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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-Q
__________________________________________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to              
Commission file number: 001-39039
__________________________________________________
Cloudflare, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________________
Delaware

27-0805829
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)
101 Townsend Street
San Francisco, California 94107
(Address of principal executive offices and zip code)
(888) 993-5273
(Registrant’s telephone number, including area code)
__________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Class A Common Stock, $0.001 par valueNETThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒

Accelerated filer☐





Non-accelerated filer☐

Smaller reporting company☐








Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒
2
As of October 24, 2024, 305,713,757 shares of the registrant's Class A common stock were outstanding and 37,480,159 shares of the registrant's Class B common stock were outstanding.

3
TABLE OF CONTENTS
Page
Item 1
Item 2
Item 3
Item 4
Item 1
Item 1A
Item 2
Item 5
Item 6

4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words, or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•our ability to retain and upgrade paying customers;
•our ability to attract new paying customers, including large customers, or convert free customers to paying customers;
•our future financial performance, including trends in revenue, costs of revenue, gross profit or gross margin, operating expenses, paying customers, and free cash flow;
•our ability to achieve or maintain profitability and positive cash flow;
•the impact of adverse economic conditions on our customers’ spending ability and the overall demand for our products;
•the consequences we may face resulting from the activities of our customers and the actions we take in response, including associated theories of liability;
•the demand, and our ability to generate demand, for our products or for solutions for security, performance, and reliability in general;
•possible harm caused by significant disruption of service, loss or unauthorized access to customers’ content, or the actual or perceived failure of our products to prevent security incidents;
•our ability to compete successfully in competitive markets;
•our ability to respond to rapid technological changes;
•our ability to continue to innovate and develop new products;
•our expectations and management of future growth;
•the impact of the conflicts in the Middle East and Ukraine and other areas of geopolitical tension around the world, or any worsening or expansion of those conflicts or geopolitical tensions, other geopolitical events such as elections and other governmental changes, and any related challenging macroeconomic conditions globally, including on our and our customers', vendors', and partners' respective businesses and the markets in which we and our customers, vendors, and partners operate;
•our ability to maintain favorable co-location relationships, Internet service provider (ISP) partnerships, and other interconnection arrangements around the world;
•our ability to offer high-quality customer support;
•our ability to manage our global operations;
•our expectations of and ability to comply with applicable laws around the world;
•our ability to correctly estimate our tax obligations around the world;
•our ability to repay our convertible senior notes and any outstanding borrowings under our revolving credit facility when due;
•our ability to attract, integrate, and retain key personnel and other highly qualified personnel;
•our ability to maintain our brand;
•our ability to prevent serious errors or defects across, and to otherwise maintain the uninterrupted operation of, our network;
5
•our ability to maintain, protect, and enhance our intellectual property; and
•our ability to successfully identify, acquire, and integrate companies and assets.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (SEC) that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
SELECTED RISKS AFFECTING OUR BUSINESS

Investing in our Class A common stock involves numerous risks, including those set forth below. This summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Below are summaries of some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
•We have a history of net losses and may not be able to achieve or sustain profitability in the future.
•We have experienced rapid revenue growth, which may not be indicative of our future performance.
•Adverse economic conditions, including reduced spending on products and solutions for network security, performance, and reliability, may adversely impact our revenue and profitability.
•The conflicts in the Middle East and Ukraine and other areas of geopolitical tension around the world, or any worsening or expansion of those conflicts or tensions, other geopolitical events such as elections and other governmental changes, and any related challenging macroeconomic conditions globally and in various countries in which we and our customers operate may materially adversely affect our customers, vendors, and partners, and the duration and extent to which these factors may impact our future business and operations, results of operations, financial condition, and cash flows remain uncertain.
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•If we are unable to attract new paying and free customers, our future results of operations could be harmed.
•Our business depends on our ability to retain and upgrade paying customers, expand the number of products we sell to paying customers, and, to a lesser extent, convert free customers to paying customers, and any decline in renewals, upgrades, expansions, or conversions could adversely affect our future results of operations.
•If we are unable to effectively attract, expand, and retain sales to large customers, or we fail to mitigate the additional risks associated with serving large customers, our business, results of operation, and financial condition may suffer.
