Cloudflare Announces Third Quarter 2026 Financial Results

Third quarter revenue totaled $782.5 million, representing an increase of 39% year-over-year GAAP loss from operations of $67.9 million, or 9% of total revenue, and non-GAAP income from operations of $137.1 million, or 18% of revenue Delivered Current RPO year-over-year growth of 37% SAN FRANCISCO--(BUSINESS WIRE)-- Cloudflare, Inc. (NYSE: NET), the leading connectivity cloud company, today announced financial results for its third quarter ended September 30, 2026. “The third quarter was Cloudflare's best quarter ever. We crossed $3 billion in annualized revenue with revenue of $782 million, up 39% year over year. We accelerated growth, delivering our fastest revenue growth in nearly four years, while expanding profitability," said Matthew Prince, co-founder & CEO of Cloudflare. "We have built the development platform for the AI-powered Internet—and as digital threats escalate, organizations of every size continue to rely on Cloudflare for protection. Our engine is firing on all cylinders, and we've found an even higher gear for this next phase of growth." Third Quarter Fiscal 2026 Financial Highlights Revenue: Total revenue of $782.5 million, representing an increase of 39% year-over-year. Gross Profit: GAAP gross profit was $557.2 million, or 71.2% gross margin, compared to $415.7 million, or 74.0%, in the third quarter of 2025. Non-GAAP gross profit was $566.6 million, or 72.4% gross margin, compared to $423.1 million, or 75.3%, in the third quarter of 2025. Operating Income (Loss): GAAP loss from operations was $67.9 million, or 8.7% of revenue, compared to $37.5 million, or 6.7% of revenue, in the third quarter of 2025. Non-GAAP income from operations was $137.1 million, or 17.5% of revenue, compared to $85.9 million, or 15.3% of revenue, in the third quarter of 2025. Net Income (Loss): GAAP net loss was $34.1 million, compared to $1.3 million in the third quarter of 2025. GAAP net loss per basic and diluted share was $0.10, compared to $0.00 in the third quarter of 2025. Non-GAAP net income was $143.7 million, compared to $102.6 million in the third quarter of 2025. Non-GAAP net income per diluted share was $0.38, compared to $0.27 in the third quarter of 2025. Cash Flow: Net cash flow from operating activities was $215.4 million, compared to $167.1 million for the third quarter of 2025. Free cash flow was $82.1 million, or 10% of revenue, compared to $75.0 million, or 13% of revenue, in the third quarter of 2025. Cash, cash equivalents, and available-for-sale securities were $5,128.7 million as of September 30, 2026. 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 For the fourth quarter of fiscal 2026, we expect: Total revenue of $845.0 to $846.0 million Non-GAAP income from operations of $156.0 to $157.0 million Non-GAAP net income per share of $0.43, utilizing weighted average common shares outstanding of approximately 379 million For the full year fiscal 2026, we expect: Total revenue of $2,963.0 to $2,964.0 million Non-GAAP income from operations of $462.0 to $463.0 million Non-GAAP net income per share of $1.35, utilizing weighted average common shares outstanding of approximately 376 million These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements. Conference Call Information Cloudflare will host an investor conference call to discuss its third quarter ended September 30, 2026 earnings results today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time). Interested parties can access the call by dialing +1 (833) 461-5787 (North America) or +1 (585) 542-9983 (International) with conference ID 732669571. 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, X 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, the demand by customers for our products, our plans and objectives for future operations, growth, initiatives, or strategies, our market opportunity, the plan to further accelerate our evolution to an agentic AI-first operating model and the intent for the plan to align our organizational structure with this new operating model, the estimated reduction of our current workforce, the estimated charges in connection with this plan, including the primary components of such charges, the anticipated timing of the implementation of this plan and the timing of such charges, the expected benefits from this plan and related actions, 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 impact of adverse macroeconomic conditions on our and our customers’, vendors’, and partners’ operations and future financial performance; the impact of conflicts and geopolitical tension around the world, particularly in Eastern