Good afternoon. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Cloudflare Q1 2025 earnings call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question at any time, it's just that star followed by number one again. We do ask that you please limit yourself to an initial question and then a single follow-up when you're given the opportunity to speak. Thank you. With that, I'm pleased to turn the call over to Phil Winslow, VP of Strategic Finance, Treasury, and Investor Relations. Phil, please begin.

Thank you for joining us today to discuss Cloudflare's financial results for the first quarter of 2025. With me on the call, we have Matthew Prince, co-founder and CEO, and Thomas Seifert, CFO. Michelle Zatlin, co-founder and president, is traveling internationally and will not be available on today's call. 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 the 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 uncertainty much of which is beyond our control our actual results may differ significantly from those projected or suggested in any of our forward-looking statements these forward-looking statements apply as of today and you should not rely on them as representing our views in the future we undertake no obligation to update these statements after this call for a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings with the SEC, as well as in today's earnings press release. Unless otherwise noted, all numbers we talked about today, other than revenue, will be on an adjusted non-GAAP basis. You may find a reconciliation of GAAP to non-GAAP financial measures that are included in our earnings release on our investor relations website. For historical periods, a GAAP to non-GAAP reconciliation can be found in the We would also like to inform you that we will be participating in J.P. Morgan's 53rd Annual Global Technology, Media, and Communications Conference on Tuesday, May 13th. Now with that, I'd like to turn the call over to Matthew. Thank you, Phil.