•Activities of our paying and free customers or the content of their websites or other Internet properties, as well as our response to those activities, could cause us to experience significant adverse political, business, and reputational consequences with customers, employees, suppliers, government entities, and others.
•We face intense and increasing competition, which could adversely affect our business, financial condition, and results of operations.
•If we do not effectively attract, train, and retain our sales force to be able to sell our existing and new products and product features, we may be unable to add new contracted customers, or increase sales to our existing customers and our business would be adversely affected.
•We rely on our co-founders and other key technical, sales, and management personnel to grow our business, and the loss of one or more key employees or the inability to successfully attract, integrate, and retain qualified senior management and other personnel, or the failure of new members of our management team to successfully lead and scale our business, could harm our business.
•Problems with our internal systems, networks, or data, including actual or perceived breaches or failures, could cause our network or products to be perceived as insecure, underperforming, or unreliable, our customers to lose trust in our network and products, our reputation to be damaged, and our financial results to be negatively impacted.
•If our global network that delivers our products or the core co-location facilities we use to operate our network are damaged, interfered with, or otherwise fail to meet the requirements of our business or local regulations, our ability to provide access to our network and products to our customers and maintain the performance of our network could be negatively impacted, which could cause our business, results of operations and financial condition to suffer.
•Detrimental changes in, or the termination of, any of our co-location relationships, ISP partnerships, or our other interconnection relationships with ISPs could adversely impact our business, results of operations, and financial condition.
•The actual or perceived failure of our products to block malware or prevent a security breach or incident could harm our reputation and adversely impact our business, results of operations, and financial condition.
•Activities of our paying and free customers or the content of their websites and other Internet properties may violate applicable laws and/or our terms of service and could subject us to lawsuits, regulatory enforcement actions, and/or liability in various jurisdictions.
•Our actual or perceived failure to comply with privacy, data protection, information security, and other applicable laws, regulations, and obligations could harm our business.
•Our network presence within China is dependent upon our commercial relationship with JD Cloud, and any detrimental changes in, or the termination of, that relationship could jeopardize our ability to offer an integrated global network that includes China.
•The trading price of our Class A common stock may be volatile, and you could lose all or part of your investment.
•The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial public offering, and it may depress the trading price of our Class A common stock.
•Repaying and servicing our existing and future debt, including our 2026 Notes (as defined below) and borrowings under our revolving credit facility, may require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our indebtedness.
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PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
September 30,
2024		December 31,
2023
Assets
Current assets:
Cash and cash equivalents$182,883 $86,864 
Available-for-sale securities1,640,963 1,586,880 
Accounts receivable, net252,927 248,268 
Contract assets13,458 11,041 
Restricted cash short-term1,000 2,522 
Prepaid expenses and other current assets72,647 47,502 
Total current assets2,163,878 1,983,077 
Property and equipment, net396,552 322,813 
Goodwill157,200 148,047 
Acquired intangible assets, net19,247 19,564 
Operating lease right-of-use assets151,513 138,556 
Deferred contract acquisition costs, noncurrent152,380 133,236 
Restricted cash2,023 1,838 
Other noncurrent assets19,953 12,636 
Total assets$3,062,746 $2,759,767 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$74,110 $53,727 
Accrued expenses and other current liabilities68,885 63,597 
Accrued compensation 65,797 63,801 
Operating lease liabilities 43,028 38,351 
Deferred revenue389,795 347,608 
Total current liabilities641,615 567,084 