Europe or the Middle East, or any worsening or expansion of those conflicts or tensions, as well as other geopolitical events such as elections and other governmental changes, threats of tariffs and other impediments to cross-border trade; our history of net losses; risks associated with managing our 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 expand the number of products we sell to paying customers; our ability to effectively increase sales to large customers; our ability to incorporate AI tools and automation to increase productivity and maintain operational efficiency; our ability to increase brand awareness; our ability to continue to innovate and develop new products and product features; our ability to generate demand for our products; our ability to effectively attract, train, and retain our sales force to be able to sell our existing and new products and product features; our sales team’s productivity; our ability to effectively attract, integrate and retain key personnel; problems with our internal systems, network, or data, including actual or perceived breaches or failures; rapidly evolving technological developments in the market, including advancements in AI; length of our sales cycles and the timing of payments by our customers; activities of our paying and free customers or the content of their websites and other Internet properties that use our network and products; foreign currency fluctuations; changes in the legal, tax, and regulatory environment applicable to our business; and other 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 August 6, 2026, 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. (NYSE: NET) is the leading connectivity cloud company on a mission to help build a better Internet. It empowers organizations to make their employees, applications and networks faster and more secure everywhere, while reducing complexity and cost. Cloudflare’s connectivity cloud delivers the most full-featured, unified platform of cloud-native products and developer tools, so any organization can gain the control they need to work, develop, and accelerate their business. Powered by one of the world’s largest and most interconnected networks, Cloudflare blocks billions of threats online for its customers every day. It is trusted by millions of organizations – from the largest brands to entrepreneurs and small businesses to nonprofits, humanitarian groups, and governments across the globe. Learn more about Cloudflare’s connectivity cloud at cloudflare.com/connectivity-cloud. Learn more about the latest Internet trends and insights at radar.cloudflare.com. CLOUDFLARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2026 2025 2026 2025 Revenue $ 782,513 $ 562,027 $ 2,118,329 $ 1,553,430 Cost of revenue (1)(2) 225,279 146,316 605,981 390,569 Gross profit 557,234 415,711 1,512,348 1,162,861 Operating expenses: Sales and marketing (1)(2)(3) 337,987 236,309 885,709 669,679 Research and development (1) 168,204 120,956 478,662 370,602 General and administrative (1)(3)(5)(6) 107,951 95,906 321,882 280,551 Restructuring and other charges 11,018 — 161,711 — Total operating expenses 625,160 453,171 1,847,964 1,320,832 Loss from operations (67,926 ) (37,460 ) (335,616 ) (157,971 ) Non-operating income (expense): Interest income 45,363 42,529 125,461 89,334 Interest expense (4) (3,545 ) (2,912 ) (9,197 ) (5,879 ) Other income (expense), net (1,187 ) (307 ) 2,716 (7,682 ) Total non-operating income, net 40,631 39,310 118,980 75,773 Income (loss) before income taxes (27,295 ) 1,850 (216,636 ) (82,198 ) Provision for income taxes 6,770 3,140 10,337 7,992 Net loss $ (34,065 ) $ (1,290 ) $ (226,973 ) $ (90,190 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.10 ) $ (0.00 ) $ (0.64 ) $ (0.26 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 357,126 349,312 354,588 347,519 ____________ (1) Includes stock-based compensation and related employer payroll taxes as follows: Cost of revenue $ 4,697 $ 4,031 $ 13,152 $ 10,630 Sales and marketing 63,178 34,787 147,248 101,810 Research and development 66,474 38,450 171,410 127,675 General and administrative 39,754 42,431 110,343 117,472 Total stock-based compensation and related employer payroll taxes $ 174,103 $ 119,699 $ 442,153 $ 357,587 (2) Includes amortization of acquired intangible assets as follows: Cost of revenue $ 4,653 $ 3,337 $ 15,664 $ 9,519 Sales and marketing 4,563 362 8,204 1,167 Total amortization of acquired intangible assets $ 9,216 $ 3,699 $ 23,868 $ 10,686 (3) Includes acquisition-related and other expenses as follows: Sales and marketing $ — $ — $ 33 $ — General and administrative — — 2,470 112 Total acquisition-related