We had a strong start to 2025. We achieved revenue of $479.1 million, up 27% year over year. We closed the quarter with 3,527 customers paying us more than $100,000, a 23% increase year-over-year. Revenue contribution from these large customers grew 32% year-over-year, and they now contribute 69% of revenue, up from 67% of revenue in the first quarter last year. We saw particular strength with our largest customers, those that spend over $1 million and $5 million with Cloudflare per year. Within both of these cohorts, we added a record number of customers, increasing 48% and 54% year-over-year, respectively, which shows the strong return on investment from our go-to-market improvements and large enterprise sales. Our dollar-based net retention was 111%, which is flat quarter-to-quarter. Our churn rates improved in the quarter. We are seeing stabilization in our customers' businesses and reduced pricing pressure from competition. Our gross margin was 77.1%, again, above our long-term target of 75 to 77%. We delivered operating profit of $56 million, representing an operating margin of 11.7%, and we generated strong free cash flow of $52.9 million during in the quarter. As we've talked about before, we have a unique view of the global economy based on the volume and diversity of data that flows through Cloudflash Network. In the past, that's given us an ability to make calls on the macro environment that turned out to be prescient. Given the nature of the uncertainty this time, we have less of a unique view into what lies ahead. But even without our privileged view, it's clear to everyone the world is a more volatile place today than it was even a quarter ago. I'm incredibly proud of how our team has navigated this volatility. That starts on the cost side. We've been able to manage the continued expansion of our network without a significant change to our CapEx plan. We continue to invest behind actual demand to not get too far over our skis and have robust and diversified supply chains to mitigate tariff and trade risks. This is unique compared with some of our on-prem hardware competition, where we're seeing the last potential customer holdouts begin to migrate away from them because of the uncertainty tariffs will pose if your solution is a box that has to be shipped. On the revenue side, our investment in our go-to-market team remains early, but it's already paying off. This quarter, we achieved a number of milestones. We landed the largest contract in Cloudflare's history, a milestone deal of more than $100 million driven by our workers' developer platform. We closed the longest-duration contract in Cloudflow's history for zero trust. We delivered another double-digit year-over-year improvement in sales productivity. We saw quarter-over-quarter improvement in our sales cycles, even as we closed larger deals with more sophisticated buyers, and our new pipeline attainment was ahead of our forecast. What you see in these results is evidence of what we've been building toward, a company committed to disciplined execution regardless of external factors, a company becoming more mission critical to our customers each day, and a company with growing strategic importance at the center of the internet. The short term may continue to be volatile in terms of external influences, but the long term remains as full of opportunities for Cloudflare as ever. So we're going to keep a firm grip on the levers of our business, stay prudent with how we forecast, and invest in what we know works, an incredible go-to-market team, world-class engineering, and innovative products that redefine what's possible for our customers and reinvent the future of the Internet. That's the playbook for winning that has worked for us before, and we're confident it is a winning strategy regardless of the external environment. And that seems like a good segue to discuss some of our wins in the quarter. A leading technology company signed a five-year, $130 million pool of funds contract, primarily for our workers' developer platform. This marks the largest deal in Cloudflare's history. This existing customer significantly expanded their relationship with Cloudflare. They chose workers, durable objects, containers, and our real-time products. The customer was well down the line with a traditional hyperscaler, but made the decision to switch to Cloudflare when they saw our better performance, lower development costs, and more modern platforms. In the words of this customer, quote, the scale and performance of Cloudflare's network and its proximity to our user base was the most powerful driver to doing more with Cloudflare. Being close to users improves every element of their experience on our platform, end of quote. That's something the legacy model of the hyperscalers just can't match. And with the confidence of deals like this, our team is actively humming several more $100 million-plus deals. A large technology company expanded their relationship with Cloudflare, signing a two-year, $9.4 million contract, which includes a $2 million workers upsell, along with zero-trust and application services. Cloudflare's zero-trust products were significantly more performant than a first-generation competitor, due to our network's expansive global presence, including our distributed international FedRAMP points of presence. Cloudflare is displacing three vendors with this contract, showcasing the strong value proposition of our platform and significant ROI we provide our customers. An international critical infrastructure provider signed a seven-year, $12.7 million contract, marking our longest duration contract in Cloudflare's history. This customer is going all-in on Cloudflare's SASE portfolio with Access, Gateway, DLP, Magic WAN, and Magic Firewall, along with application services. The strength and breadth of Cloudflare's holistic platform for both application services and SASE security controls allowed for seamless product integration and was a key differentiator from first-generation Zero Trust competitors. In the words of this customer, Cloudflare has by far the broadest and most programmable cloud security and connectivity platform on the market. A global 2000 international business services company expanded their relationship with Cloudflare, signing a five-and-a-half-year, $6.4 million contract for our full zero-trust portfolio. With Cloudflare's unified platform, this customer will display three vendors as they look to simplify operations, reduce latency, and improve the security gaps they had with their incumbent multi-vendor architecture. A large U.S. government entity signed a two-year, $6.2 million contract for Zero Trust. This customer evaluated several vendors to comply with new federal Zero Trust requirements, and Cloudflare ultimately stood out as the vendor of choice due to our world-class security products and the breadth of our network. This was a partner-led deal and a great example of the progress we continue to make with our partner-first motion. A government agency in Asia-Pacific signed a three-year, $4.8 million contract for Magic Transit and Application Services. This government entity was looking to modernize its security posture with a cloud-first, best-in-class solution for both Layer 3 DDoS protection and Layer 7 application security. They view Cloudflare as a key enabler to their digital transformation and have been blown away by the visibility and intelligence they have at the network layer with Cloudflare. A Fortune 500 technology company expanded their relationship with Cloudflare, spending a three-year, $9.3 million contract for application services. This customer is migrating traffic from a hyperscaler to Cloudflare due to our ability to offer more robust security solutions and greater automation. With this customer also seeing the benefits of our platform, we're currently in discussions on a number of additional opportunities. These Q1 wins not only serve as a great springboard for the rest of 2025, but are also reminders that while the world may be uncertain, what's absolutely certain is that innovation wins, and no company out-innovates Cloudflare. We invest early and are able to develop quickly with nimble teams because of the power and flexibility of our platform. Two products are just over a year old and have seen remarkable growth. The number of Cloudflare workers' AI inference requests powered by our network are up nearly 4,000% year-over-year. The number of requests running through our AI gateway are up more than 1,200% year-over-year. We continue to invest in the future, building the first, fastest, and most powerful Model Context Protocol, or MCP, server. This technology is key to enabling AI agents. I'm proud that great companies like Asana, Atlassian, Block, PayPal, Sentry, Stripe, and many more are building the interface for AI agents to work with their own platforms on top of Cloudflare workers. These companies are choosing Cloudflare because we have a rich developer platform, but also because we combine it with an understanding of Internet performance and security. The security challenges of an agentic Internet are not trivial. but the best companies know that Cloudflare will be a thoughtful partner in addressing them as we build the future together. A great, enduring story is made up of more than one act. We're not bolting AI security through haphazard acquisitions, but instead, building the unified platform that supports the future. That shows in the size of the deals we're closing, the length of those deals, and the caliber of the logos of customers that are betting on Cloudflare. The opportunity ahead of us is as massive as ever. We have to scale the technology and the team to capture it. The volatility in the world doesn't appear to be going away anytime soon, but we will continue to focus on our customers and execute on our strategy, just as we did this quarter. With that, I'll turn it over to Thomas. Thomas, take it away.