Convertible senior notes, net1,286,332 1,283,362 
Operating lease liabilities, noncurrent121,374 113,490 
Deferred revenue, noncurrent21,990 17,244 
Other noncurrent liabilities18,345 15,540 
Total liabilities2,089,656 1,996,720 
Commitments and contingencies (Note 8)
Stockholders’ Equity
Class A common stock; $0.001 par value; 2,250,000 shares authorized as of September 30, 2024 and December 31, 2023; 305,386 and 298,089 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively
305 297 
Class B common stock; $0.001 par value; 315,000 shares authorized as of September 30, 2024 and December 31, 2023; 37,661 and 39,443 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively
37 40 
Additional paid-in capital2,046,593 1,784,566 
Accumulated deficit(1,089,792)(1,023,840)
Accumulated other comprehensive income15,947 1,984 
Total stockholders’ equity973,090 763,047 
Total liabilities and stockholders’ equity$3,062,746 $2,759,767 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
Revenue$430,082 $335,603 $1,209,680 $934,272 
Cost of revenue95,967 78,069 270,016 223,722 
Gross profit334,115 257,534 939,664 710,550 
Operating expenses:
Sales and marketing185,221 150,214 553,824 433,903 
Research and development110,911 90,593 301,161 261,742 
General and administrative68,777 55,939 204,721 157,561 
Total operating expenses364,909 296,746 1,059,706 853,206 
Loss from operations(30,794)(39,212)(120,042)(142,656)
Non-operating income (expense):
Interest income22,471 17,954 65,438 47,977 
Interest expense(1,433)(1,138)(3,751)(4,803)
Loss on extinguishment of debt— — — (50,300)
Other income (expense), net(3,066)115 (1,673)(2,269)
Total non-operating income (expense), net17,972 16,931 60,014 (9,395)
Loss before income taxes(12,822)(22,281)(60,028)(152,051)
Provision for income taxes
2,509 1,254 5,924 4,033 
Net loss$(15,331)$(23,535)$(65,952)$(156,084)
Net loss per share attributable to common stockholders, basic and diluted
$(0.04)$(0.07)$(0.19)$(0.47)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
342,356 334,666 340,539 332,600 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
Net loss$(15,331)$(23,535)$(65,952)$(156,084)
Other comprehensive income (loss), net of tax:
Change in unrealized gain on investments
9,656 2,161 5,857 7,748 
Cash flow hedges:
Change in unrealized gain on cash flow hedges8,821 — 9,731 — 
Reclassification of loss included in net loss(1,211)— (1,625)— 
Net changes on cash flow hedges
7,610 — 8,106 — 
Other comprehensive income, net of tax17,266 2,161 13,963 7,748 
Comprehensive income (loss)$1,935 $(21,374)$(51,989)$(148,336)

The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)

Three Months Ended September 30, 2024
Class A common stockClass B common stockAdditional
paid-in
capital		Accumulated
deficit		Accumulated
other
comprehensive
income (loss)		Total
stockholders’
equity
SharesAmountSharesAmount
Balance as of June 30, 2024303,321 $302 38,216 $39 $1,956,984 $(1,074,461)$(1,319)$881,545 
Issuance of common stock upon exercise of stock options8 — 513 (1)1,418 — — 1,417 
Vesting of shares issued upon early exercise of stock options— — — — 35 — — 35 
Issuance of common stock related to settlement of restricted stock units (RSUs) and performance stock units (PSUs)1,035 2 — — (2)— — — 
Tax withholding on RSU settlement(46)— — — (3,828)— — (3,828)
Conversion of Class B to Class A common stock1,068 1 (1,068)(1)— — — — 
Stock-based compensation— — — — 91,986 — — 91,986 
Net loss— — — — — (15,331)— (15,331)
Other comprehensive income— — — — — — 17,266 17,266 
Balance as of September 30, 2024305,386 $305 37,661 $37 $2,046,593 $(1,089,792)$15,947 $973,090 





The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)

Three Months Ended September 30, 2023
Class A common stockClass B common stockAdditional
paid-in
capital		Accumulated
deficit		Accumulated
other
comprehensive
loss		Total
stockholders’
equity
SharesAmountSharesAmount
Balance as of June 30, 2023291,832 $291 41,807 $41 $1,620,251 $(972,440)$(6,309)$641,834 
Issuance of common stock upon exercise of stock options 87 1 677 1 4,323 — — 4,325 
Vesting of shares issued upon early exercise of stock options — — — — 559 — — 559 
Issuance of common stock related to settlement of RSUs763 — 76 1 (1)— — — 
Tax withholding on RSU settlement (32)— (5)— (2,260)— — (2,260)
Conversion of Class B to Class A common stock 2,528 3 (2,528)(3)— — — — 
Settlement of common stock in connection with redemption of convertible senior notes461 — — — 46 — — 46 
Stock-based compensation — — — — 76,127 — — 76,127 
Net loss — — — — — (23,535)— (23,535)
Other comprehensive income— — — — — — 2,161 2,161 