and other expenses $ — $ — $ 2,503 $ 112 (4) Includes amortization of debt issuance costs as follows: Interest expense $ 2,930 $ 2,441 $ 7,795 $ 4,630 Total amortization of debt issuance costs $ 2,930 $ 2,441 $ 7,795 $ 4,630 (5) Includes lease impairment charges as follows: General and administrative $ 6 $ — $ 6 $ 3,840 Total lease impairment charges $ 6 $ — $ 6 $ 3,840 (6) Includes legal reserve and settlements as follows: General and administrative $ 10,667 $ — $ 11,667 $ — Total legal reserve and settlements $ 10,667 $ — $ 11,667 $ — CLOUDFLARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited) September 30, 2026 December 31, 2025 Assets Current assets: Cash and cash equivalents $ 1,969,500 $ 943,536 Available-for-sale securities 3,159,193 3,157,715 Accounts receivable, net 478,334 382,488 Contract assets 30,206 23,531 Restricted cash short-term 12,160 9,364 Prepaid expenses and other current assets 193,969 128,203 Total current assets 5,843,362 4,644,837 Property and equipment, net 815,953 618,691 Goodwill 375,849 226,563 Acquired intangible assets, net 48,153 41,799 Operating lease right-of-use assets 253,358 237,646 Deferred contract acquisition costs, noncurrent 266,545 219,499 Restricted cash — 1,457 Other noncurrent assets 93,580 45,764 Total assets $ 7,696,800 $ 6,036,256 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 221,697 $ 84,115 Accrued expenses and other current liabilities 221,958 109,054 Accrued compensation 133,995 111,005 Operating lease liabilities 84,656 70,901 Deferred revenue 876,756 684,207 Current portion of convertible senior notes, net — 1,291,281 Total current liabilities 1,539,062 2,350,563 Convertible senior notes, net 4,441,900 1,974,120 Operating lease liabilities, noncurrent 180,902 182,025 Deferred revenue, noncurrent 39,406 41,088 Other noncurrent liabilities 30,728 29,337 Total liabilities 6,231,998 4,577,133 Stockholders’ Equity Class A common stock; $0.001 par value; 2,250,000 shares authorized as of September 30, 2026 and December 31, 2025; 324,942 and 317,319 shares issued and outstanding as of September 30, 2026 and December 31, 2025, respectively 324 317 Class B common stock; $0.001 par value; 315,000 shares authorized as of September 30, 2026 and December 31, 2025; 33,298 and 34,568 shares issued and outstanding as of September 30, 2026 and December 31, 2025, respectively 33 34 Additional paid-in capital 2,926,519 2,651,420 Accumulated deficit (1,431,880 ) (1,204,907 ) Accumulated other comprehensive income (loss) (30,194 ) 12,259 Total stockholders’ equity 1,464,802 1,459,123 Total liabilities and stockholders’ equity $ 7,696,800 $ 6,036,256 CLOUDFLARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended September 30, 2026 2025 Cash Flows from Operating Activities Net loss $ (226,973 ) $ (90,190 ) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization expense 190,545 137,156 Non-cash operating lease costs 64,058 47,182 Amortization of deferred contract acquisition costs 97,826 73,700 Stock-based compensation expense 441,742 327,829 Amortization of debt issuance costs 7,795 4,630 Net accretion of discounts and amortization of premiums on available-for-sale securities (16,509 ) (21,544 ) Deferred income taxes (7,013 ) (480 ) Provision for bad debt 8,298 12,778 Other (6,103 ) 3,074 Changes in operating assets and liabilities, net of effect of asset acquisitions and business combinations: Accounts receivable, net (104,144 ) (47,915 ) Contract assets (6,675 ) (6,077 ) Deferred contract acquisition costs (144,872 ) (95,518 ) Prepaid expenses and other current assets (112,802 ) (62,278 ) Other noncurrent assets (9,578 ) 4,442 Accounts payable 60,649 (4,329 ) Accrued expenses and other current liabilities 106,929 17,610 Accrued compensation 22,990 9,347 Operating lease liabilities (67,144 ) (41,930 ) Deferred revenue 190,867 145,018 Other noncurrent liabilities 1,373 198 Net cash provided by operating activities 491,259 412,703 Cash Flows from Investing Activities Purchases of property and equipment (237,001 ) (230,427 ) Capitalized internal-use software (31,720 ) (21,158 ) Asset acquisitions and business combinations, net of cash acquired (74,330 ) (6,462 ) Purchases of available-for-sale securities (2,111,660 ) (2,586,569 ) Maturities of available-for-sale securities 2,093,472 1,328,956 Other investing activities 4,053 679 Net cash used in investing activities (357,186 ) (1,514,981 ) Cash Flows from Financing Activities Proceeds from settlement of capped calls 15 309,616 Gross proceeds from issuance of convertible senior notes 2,500,000 2,000,000 Purchases of capped calls related to convertible senior notes (259,500 ) (283,400 ) Cash paid for issuance costs on convertible senior notes (36,616 ) (28,989 ) Repayments of convertible senior notes (1,293,750 ) — Proceeds from the exercise of stock options 15,765 29,455 Proceeds from the issuance of common stock for employee stock purchase plan 16,075 13,057 Payment of tax withholding obligation on RSU and PSU settlement (48,645 ) (32,183 ) Payment of indemnity holdback (100 ) — Other (14 ) — Net cash provided by financing activities 893,230 2,007,556 Net increase in cash, cash equivalents, and restricted cash 1,027,303 905,278 Cash, cash equivalents, and restricted cash, beginning of period 954,357 154,214 Cash, cash equivalents, and restricted cash, end of period $ 1,981,660 $ 1,059,492 CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2026 2025 2026 2025 Reconciliation of cost of revenue: GAAP cost of revenue $ 225,279 $ 146,316 $ 605,981 $ 390,569 Less: Stock-based compensation and related employer payroll taxes (4,697 ) (4,031 ) (13,152 ) (10,630 ) Less: Amortization of acquired intangible assets (4,653 ) (3,337 ) (15,664 ) (9,519 ) Non-GAAP cost of revenue $ 215,929 $ 138,948 $ 577,165 $ 370,420 Reconciliation of gross profit: GAAP gross profit $ 557,234 $ 415,711 $ 1,512,348 $ 1,162,861 Add: Stock-based compensation and related employer payroll taxes 4,697 4,031 13,152 10,630 Add: Amortization of acquired intangible assets 4,653 3,337 15,664 9,519 Non-GAAP gross profit $ 566,584 $ 423,079 $ 1,541,164 $ 1,183,010 GAAP gross margin 71.2 % 74.0 % 71.4 % 74.9 % Non-GAAP gross margin 72.4 % 75.3 % 72.8 % 76.2 % Reconciliation of operating expenses: GAAP sales and marketing $ 337,987 $ 236,309 $ 885,709 $ 669,679 Less: Stock-based compensation and related employer payroll taxes (63,178 ) (34,787 ) (147,248 ) (101,810 ) Less: Amortization of acquired intangible assets (4,563 ) (362 ) (8,204 ) (1,167 ) Less: Acquisition-related and other expenses — — (33 ) — Non-GAAP sales and marketing $ 270,246 $ 201,160 $ 730,224 $ 566,702 GAAP research and development $ 168,204 $ 120,956 $ 478,662 $ 370,602 Less: Stock-based compensation and related employer payroll taxes (66,474 ) (38,450 ) (171,410 ) (127,675 ) Non-GAAP research and development $ 101,730 $ 82,506 $ 307,252 $ 242,927 GAAP general and administrative $ 107,951 $ 95,906 $ 321,882 $ 280,551 Less: Stock-based compensation and related employer payroll taxes (39,754 ) (42,431 ) (110,343 ) (117,472 ) Less: Acquisition-related and other expenses — — (2,470 ) (112 ) Less: Lease impairment charges (6 ) — (6 ) (3,840 ) Less: Legal reserve and settlements (10,667 ) — (11,667 ) — Non-GAAP general and administrative $ 57,524 $ 53,475 $ 197,396 $ 159,127 GAAP restructuring and other charges $ 11,018 $ — $ 161,711 $ — Less: Restructuring and other charges (11,018 ) — (161,711 ) — Non-GAAP restructuring and other charges $ — $ — $ — $ — Reconciliation of income (loss) from operations: GAAP loss from operations $ (67,926 ) $ (37,460 ) $ (335,616 ) $ (157,971 ) Add: Stock-based compensation and related employer payroll taxes 174,103 119,699 442,153 357,587 Add: Amortization of acquired intangible assets 9,216 3,699 23,868 10,686 Add: Acquisition-related and other expenses — — 2,503 112 Add: Lease impairment charges 6 — 6 3,840 Add: Legal reserve and settlements 10,667 — 11,667 — Add: Restructuring and other charges 11,018 — 161,711 — Non-GAAP income from operations $ 137,084 $ 85,938 $ 306,292 $ 214,254 GAAP operating margin (8.7 )% (6.7 )% (15.8 )% (10.2 )% Non-GAAP operating margin 17.5 % 15.3 % 14.5 % 13.8 % CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2026 2025 2026 2025 Reconciliation of interest expense: GAAP interest expense $ (3,545 ) $ (2,912 ) $ (9,197 ) $ (5,879 ) Add: Amortization of debt issuance costs 2,930 2,441 7,795 4,630 Non-GAAP interest expense $ (615 ) $ (471 ) $ (1,402 ) $ (1,249 ) Reconciliation of provision for income taxes: GAAP provision for income taxes $ 6,770 $ 3,140 $ 10,337 $ 7,992 Income tax effect of non-GAAP adjustments 30,179 21,922 77,238 50,566 Non-GAAP provision for income taxes $ 36,949 $ 25,062 $ 87,575 $ 58,558 Reconciliation of net income (loss) and net income (loss) per share: GAAP net loss attributable to common stockholders $ (34,065 ) $ (1,290 ) $ (226,973 ) $ (90,190 ) Add: Stock-based compensation and related employer payroll taxes 174,103 119,699 442,153 357,587 Add: Amortization of acquired intangible assets 9,216 3,699 23,868 10,686 Add: Acquisition-related and other expenses — — 2,503 112 Add: Amortization of debt issuance costs 2,930 2,441 7,795 4,630 Add: Lease impairment charges 6 — 6 3,840 Add: Legal reserve and settlements 10,667 — 11,667 — Add: Restructuring and other