Thank you, Matthew, and thank you to everyone for joining us. We are pleased with our operational and financial performance during the first quarter as we effectively executed against a highly volatile external business and geopolitical backdrop to deliver Cloudflare's highest year over year growth in net new ACV in three years. As Matthew mentioned, strength in our business this quarter was driven by large $1 million plus customers, including our first contract of more than 100 million dollars longer term commitments from our customers including the longest duration deal in cloudflare's history ongoing momentum with our workers developer platform and continued high prioritization of security by our customers we also delivered another double-digit year-over-year increase in sales productivity so an improvement in sales cycles and exceeded our expectations for new pipeline attainment. Turning to revenue. Total revenue for the first quarter increased 27% year-over-year to $479.1 million. From a geographic perspective, the U.S. represented 49% of revenue and increased 20% year-over-year. EMEA represented 28% of revenue and increased 27% year-over-year. APAC represented 15% of revenue and increased 54% year-over-year. We were pleased to see continued robust growth in APAC as key go-to-market initiatives in the region continue to produce strong results. Turning to our customer metrics, in the first quarter, we had approximately 251,000 paying customers, representing an addition of over 13,000 paying customers sequentially and an increase of 27 percent year over year. We ended the quarter with 3,527 large customers representing an increase of 23 percent year over year and revenue contribution from large customers increased to 69 percent of revenue during the quarter up from 67 percent in the first quarter last year. We again saw particular strengths in our largest customer cohorts, adding a record number of customers year over year, spending both over $1 million and over $5 million with Cloudflare, continuing our momentum in the enterprise segment. Our dollar-based net retention was 111% during the first quarter and consistent sequentially. These results reinforce our belief that DNR is stabilizing at these levels, despite continued near-term headwinds from increased traction with pool of fund contracts which can impact the shape of revenue recognition moving to cross margin first quarter cross margin was 77.1 percent representing a decrease of 50 basis points sequentially and the decrease of 240 basis points year over year recall that the first quarter of 2025 marks the first anniversary of the extension of the estimated useful life of our network equipment from four to five years which reduced depreciation for assets and service as of December 31st 2023 by 6.2 million dollars or 1.6 percent of revenue for the first quarter of 2024. During the first quarter paid versus free customer traffic increased significantly as compared with the year ago quarter resulting in higher allocation of expenses to cost of goods sold from sales and marketing similar to the fourth quarter of 2024 the underlying economics of our network driven by its inherent scalability and efficiency remained unchanged network topics represented 17 of revenue in the first quarter as a reminder there can be some variability in this metric quarter to quarter and we continue to expect network capex to be 12 to 13 percent of revenue for full year 2025 turning to operating expenses first quarter operating expenses as a percentage of revenue decreased by three percent year over a year to 65 percent our total number of employees increased 19 percent year over a year bring our total headcount to 4 400 at the end of the quarter sales and marketing expenses were $183.4 million for the quarter. Sales and marketing as a percentage of revenue decreased to 38% from 41% in the same quarter last year. Research and development expenses were $76.8 million in the quarter. R&D as a percentage of revenue remained consistent at 16% compared to the same quarter last year. General and administrative expenses were $53 million for the quarter gna as a percentage of revenue remained consistent at 11 compared to the same quarter last year operating income was 56 million dollars an increase of 32 percent year over year compared to 42.4 million dollars in the same period last year first quarter operating margin was 11.7 percent an increase of 50 basis points year over year these results highlight our continued focus on becoming more efficient and more productive given that operational excellence is a long-term competitive advantage turning to net income and the balance sheet our net income in the quarter was 58.4 million dollars or diluted net income per share of 16 cents variability in foreign exchange rates during the quarter resulted in unrealized losses of 2.7 million dollars generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies these unrealized losses primarily related to the remeasurement of our international operating lease liabilities are recognized in other income and expense and had a negative impact of one cent to dilute net income per share in the first quarter we ended the first quarter with 1.9 billion dollars in cash cash equivalents and available for sales securities maintaining our strong commitment to being fiscally responsible and acting as good stewards of investors capital we elected a cash settlement of the capped calls associated with our retired 2025 convertible note upon this election during the first quarter these capped calls no longer met the criteria of equity classification and were reclassified from additional paid-in capital to a derivative asset which is included in prepaid expenses and other current assets on the balance sheet. The derivative asset is recognized at its fair value of 308.3 million dollars which is expected to settle in cash on May 14th. Pre-cash flow was 52.9 million dollars in the quarter or 11% of revenue compared to $35.6 million or 9% of revenue in the same period last year. We are comfortable with consensus-free cash flow estimates for the full year 2025 but would expect the weighing of full-year free cash flow generation to be two-thirds in the second half of the year due to the timing of working capital flows and capital spending. Remaining performance obligations, or RPO, came in at $1,864,000,000, representing an increase of 11% sequentially and 39% year-over-year. Current RPO was 66% of total RPO, increasing 29% year-over-year, moving to guidance for the second quarter in full year 2025. As a management team, we've always taken a disciplined, data-driven approach to scaling Cloudflare. As we enter 2025, the data gave us confidence to continue to invest to re-accelerate growth. Our first quarter results underscore that this formula is working despite the high volatile external business environment. We're encouraged by all momentum to start the year and remain confident that our strategy will drive continued innovation and accelerating growth however we are cognizant of the broader global business environment in which we are operating and therefore have taken a prudent approach to our outlook for the remainder of the year for the second quarter we expect revenue in the range of 500 to 501 million dollars representing an increase of 25 percent year over year we expect operating income in the range of 62.5 to 63.5 million dollars we expect an effective tax rate of 20 percent we expect diluted net income per share of 18 cents assuming approximately 364 million shares outstanding for the full year 2025 we expect revenue in the range of 2 billion 90 million dollars to 2 billion 94 million dollars representing an increase of 25 percent year over year we expect operating income for the full year in the range of 272 to 276 million dollars and we expect an effective tax rate of 20 percent we expect diluted net income per share over that period to be in the range of 79 to 80 cents assuming approximately 364 million shares outstanding in closing We continue to focus on creating significant shareholder value with our ongoing commitment to disciplined execution, durable growth, and operational efficiency. I'd like to thank our employees for their dedication to our mission, as well as our customers for trusting us to help modernize, accelerate, and secure their businesses during these volatile times. With that, I'd like to open it for questions. Operator, please poll for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question for today, once again, it is star followed by the number one in your touchtone keypad. And again, we do ask that you please limit yourself to an initial question and then a single follow-up question in order for us to get to as many questions as we can today. Our first question is from the line of Matt Hedberg with RBC Capital Markets. Your line is live.