Balance as of September 30, 2023295,639 $295 40,027 $40 $1,699,045 $(995,975)$(4,148)$699,257 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)

Nine Months Ended September 30, 2024
Class A common stockClass B common stockAdditional
paid-in
capital		Accumulated
deficit		Accumulated
other
comprehensive income		Total
stockholders’
equity
SharesAmountSharesAmount
Balance as of December 31, 2023298,089 $297 39,443 $40 $1,784,566 $(1,023,840)$1,984 $763,047 
Issuance of common stock upon exercise of stock options194 — 2,105 1 9,030 — — 9,031 
Issuance of common stock related to early exercised stock options— — 2 — — — — — 
Vesting of shares issued upon early exercise of stock options— — — — 98 — — 98 
Issuance of common stock related to settlement of RSUs and PSUs3,189 4 — — (4)— — — 
Tax withholding on RSU settlement(148)— — — (12,591)— — (12,591)
Conversion of Class B to Class A common stock3,889 4 (3,889)(4)— — — — 
Common stock issued under employee stock purchase plan173 — — — 10,455 — — 10,455 
Other— — — — 1,689 — — 1,689 
Stock-based compensation— — — — 253,350 — — 253,350 
Net loss— — — — — (65,952)— (65,952)
Other comprehensive income— — — — — — 13,963 13,963 
Balance as of September 30, 2024305,386 $305 37,661 $37 $2,046,593 $(1,089,792)$15,947 $973,090 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)

Nine Months Ended September 30, 2023
Class A common stockClass B common stockAdditional
paid-in
capital		Accumulated
deficit		Accumulated
other
comprehensive
loss		Total
stockholders’
equity
SharesAmountSharesAmount
Balance as of December 31, 2022286,561 $286 43,525 $42 $1,475,423 $(839,891)$(11,896)$623,964 
Issuance of common stock upon exercise of stock options327 1 1,957 2 11,381 — — 11,384 
Repurchases of unvested common stock(17)— — — — — — — 
Vesting of shares issued upon early exercise of stock options— — — 1 1,729 — — 1,730 
Issuance of common stock related to settlement of RSUs2,296 2 398 1 (3)— — — 
Tax withholding on RSU settlement(73)— (18)— (5,643)— — (5,643)
Conversion of Class B to Class A common stock5,835 6 (5,835)(6)— — — — 
Common stock issued under employee stock purchase plan249 — — — 10,450 — — 10,450 
Settlement of common stock in connection with redemption of convertible senior notes461 — — — 46 — — 46 
Stock-based compensation— — — — 205,662 — — 205,662 
Net loss— — — — — (156,084)— (156,084)
Other comprehensive income— — — — — — 7,748 7,748 
Balance as of September 30, 2023295,639 $295 40,027 $40 $1,699,045 $(995,975)$(4,148)$699,257 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
20242023
Cash Flows from Operating Activities
Net loss$(65,952)$(156,084)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense91,476 99,640 
Non-cash operating lease costs35,624 32,899 
Amortization of deferred contract acquisition costs56,707 44,757 
Stock-based compensation expense243,969 199,565 
Amortization of debt issuance costs2,970 3,529 
Net accretion of discounts and amortization of premiums on available-for-sale securities
(33,980)(31,039)
Deferred income taxes(1,338)(588)
Provision for bad debt7,357 9,527 
Loss on extinguishment of debt— 50,300 
Other361 713 
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net(12,016)(60,451)
Contract assets(2,417)(3,397)
Deferred contract acquisition costs(75,851)(66,766)
Prepaid expenses and other current assets(25,313)(17,115)
Other noncurrent assets621 (1,189)
Accounts payable7,817 5,252 
Accrued expenses and other current liabilities11,316 8,378 
Operating lease liabilities(36,020)(31,096)
Deferred revenue46,933 81,075 
Other noncurrent liabilities857 1,055 
Net cash provided by operating activities253,121 168,965 
Cash Flows from Investing Activities
Purchases of property and equipment(111,884)(83,580)
Capitalized internal-use software(22,076)(16,637)
Asset acquisitions and business combinations, net of cash acquired(15,015)— 
Purchases of available-for-sale securities(1,187,287)(1,293,014)
Sales of available-for-sale securities— 20,248 
Maturities of available-for-sale securities1,173,041 1,288,364 
Other investing activities29 65 
Net cash used in investing activities(163,192)(84,554)
Cash Flows from Financing Activities
Repayments of convertible senior notes— (207,649)
Cash paid for issuance costs on revolving credit facility(2,148)— 
Proceeds from the exercise of stock options9,031 11,384 
Proceeds from the early exercise of stock options6 — 
Repurchases of unvested common stock— (34)
Proceeds from the issuance of common stock for employee stock purchase plan10,455 10,450 
Payment of tax withholding obligation on RSU settlement(12,591)(5,643)
Payment of indemnity holdback— (10,483)