charges 11,018 — 161,711 — Income tax effect of non-GAAP adjustments (30,179 ) (21,922 ) (77,238 ) (50,566 ) Non-GAAP net income $ 143,696 $ 102,627 $ 345,492 $ 236,099 GAAP net loss per share, basic $ (0.10 ) $ (0.00 ) $ (0.64 ) $ (0.26 ) GAAP net loss per share, diluted $ (0.10 ) $ (0.00 ) $ (0.64 ) $ (0.26 ) Add: Stock-based compensation and related employer payroll taxes 0.49 0.34 1.25 1.03 Add: Amortization of acquired intangible assets 0.03 0.01 0.07 0.03 Add: Acquisition-related and other expenses — — 0.01 — Add: Amortization of debt issuance costs 0.01 0.01 0.02 0.01 Add: Lease impairment charges — — — 0.01 Add: Legal reserve and settlements 0.03 — 0.03 — Add: Restructuring and other charges 0.03 — 0.46 — Income tax effect of non-GAAP adjustments (0.08 ) (0.06 ) (0.22 ) (0.15 ) Effect of dilutive shares (0.03 ) (0.03 ) (0.06 ) (0.03 ) Non-GAAP net income per share, diluted (1) $ 0.38 $ 0.27 $ 0.92 $ 0.64 Weighted-average shares used in computing net loss per share attributable to common stockholders, basic 357,126 349,312 354,588 347,519 Weighted-average shares used in computing non-GAAP net income per share attributable to common stockholders, diluted 376,461 375,098 374,584 368,126 ____________ (1) Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data. CLOUDFLARE, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share amounts) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2026 2025 2026 2025 Free cash flow Net cash provided by operating activities $ 215,365 $ 167,123 $ 491,259 $ 412,703 Less: Purchases of property and equipment (121,809 ) (84,641 ) (237,001 ) (230,427 ) Less: Capitalized internal-use software (11,476 ) (7,511 ) (31,720 ) (21,158 ) Free cash flow $ 82,080 $ 74,971 $ 222,538 $ 161,118 Net cash used in investing activities $ (806,554 ) $ (629,518 ) $ (357,186 ) $ (1,514,981 ) Net cash provided by (used in) financing activities $ 896,913 $ (3,569 ) $ 893,230 $ 2,007,556 Net cash provided by operating activities (percentage of revenue) 28 % 30 % 23 % 27 % Less: Purchases of property and equipment (percentage of revenue) (16 )% (15 )% (11 )% (15 )% Less: Capitalized internal-use software (percentage of revenue) (2 )% (2 )% (1 )% (2 )% Free cash flow margin (1) 10 % 13 % 11 % 10 % ____________ (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 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. Items 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 upon the price of our Class A 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 lease impairment charges related to real estate leases, which is a non-cash expense, from certain of our non-GAAP financial measures because they are not indicative of our ongoing cost structure and core business performance. We exclude amortization of debt 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. We exclude legal reserve, settlements, and related professional fees associated with litigation matters that are outside the ordinary course of our business. These items, which can be cash or non-cash expenses, are excluded from certain of our non-GAAP financial measures because they are not indicative of our ongoing cost structure and core business performance. We exclude restructuring and other charges, which can be cash or non-cash expenses, from certain of our non-GAAP financial measures because they are not indicative of our ongoing cost structure and core business performance. 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 from Operations and Non-GAAP Operating Margin. We define non-GAAP income 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 expense and its related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses, lease impairment charges, legal reserve and settlements, and restructuring and other charges. Non-GAAP Net Income and Non-GAAP Net Income per Share, Diluted. We define non-GAAP net income as GAAP net loss adjusted for stock-based compensation expense and its related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses, amortization of issuance costs, lease impairment charges, legal reserve and settlements, restructuring and other charges, 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, amortization of issuance costs, lease impairment charges, legal reserve and settlements, and restructuring and other charges. 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 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 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 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. Investor Relations Information Phil Winslow ir@cloudflare.com Press Contact Information Daniella Vallurupalli press@cloudflare.com Source: Cloudflare, Inc.