Great. Thanks for taking my questions, guys. congrats on the quarter obviously uh uh uneven macro environment um maybe to start with you matthew uh you know you guys sit in front of really 20 of the internet it's it's incredible global visibility and you've often talked about your crystal ball could you comment on on trends you're seeing through early may has there been any changes in traffic with all the tariff rhetoric yeah we um we haven't seen uh anything and i know i know some other people um uh have commented that they they have but if we look back you know one three six months uh there hasn't been a a change to what we see uh in terms of http requests in terms of overall volume um and that's true both

in the us uh and around the world um internet traffic has held um pretty pretty steady um I think part of that might be that, you know, less of our business is sort of a pure media delivery business. You know, the majority of the requests that are going through us are to APIs and other things. It's not, you know, as much video streaming and raw bits. And so it may be that we don't see that as directly as some other people. We think those bits are obviously way more valuable than sort of the raw streaming video bits. And so we focus on that. I would say that there is one area which we're watching pretty carefully that involves AI and media companies, actually. And that is that if you look over time, the Internet itself is shifting from what has been very much a search-driven Internet to what is increasingly an AI-driven Internet. So if you look at just traffic from Google, 10 years ago, for every two pages Google crawled, they sent you one visitor. Six months ago, that was up to 6 to 1. The crawl rate hadn't changed, but what's changed is now 75% of queries to Google, Google answers on Google without sending you back to the original source. But even in those last six months, the rate has increased even further, where now it's up to 15 to 1, 15 crawls for every one visitor. And if you look at OpenAI, which is 251, Anthropic, which is 6,001, it's putting a lot of pressure on the media companies that are there that are making money through either subscriptions or ads on their pages. And I think while we have not historically had media as a big segment, a lot of them are coming to us because they see us as actually being able to help better control how AI companies are taking their information. And I think that's an interesting trend to watch in an area that our team is really focused on. But the general trends across the Internet are traffic has remained the same, and we haven't seen anything that has caused us to believe that tariffs or anything else are changing Internet traffic patterns.

It's really good to hear. And then maybe just a quick one, Thomas. The revenue beat was great to see. You know, margins were more or less in line with expectations. You know, how do you, you know, and you talked about capex spending sort of within the range that you talked about. Are you, how are you thinking about margins this year? You know, are you pre-spending for some demand that you're seeing? Just any color on that? We're getting a bit of inbounds on sort of the margin performance this quarter.