Net cash provided by (used in) financing activities4,753 (201,975)
Net increase (decrease) in cash, cash equivalents, and restricted cash
94,682 (117,564)
Cash, cash equivalents, and restricted cash, beginning of period91,224 215,204 
Cash, cash equivalents, and restricted cash, end of period
$185,906 $97,640 
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest$70 $666 
Cash paid for income taxes, net of refunds$4,024 $4,005 
Cash paid for operating lease liabilities$36,623 $30,296 
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Stock-based compensation capitalized for software development$8,507 $5,642 
Accounts payable and accrued expenses related to property and equipment additions
$36,394 $18,809 
Vesting of early exercised stock options$98 $1,730 
Indemnity holdback consideration associated with asset acquisitions and business combinations
$2,023 $— 
Operating lease right-of-use assets obtained in exchange for operating lease liabilities$43,133 $22,304 
Maturity of marketable securities in other current assets
$— $26,300 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Basis of Presentation
Organization and Description of Business
Cloudflare, Inc. (the Company, Cloudflare, we, us, or our) is a global cloud services provider that delivers a broad range of services to businesses of all sizes and in all geographies, making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing individual network hardware. Cloudflare’s network serves as a scalable, easy-to-use, unified control plane to deliver security, performance, and reliability across on-premises, hybrid, cloud, and software-as-a-service (SaaS) applications. The Company was incorporated in Delaware in July 2009. The Company is headquartered in San Francisco, California.
Basis of Presentation and Principles of Consolidation
The accompanying interim condensed consolidated financial statements and accompanying notes have been prepared in conformity with generally accepted accounting principles in the United States (U.S. GAAP) and applicable regulations of the Securities and Exchange Commission (the SEC) regarding interim financial reporting, and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on December 31.
Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Unaudited Interim Condensed Consolidated Financial Information
The accompanying interim condensed consolidated balance sheet as of September 30, 2024, the condensed consolidated statements of operations and of comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the related footnote disclosures are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim condensed consolidated financial statements include all adjustments necessary to state fairly the Company’s financial position as of September 30, 2024, its results of operations for the three and nine months ended September 30, 2024 and 2023, and its cash flows for the nine months ended September 30, 2024 and 2023. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the full year ending December 31, 2024 or any future period. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes to the condensed consolidated financial statements. Such estimates include, but are not limited to, allowance for doubtful accounts, deferred contract acquisitions costs, the period of benefit generated from the Company’s deferred contract acquisition costs, the capitalization and estimated useful life of internal-use software, valuation of acquired intangible assets, the assessment of recoverability of intangible assets and their estimated useful lives, useful lives of property and equipment, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation and recognition of stock-based compensation awards, uncertain tax positions, and the recognition and measurement of current and deferred income tax assets and liabilities. Management bases these estimates and assumptions on historical
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experience and on various other assumptions that are believed to be reasonable. Due in part to the conflicts in the Middle East and Ukraine, the potential worsening and expansion of such conflicts, and other macroeconomic and geopolitical conditions, there is ongoing uncertainty and significant disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or assumptions or a revision of the carrying value of its assets or liabilities as of November 7, 2024, the date of issuance of this Quarterly Report on Form 10-Q. These estimates and assumptions may change in the future, however, as new events occur and additional information is obtained. Actual results could differ materially from these estimates.
