (24,964 ) expense Add: Amortization of debt 15,686 8,764 46,174 21,629 discount and issuance costs Non-GAAP interest $ (422 ) $ (1,298 ) $ (3,060 ) $ (3,335 ) expense Reconciliation of loss on extinguishment of debt: GAAP loss on extinguishment $ -- $ -- $ (72,234 ) $ -- of debt Add: Loss on extinguishment -- -- 72,234 -- of debt Non-GAAP loss on $ -- $ -- $ -- $ -- extinguishment of debt Reconciliation of provision for (benefit from) income taxes: GAAP provision for (benefit $ 20,571 $ 177 $ 12,333 $ (5,603 ) from) income taxes Income tax effect of (18,622 ) 1,466 (6,109 ) 10,246 non-GAAP adjustments Non-GAAP provision for $ 1,949 $ 1,643 $ 6,224 $ 4,643 income taxes CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited) Three Months Ended Year Ended December 31, December 31, 2021 2020 2021 2020 Reconciliation of net income (loss) and net income (loss) per share: GAAP net loss attributable to (77,501 ) (34,021 ) (260,309 ) (119,370 ) common stockholders Add: Stock-based compensation and 42,098 18,325 117,334 63,516 related employer payroll taxes Add: Amortization of acquired 846 950 2,946 3,081 intangible assets Add: Acquisition-related 380 -- 380 6,279 and other expenses Add: Amortization of debt discount 15,686 8,764 46,174 21,629 and issuance costs Add: Loss on extinguishment of -- -- 72,234 -- debt Income tax effect of non-GAAP 18,622 (1,466 ) 6,109 (10,246 ) adjustments^(1) Non-GAAP net income $ 131 $ (7,448 ) $ (15,132 ) $ (35,111 ) (loss) GAAP net loss per $ (0.24 ) $ (0.11 ) $ (0.83 ) $ (0.40 ) share, basic GAAP net loss per $ (0.24 ) $ (0.11 ) $ (0.83 ) $ (0.40 ) share, diluted Add: Stock-based compensation and 0.13 0.06 0.38 0.21 related employer payroll taxes Add: Amortization of acquired -- -- -- 0.01 intangible assets Add: Acquisition-related -- -- -- 0.02 and other expenses Add: Amortization of debt discount 0.05 0.03 0.15 0.07 and issuance costs Add: Loss on extinguishment of -- -- 0.23 -- debt Income tax effect of non-GAAP 0.06 -- 0.02 (0.03 ) adjustments^(1) Non-GAAP net income (loss) per share, $ 0.00 $ (0.02 ) $ (0.05 ) $ (0.12 ) diluted^(2)(3) Weighted-average shares used in computing net income (loss) per 320,331 303,813 312,321 299,774 share attributable to common stockholders, basic Weighted-average shares used in computing non-GAAP net income (loss) per share 345,838 303,813 312,321 299,774 attributable to common stockholders, diluted^(3) ____________ (1) Non-GAAP adjustment for Q1'20 includes $0.7 million of income tax benefit from valuation allowance release as a result of the S2 Systems Corporation acquisition. (2) Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data. (3) For the period in which we had non-GAAP net income, diluted non-GAAP net income per share is calculated using weighted-average shares, adjusted for dilutive potential shares that were assumed outstanding during period. CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited) Three Months Ended Year Ended December 31, December 31, 2021 2020 2021 2020 Free cash flow Net cash provided by (used in) $ 40,617 $ (8,813 ) $ 64,648 $ (17,129 ) operating activities Less: Purchases of (28,334 ) (10,413 ) (92,986 ) (56,375 ) property and equipment Less: Capitalized (3,647 ) (4,254 ) (14,752 ) (18,587 ) internal-use software Free cash $ 8,636 $ (23,480 ) $ (43,090 ) $ (92,091 ) flow Net cash provided used in $ (354,795 ) $ (579 ) $ (709,322 ) $ (515,273 ) investing activities Net cash provided by $ 9,774 $ 6,732 $ 847,486 $ 504,912 financing activities Net cash provided by (used in) operating 21 % (7 ) 10 % (4 ) activities % % (percentage of revenue) Less: Purchases of property and ) ) ) ) equipment (15 % (8 % (14 % (13 % (percentage of revenue) Less: Capitalized internal-use ) ) ) ) software (2 % (4 % (2 % (4 % (percentage of revenue) Free cash ) ) ) flow margin^ 4 % (19 % (7 % (21 % (1) ____________ (1) Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data. Explanation of Non-GAAP Financial Measures In addition to our results determined in accordance with generally accepted accounting principles in the United States (U.S. GAAP), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash provided by (used in) operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided above for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures, and not to rely on any single financial measure to evaluate our business. Expenses Excluded from Non-GAAP Measures. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. We exclude employer payroll tax expenses related to stock-based compensation which is a cash expense, from certain of our non-GAAP financial measures because such expenses are dependent on the price of our common stock and other factors that are beyond our control and do not correlate to the operation of our business. We exclude amortization of acquired intangible assets, which is a non-cash expense, related to business combinations from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. We exclude acquisition-related and other expenses from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. Acquisition-related and other expenses can be cash or non-cash expenses and include third-party transaction costs and compensation expense for key acquired personnel. We exclude amortization of debt discount and issuance costs, which is a non-cash expense, from certain of our non-GAAP financial measures because such expenses have no direct correlation to the operation of our business. Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP gross profit and U.S. GAAP gross margin, respectively, excluding stock-based compensation and related employer payroll taxes and amortization of acquired intangible assets. Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin. We define non-GAAP income (loss) from operations and non-GAAP operating margin as U.S. GAAP loss from operations and U.S. GAAP operating margin, respectively, excluding stock-based compensation and related employer payroll taxes, amortization of acquired intangible assets, and acquisition-related and other expenses. Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per Share, Diluted. We define non-GAAP net income (loss) as GAAP net income (loss) adjusted for stock-based compensation and related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses, loss on extinguishment of debt, and a non-GAAP provision for (benefit from) income taxes. Generally, the difference between our GAAP and non-GAAP income tax expense (benefit) is primarily due to adjustments in stock-based compensation and related employer payroll taxes, amortization of acquired intangibles associated with business combinations, acquisition-related and other expenses, and amortization of debt discount and issuance costs. We define non-GAAP net loss per share, diluted, as non-GAAP net loss divided by the weighted-average common shares outstanding. Calculation of non-GAAP net loss per share, diluted excludes all potentially dilutive securities as their effect is antidilutive. We define non-GAAP net income per share, diluted, as non-GAAP net income divided by the weighted-average common shares outstanding, adjusted for dilutive potential shares that were assumed outstanding during period. Currently, potential dilutive effect mainly consists of employee equity incentive plans and convertible senior notes. We believe that excluding these items from non-GAAP net income (loss) per share, diluted, provides management and investors with greater visibility into the underlying performance of our core business operating results. Free Cash Flow and Free Cash Flow Margin. Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property and equipment and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position. We believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period. [CT] Investor Relations Information Jayson Noland ir@cloudflare.com Press Contact Information Daniella Vallurupalli press@cloudflare.com Source: Cloudflare, Inc. Multimedia Files: View all news Contact Us Head of Investor Relations Jayson Noland Send Email Quick Links * SEC Filings * Information Request Form Investor Email Alerts To opt-in for investor email alerts, please enter your email address in the field below and select at least one alert option. After submitting your request, you will receive an activation email to the requested email address. You must click the activation link in order to complete your subscription. You can sign up for additional alert options at any time. At Cloudflare, Inc., we promise to treat your data with respect and will not share your information with any third party. 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