Yeah. As we've reiterated, you know, multiple times, you know, our North Star over a rolling average of borders is the 40% rule. And if you look at revenue upside and margin upside and opportunity, there is still more margin opportunity than there is revenue opportunity. So we will continue to reinvest in the business if we think there's opportunity to invest in the data points us that way. We've done that in the first quarter, especially investing in our go-to-market activities, and we have seen good returns. so the data makes us confident to continue that but the guidance will be moving forward as it has always been uh the 40 rule so there's some more opportunity to invest but we will make sure that we keep the balance in mind got it thanks a lot guys thank you for your questions our next question is from the line of jewel fishbein with truest securities your line is live thanks for picking the question and congrats on the excellent execution.

I know you commented a little bit on this in the prepared remarks, but I'd love to get a little deeper on how sales productivity and sales capacity is tracking, especially as it relates to the enterprise segment. And do you still expect the capacity of ramp reps to accelerate in 2Q and again in the second half? Thanks.

Yeah, thanks, Joel. We've been really happy with improvements in sales productivity across the team. I think Mark Anderson is doing just an excellent job, really, you know, building us into, I think we've always been a world-class engineering org. I think we've, for a long time, been a world-class product org. We're building a world-class go-to-market organization, and we're seeing that show up in continued quarter-for-quarter improvement in sales productivity. In terms of capacity, we know that that's going to increase because you hire someone and they ramp over time. So we do see that that is going to continue to increase over time. We're hiring dramatically across that or getting incredible candidates to join us. And I think the word is out that if you want to be at the next world-class sales organization, Cloudflare is the place to go, and that's showing up in the results and that's showing up in just the caliber and quality of the people that we're getting on board, and I think that will very much turn into sales going forward. Thank you.

Thanks for your question. Our next question is from the line of Mark Murphy with J.P. Morgan. Your line is live.

Thank you a lot, Mike. Matthew, can you comment on this extreme volume of DDoS attacks that you saw during Q1? We were looking at your stats. It looked like they were up more than 300% year-over-year. And the complexity looked like it went off the charts as well with the hypervolumetric attacks. So I think our understanding is you do not actually charge based on the size of the attack. But I am wondering if you could see a tailwind from that kind of environment and how you feel about, you know, defending against that kind of an attack relative to your competitors.

Yeah, Mark. You know, I think, first of all, the attacks are, I mean, just getting to what a few years ago would have been an inconceivable size, where there are very, very few networks that can't absorb the size and scale of the attacks that are there. What I think is striking is that at Cloudflare, it's not an all-hands-on-deck situation. It's kind of like our system just automatically absorbs these and does it without anyone having to respond. And that goes back to something that we have talked about a lot over the years, and I think that it isn't always appreciated how important and powerful it is. Most of our competitors run separate scrubbing networks that are completely distinct from the rest of their networks, and that inherently means that they have some limited capacity that is there. Coffler has always done it differently and took more engineering work, but it's showing in our ability to defend against attacks that others just can't. And that is that we made it so that every single server that makes up our network is capable of running every single one of the different functions that we have, including DDoS attacks. And this is getting in the weeds a little bit, but when you buy wholesale bandwidth, you pay for the greater of in versus out. So you're sending traffic out, and you're sending 10 times as much traffic out. You pay for the out rather than the in. And we're a caching proxy, so our out is always significantly higher than our in. And what that means is that when a DDoS attack comes, it pushes the in up. But even at these hyperscale attacks, the in is not ever getting higher than the out. What that means is that from just a cost perspective, because, again, we've designed a much better and more efficient system, it means that we can defend against these attacks without having to pass any costs on to our customers because we don't suffer any additional costs to be able to defend these attacks. And that architectural difference is radically different than what anyone else in the industry does, and it's part of why we're able to defend against it. So I don't think that directly the size of the attacks coming up is something that is going to be a tailwind for us. But I do think that we're already seeing that, you know, a lot of the hyperscalers, some of our competitors are actually referring customers to us when they get to the point that their systems aren't able to stay in front of these attacks because they know that the architecture and design of our system is allowing us to mitigate what others can't. So I think what we're seeing is, especially in places like financial services and others, they're recognizing that their existing vendors can't necessarily take on some of these hyperscale attacks, and they're adding flat flow to the mix in order to make sure that, you know, when that attack inevitably comes, that they have a way of doing it. And, again, that goes back to just what is a much better architectural design than anyone else in the space. Thank you so much.

Thanks for your question. Our next question is from the line of Andrew Nowinski with Wells Fargo. Your line is live.

Great. Thank you for taking the question, and congrats on another remarkable quarter. Matthew, you highlighted the longest duration contract in Zero Trust to date, as well as some other notable wins. I'm just wondering if you could double-click on the trends that you're seeing in the SASE market and why Calkler is kind of winning more of these larger deals than we've heard in the past.