Note 2. Summary of Significant Accounting Policies
Significant Accounting Policies
The Company's significant accounting policies are discussed in the "Notes to Consolidated Financial Statements, Note 2. Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes to these policies that have had a material impact on the Company's condensed consolidated financial statements and related notes, except as noted below.
Change in Accounting Estimate
In January 2024, the Company completed an assessment of the useful lives of our servers-network infrastructure, resulting in a change in the estimated useful lives of our servers-network infrastructure from four years to five years. This change in accounting estimate was effective beginning fiscal year 2024. Based on the carrying value of assets in service as of December 31, 2023, the change resulted in a reduction of depreciation expense of $16.8 million for the nine months ended September 30, 2024, recorded primarily in cost of revenue.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
There have been no recently adopted accounting pronouncements since the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 that may have a material impact on the Company's condensed consolidated financial statements.
Note 3. Revenue
Disaggregation of Revenue
Subscription and support revenue is recognized over time and accounted for substantially all of the Company’s revenue for the three and nine months ended September 30, 2024 and 2023.
The following table summarizes the revenue by region based on the billing address of customers who have contracted to use the Company’s global network and products:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
(dollars in thousands)(dollars in thousands)
AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue
United States$214,955 50 %$175,519 52 %$618,426 51 %$490,129 53 %
Europe, Middle East, and Africa
121,802 28 %92,705 28 %338,154 28 %255,382 27 %
Asia Pacific59,103 14 %42,960 13 %158,880 13 %122,577 13 %
Other34,222 8 %24,419 7 %94,220 8 %66,184 7 %
Total$430,082 100 %$335,603 100 %$1,209,680 100 %$934,272 100 %
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The following table summarizes the revenue from contracts by type of customer:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
(dollars in thousands)(dollars in thousands)
AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue
Channel partners
$88,865 21 %$52,340 16 %$236,002 20 %$140,491 15 %
Direct customers
341,217 79 %283,263 84 %973,678 80 %793,781 85 %
Total$430,082 100 %$335,603 100 %$1,209,680 100 %$934,272 100 %
Contract Balances
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. For the nine months ended September 30, 2024, the Company recognized revenue of $330.5 million, that was included in the corresponding contract liability balance at the beginning of the periods presented.
The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Standard payment terms are due upon receipt. Contract assets include amounts related to the Company’s contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced.
The following table summarizes the activity of the deferred contract acquisition costs:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
(in thousands)(in thousands)
Beginning balance$144,330 $107,482 $133,236 $93,145 
Capitalization of contract acquisition costs
27,766 23,418 75,851 66,766 
Amortization of deferred contract acquisition costs
(19,716)(15,746)(56,707)(44,757)
Ending balance$152,380 $115,154 $152,380 $115,154 
The Company did not recognize any impairment losses of deferred contract acquisition costs during the periods presented.
Remaining Performance Obligations
As of September 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,503.4 million. As of September 30, 2024, the Company expected to recognize 70% of its remaining performance obligations as revenue over the next 12 months with the remainder recognized thereafter.
Note 4. Fair Value Measurements
Fair value is defined as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Assets and liabilities measured at fair value are classified into the following categories:
•Level I: Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
•Level II: Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and
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•Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.
The Company's cash equivalents are comprised of highly liquid money market funds and U.S. treasury securities. The Company classifies money market funds within Level I of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its investments, which are comprised of U.S. treasury securities, U.S. government agency securities, commercial paper, and corporate bonds, within Level II of the fair value hierarchy because the fair value of these securities is priced by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period. There were no transfers between levels during the periods presented.
The following table summarizes the Company’s cash and available-for-sale securities’ amortized cost, unrealized gains (losses), and fair value by significant investment category reported as cash and cash equivalents, restricted cash short-term, restricted cash, or available-for-sale securities as of September 30, 2024 and December 31, 2023.