Yeah, Andy, I appreciate it. And I'm really proud of our team for this. You know, this is a market that, you know, we didn't start out in, but we realized that our network could provide just a better experience. And so we invested in it. And for a while, you know, we didn't have all the features that people who had been doing this for longer than we did had. I think two things have stood out. First of all, I think we've caught up. on all the critical features that are there. And then I think that when people actually go to test our solution versus others, our performance is just significantly better. And again, that goes back to the fact that every server across our network can do everything. So if you're in Rwanda or if you're in Pakistan or you're anywhere in the world, we can actually deliver a SASE solution local to you that has just significantly better performance than anyone else. I think the last thing is that there's, I think we've had a lot of success bundling together our various solutions. People, customers say, you know, they don't want to have to think about who's their reverse proxy versus their forward proxy, you know, who's doing all these things. They really want one solution that gives them a platform to solve all of the various problems that they may have with the network. And Kleppler is unique in being able to deliver both things like we were just talking about the DDoS mitigation, but then also SASE. And it all comes as one contiguous bundle. And so I think that's something that really has stood out and caused us to win more and more of these deals. And again, I'm proud of the fact that people are are confident that our innovation isn't going to slow down, and that gives them the confidence to sign these longer-duration deals. But they also then say, you know, head-to-head versus first-generation SASE providers, Cloudflare is just a better solution, and that's causing us to win in these head-to-head situations.

Thank you. That's great. And as a follow-up, Matthew, I think you said you won a number of SASE deals with government agencies as well in both the U.S. and APAC. And I'm wondering if you just expand on the attraction you're seeing in the broader government sector. Thank you.

Yeah, and even the deal in Europe, the long-duration deal in Europe is a tangentially government, quasi-government agency as well. So I think in these cases, the governments around the world are seeing that on-premise hardware where it just doesn't work for what they're doing. And so there are mandates to adopt a zero-trust approach. And when they do, they see, again, that Cloudflare can provide this broad set of solutions across the entire platform. And, you know, again, proud of the fact that for what are these critical services, governments around the world are choosing Cloudflare.

Thank you. Thanks for your questions. Our next question is from the line of Keith Weiss with Morgan Stanley. Your line is live.

Thank you guys for taking the question. Congratulations on a strong start to the year. In particular, I wanted to dig into that $100 million workers-led deal. Not too many platforms out there that can accrue that much value from one deal. So just congratulations on sort of building that out. But, Keith, give us any detail in terms of, like, the use case or of what they're using the platform for. Give us any more color on, like, what does a $100 million workers deal look like in reality on the ground of what they're going to be doing with the platform?

Yeah, Keith. You know, I think that what we're seeing is that Cloudflare Workers has become a complete solution. We have all of the components, compute, storage, database, GPU capacity. And so as people are looking to decide whether they're going to go with a traditional hyperscaler, we're increasingly in the decision mix. And we're seeing places where people are realizing that they can develop significantly faster. They don't have to think about scaling issues. They don't have to think about, you know, a number of things that even if you're using a hyperscaler, you still have to worry about. And they can just get much better performance at a lower cost. And so in this case, this was a customer that was well down the line with one of the traditional hyperscalers, and the hyperscaler was confident they were going to win the business. And we met with them, demonstrated what it was that we were able to deliver, helped them build a proof of concept, and they just saw significantly better performance. and they saw how much easier and faster it was for their developer team to be able to deploy across Cloudflare workers. And so, you know, we've always said, and it's still true, that you can't just oftentimes lift and shift the, you know, traditional, you know, legacy workloads to Cloudflare workers. But in these cases where someone is building a new feature or extending that feature, we're finding more and more that we're able to win those deals. And, you know, I think that I've tried to caution that it was going to take, you know, probably a little bit longer for workers to be delivering real revenue. I think this shows that this is way ahead of what I would have thought that timing was.

And, again, I think that that comes back to the fact that the team has just built such a robust platform at this point that people are saying we're going to move off the traditional hyperscalers and move to Cloudflare because the ROI is just so much better, the performance is so much better, and the development velocity is so much better. yeah definitely seen that in the developer affinity for the platform um as a follow-up um this is more of a go-to-market question in the quarter you guys saw a um really strong growth in overall customer ads i think that 13 000 was up almost 80 percent but the the net ads on the 100k side was a lot skinnier at like only 30 up on a quarter on quarter basis any changes in like go-to-market strategy that calls that, or is that just kind of timing of kind of when deals are coming in?

I think it's timing. I don't think there's anything that really, yeah, I'll start and then Thomas might say some more. My sense is it's mostly timing. And then also, you know, we had actually a really strong quarter last quarter with the 100,000 ads. So there, it moves around to some extent.

I'm very excited that, you know, record quarter for million-dollar ads, record quarter for five million dollar ads um and so uh yeah i would largely say that thomas i don't know if there's anything else you got yeah a couple of small things came together so first and more importantly you know what we didn't see was we didn't see increased churn or contraction actually just the opposite uh dnr for that cohort even improved by a percentage point i think instead we just saw very a few customers who spent less than 100k graduating in last in the larger customer cohort and then the quarter had also two days less which means you recognize less rentable revenue in that quarter and that hurt a customer group that was just at that threshold of moving in there so even the two days missing played a role so a lot of small things coming together and impacting the count but nothing that disturbs the long trend trajectory we see here.

But on the reverse side, anything that propelled those 13,000 net customer ads overall, again, any change on that side of the equation?

I wouldn't think so. Other than what we said at the beginning, we just see the pay, the investment in the go-to-market transition and transformation is just paying off. And that is in those results you see across all customer cohort sizes in various ways so we are you know we are we're quite happy with with with the trend and uh there there's some noise quarter to quarter got it super impressive guys thanks so much thank you our next question is from the line of shaul iao with td cohen your line is live Thank you so much and congrats on solid performance and guidance.

Matthew, you mentioned tariffs as potentially being the final straw for some of the final holdouts. We're still using boxes. Could you elaborate on those conversations and discussions and how are you managing your network supply chain?

Yeah, so I think one of the unsung heroes that we don't talk about always at Cloudflare is our infrastructure team and just their ability to just deliver incredible, just constant better pricing, getting equipment delivered to every far-flung corner of the universe, managing that. And I think that it was really during COVID where we went from good to, I think, world-class at being able to manage that. And that gives us the ability to have multiple distinct ways to deliver the servers and networking equipment that we need. We're not dependent on any network vendor we can buy from, you know, any of the big network vendors, or we have our own white boxes that we can deliver. And that has allowed us to have a lot of flexibility. You know, and then existing treaties like NAFTA and otherwise allow us to do assembly of equipment in places like Mexico and bring it into the U.S. when we have to do that in a way which is very efficient, or deploy outside the U.S. if we need to, and then route traffic to be able to handle that. Even using used equipment and moving that around is, again, a very sophisticated way of us just making sure we can continue to invest in our network, build it out around the the world. So I feel very good about our ability to do that. We are hearing from, especially in the financial services and healthcare space, that there is concern from if they're trying to use on-premise hardware from existing vendors and that that is slowing down the demand for what was sort of the expected firewall sort of reset that was being – there was a number of other vendors in the space where we're seeing. I think that's going to put more emphasis on using services like SASE services, and I think Cloudflare will be a beneficiary of that, along with others that can actually display this as a service rather than as a physical piece of hardware. thank you thank you for your question our next question is from the line of mike secos with needum your line is live great thanks for taking the questions guys um just wanted to start i think going back to the prepared remarks matthew you had cited uh sequential improvement in sales cycles which is which is something that we would not have expected just given this

environment. And kudos to you guys. Can you just spend some time hashing out those dynamics? I'm just curious, what's the sustainability of those improvements that you guys are driving at?

Yeah, I think that I was surprised by that as well, not only because of the environment generally, but I also think because we're selling to larger customers, bigger deals, And you would naturally expect that that would slow down sales cycles. And, again, I think that that's expected and that's something that we can manage around. That is not what we saw this quarter. You know, I think that we've always been very good at managing sales cycles. I think we've always been, you know, good at delivering that. And I think it really is the operational excellence that Mark and his team are driving across the entire sales team. And also, you know, it's part of the fact that we have, you know, so many existing customers that we can sell more to and expand with. I think that those obviously are much faster deals when they come in. But I don't know that I would expect – in fact, I would not expect that sales cycles will continue to trend down for a long time. But I do think that we have been better than most at being able to deliver very efficient sales cycles. And I'm surprised that as deals have gotten bigger and customers have gotten more sophisticated, that sales cycles have not ticked up dramatically. But again, I don't think – I wouldn't forecast that that's going to be the case forever. I think that it's – I think we will always outperform our peers, but I would expect that sales cycles will tick up slightly over time.

Thanks for that, Matthew. And just for a quick follow-up to Thomas, I know we're talking about the less certain environment. You guys obviously had a larger magnitude than thinking about the 1Q top line beat. Can you just help us think a little bit more as far as the guidance construction here with the reiterated calendar 25 guide? how much of that is potentially incremental conservatism or prudence, however you want to phrase it, versus visibility moving one way or the other over the last 90 days as it relates to pool of funds deals?