(in thousands)    Reported as:
September 30, 2024Amortized
Cost		Unrealized
Gain		Unrealized
(Loss)		Fair ValueCash &
Cash
Equivalents		Available-for-sale securitiesRestricted
Cash (Current and Non-Current)
Cash$70,313 $— $— $70,313 $67,290 $— $3,023 
Level I:
Money market funds
100,666 — — 100,666 100,666 — — 
Level II:
Corporate bonds
426,692 2,613 (17)429,288 — 429,288 — 
U.S. treasury securities
1,084,326 5,183 (52)1,089,457 14,927 1,074,530 — 
U.S. government agency securities
76,775 203 (13)76,965 — 76,965 — 
Commercial paper
60,180 — — 60,180 — 60,180 — 
Subtotal
1,647,973 7,999 (82)1,655,890 14,927 1,640,963 — 
Total assets measured at fair value on a recurring basis
$1,818,952 $7,999 $(82)$1,826,869 $182,883 $1,640,963 $3,023 
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(in thousands)Reported as:
December 31, 2023Amortized
Cost		Unrealized
Gain		Unrealized
(Loss)		Fair
Value		Cash &
Cash
Equivalents		Available-for-sale securitiesRestricted
Cash (Current and Non-Current)
Cash
Cash$51,189 $— $— $51,189 $46,829 $— $4,360 
Level I:
Money market funds
40,035 — — 40,035 40,035 — — 
Level II:
Corporate bonds
312,510 718 (378)312,850 — 312,850 — 
U.S. treasury securities
1,020,167 2,344 (544)1,021,967 — 1,021,967 — 
U.S. government agency securities
84,154 14 (96)84,072 — 84,072 — 
Commercial paper
167,989 2 — 167,991 — 167,991 — 
Subtotal
1,584,820 3,078 (1,018)1,586,880 — 1,586,880 — 
Total assets measured at fair value on a recurring basis
$1,676,044 $3,078 $(1,018)$1,678,104 $86,864 $1,586,880 $4,360 
As of September 30, 2024, the Company had $3.0 million in total restricted cash mainly related to indemnity holdback consideration associated with asset acquisitions and business combinations.
The aggregate fair value of the Company’s money market funds approximated amortized cost and, as such, there were no unrealized gains or losses on money market funds as of September 30, 2024 and December 31, 2023. Realized gains and losses, net of tax, were not material for any of the periods presented.
The amortized cost of available-for-sale investments with maturities less than one year was $1,107.2 million and $1,185.1 million as of September 30, 2024 and December 31, 2023, respectively. The amortized cost of available-for-sale investments with maturities greater than one year was $525.9 million and $399.7 million as of September 30, 2024 and December 31, 2023, respectively.
As of September 30, 2024, net unrealized gain on investments was $7.9 million and was included in accumulated other comprehensive income on the condensed consolidated balance sheet. As of December 31, 2023, net unrealized gain on investments was $2.0 million and was included in accumulated other comprehensive income on the condensed consolidated balance sheet. The unrealized gains and losses on available-for-sale investments are related to U.S. treasury securities, U.S. government agency securities, commercial paper, and corporate bonds. The Company determined any unrealized losses to be temporary. Factors considered in determining whether a loss is temporary include the financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security, and whether or not the Company will be required to sell the security before the recovery of its amortized cost. As of September 30, 2024, the Company's investment portfolio consisted of investment grade securities with an average credit rating of AA.
The Company carries the 2026 Notes (as defined below) issued in August 2021 at face value less the unamortized issuance costs on its condensed consolidated balance sheets and presents that fair value for disclosure purposes only. As of September 30, 2024, the fair value of the 2026 Notes was $1,196.8 million. The fair value of the 2026 Notes, which are classified as Level II financial instruments, was determined based on the quoted bid prices of the 2026 Notes in an over-the-counter market on the last trading day of the reporting period. For further details on the 2026 Notes, refer to Note 7 to these condensed consolidated financial statements.
The Company classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or
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liability. There were no financial instruments classified as Level III of the fair value hierarchy as of September 30, 2024 and December 31, 2023.
Note 5. Balance Sheet Components
Accounts Receivable, Net
As of September 30, 2024 and December 31, 2023, the Company’s allowance for doubtful accounts was $7.7 million and $6.0 million, respectively. Provision for bad debt for the three months ended September 30, 2024 and 2023 was $2.6 million and $3.5 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $6.7 million and $9.5 million, respectively. Write-off of uncollectible accounts receivable for the three months ended September 30, 2024 and 2023 was $2.6 million and $4.4 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $5.0 million and $8.1 million, respectively.