Well, you used the word that I used for giving guidance. It's prudence in light of the uncertainty we see. You know, we started the year believing in the data that we looked at, that investing into re-accelerated growth was the right thing to do. The first quarter results proved that that was the right decision to be made. You heard from Matthew that our confidence in the long-term outlook is, if anything, increased based on by some of the changes we have seen. But we have to be cognizant that the world around us is a volatile place and the guidance reflects that.

Thank you for your question. Our next question is from the line of Adam Borg with Stiefel Nicholas. Your line is live. Awesome.

And thanks so much for taking the question. Maybe just for Matthew, one of the things when we go back to Investor Day back in March that Mark Anderson talked about was just around the developer speedboat launching this year. And obviously with the $100 million plus workers deal, we'd love to get a sense of if that team was involved and just maybe more broadly get an update on the developer go-to-market motion more broadly. Thanks so much.

Yeah, I mean, that team is definitely involved. I don't think that had that team not been involved that we would certainly have closed that deal or closed this quickly. What I love is that Ali Cabral, who's running that team, really came from the product side of the developer platform and said, you know, I now feel like we've got the product nailed. Let's go sell it. And she and the team there are being very deliberate and disciplined. They're going out and talking to customers that we think could really benefit from the increased agility, performance, ROI that our developer platform has. And, you know, it's amazing to see that as they go into these conversations and, you know, even help customers build out kind of proof of concepts for what's there, that that is turning into very large deals that are coming across the transom. And I think it probably wouldn't have been the right time to do that a year ago, but today when the developer platform is as robust as it is, that speedboat and those efforts around it are yielding really significant results. And again, while I still always want to caution people not to get too far ahead of themselves, I'm very excited with what we're seeing from the developer community, and we are much more active at pursuing large deals that we can deliver real value for, and that Speedboat team has been critical to doing that. Excellent. Thanks so much.

Thank you for your question. Our last question for today will come from the line of Jonathan Ho with William Blair. Your line is live.

Let me echo my congratulations as well. Matthew, could you provide us with an update on the model context protocol and the work that you're doing there and maybe what this implies for Cloudflare's ability to power AI agents as well as the data sources that AI models are accessing.

Thank you. Yeah. So just a little bit of background for people who aren't following this as closely. Anthropic put together a specification called Model Context Protocol, MCP, which is essentially an API to give a standard way for an AI system to be able to connect to a third-party service and interact with it in various ways. You know, if your bank has an MCP system, then, you know, can log in and analyze what your spending patterns are. If you've got an MCP server at a media organization, they could log in and summarize the news that was out there. Initially, these servers, when Anthropic first released the protocol, were run locally on your own machine, which meant that the barrier to entry really fell on developers. We worked with Anthropic to be able to take this standard and run it, instead of locally on your machine, run it in the cloud, run it across Cloudflare's network. And it's been amazing to see how great companies like Stripe, Atlassian, Block, Many others are adopting our approach to these platforms and using Cloudflare to give agents, AI agents, a way to interact with their underlying platform. There are massive security issues here. And again, I think one of the reasons that people trust us in this space is that they know that we understand how important security is and that will help invent what the protocols are for a secure ability for agents to interact with the overall internet. There will also be competing platforms. So Google has released an extension of MCP, which is slightly different. Our strategy is just to support everything, to be the universal translator that can make it so that you can connect to any service which is online, and if there are multiple protocols, we'll help rationalize that. Again, I think it's something that is important. So I think it's amazing to see how quickly companies are able to use our platform in order to stand up these agents and the interaction between these agents. I think it may well turn out that the killer app for Cloudflare workers is going to be around AI and the interconnection and the fact that so many of the AI companies, you know, today our estimates are that about 80% of the major AI companies are Cloudflare customers and so much of the internet uses Cloudflare. It puts us in the center of all of those conversations and it's just incredibly exciting to see people building the future on Cloudflare and don't totally know where it's all going to turn out, but I'm pretty confident that no matter what, you're going to need networks and you're going to need secure networks, and Cloudflare is the best at being able to provide that for whatever the future holds.

Excellent. Thank you for your question, and ladies and gentlemen, that will conclude our Q&A session for today. I would like to turn the call back over to Matthew Prince for any closing comments.

I just wanted to say thank you for all of Cloudflare's customers, all of our team members for just what was a really difficult quarter in terms of the macro environment, but one that we executed just in a way that I'm incredibly proud of. So I can't wait to see what the future holds, know that it's going to be built on Cloudflare and our network, and look forward to seeing you again this time next quarter.