Property and Equipment, Net
Property and equipment, net consisted of the following:
September 30, 2024December 31, 2023
(in thousands)
Property and equipment:
Servers—network infrastructure$410,024 $330,295 
Construction in progress71,272 45,557 
Capitalized internal-use software105,746 75,163 
Office and computer equipment39,610 32,043 
Office furniture9,475 9,003 
Software6,134 5,422 
Leasehold improvements47,891 42,984 
Asset retirement obligation827 826 
Gross property and equipment690,979 541,293 
Less accumulated depreciation and amortization(294,427)(218,480)
Total property and equipment, net$396,552 $322,813 
Depreciation and amortization expense on property and equipment for the three months ended September 30, 2024 and 2023 was $27.9 million and $29.0 million, respectively, and for the nine months ended September 30, 2024 and 2023 was $78.3 million and $83.2 million, respectively. This includes amortization expense for capitalized internal-use software which totaled $6.3 million and $5.4 million for the three months ended September 30, 2024 and 2023, respectively, and $17.7 million and $16.1 million for the nine months ended September 30, 2024 and 2023, respectively.
Goodwill
As of September 30, 2024 and December 31, 2023, the Company's goodwill was $157.2 million and $148.0 million, respectively. During the nine months ended September 30, 2024, the Company recorded $9.1 million of goodwill in connection with acquisitions. For further details on the acquisition of BastionZero, refer to Note 13 to these condensed consolidated financial statements. No goodwill impairments were recorded during the nine months ended September 30, 2024 and 2023.
Acquired Intangible Assets, Net
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Acquired intangible assets, net consisted of the following:
September 30, 2024
Gross Carrying
Amount		Accumulated
Amortization		Net Book
Value
(in thousands)
Developed technology$16,431 $5,159 $11,272 
Customer relationships11,600 3,625 7,975 
Total acquired intangible assets, net$28,031 $8,784 $19,247 
December 31, 2023
Gross Carrying
Amount		Accumulated
Amortization		Net Book
Value
(in thousands)
Developed technology$47,183 $36,893 $10,290 
Trade name1,700 1,488 212 
Customer relationships11,600 2,538 9,062 
Total acquired intangible assets, net$60,483 $40,919 $19,564 
During the three months ended June 30, 2024, the Company acquired $9.3 million of developed technology, primarily through the acquisition of BastionZero, which accounted for $5.1 million of the total acquired intangible assets. Refer to Note 13 to these condensed consolidated financial statements for further details on this acquisition.
Amortization of acquired intangible assets was $2.4 million and $4.9 million for the three months ended September 30, 2024 and 2023, respectively, and $9.7 million and $14.7 million for the nine months ended September 30, 2024 and 2023, respectively.
As of September 30, 2024, the estimated future amortization expense of acquired intangible assets was as follows:
Estimated
Amortization
(in thousands)
Year ending December 31,
2024 (remaining three months)$2,416 
20259,065 
20263,053 
20271,450 
20281,450 
Thereafter1,813 
Total$19,247 
Note 6. Leases
The Company's lease portfolio consists of real estate and co-location agreements in the United States and internationally. The real estate leases include leases for office space and have remaining lease terms of up to 6.8 years. Certain of these leases contain options that allow the Company to extend or terminate the lease agreement. The Company's co-location leases have remaining lease terms of up to 8.0 years. All of the Company's leases are classified as operating leases.
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The components of lease cost related to the Company's operating leases included in the condensed consolidated statements of operations were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
(in thousands)(in thousands)
Operating lease cost$12,500 $10,974 $35,624 $32,899 
Total lease cost$12,500 $10,974 $35,624 $32,899 
Variable lease cost and short-term lease cost for the three and nine months ended September 30, 2024 and September 30, 2023 were not material.
As of September 30, 2024, the Company had $56.7 million of total undiscounted future payments under operating leases that have not yet commenced, which were not included on the condensed consolidated balance sheets. These operating leases will commence between October 2024 and July 2026 and have an average lease term of 4.5 years.
As of September 30, 2024, the weighted-average remaining term of the Company’s operating leases was 4.6 years and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 4.8%.
Maturities of the operating lease liabilities as of September 30, 2024 are as follows:
September 30, 2024
(in thousands)