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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 June 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 July 18, 2024, 303,675,639 shares of the registrant's Class A common stock were outstanding and 38,027,095 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 Hamas-Israel and Russia-Ukraine conflicts 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 Hamas-Israel and Russia-Ukraine conflicts 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)
June 30,
2024		December 31,
2023
Assets
Current assets:
Cash and cash equivalents$156,967 $86,864 
Available-for-sale securities1,600,430 1,586,880 
Accounts receivable, net250,213 248,268 
Contract assets12,917 11,041 
Restricted cash short-term1,000 2,522 
Prepaid expenses and other current assets71,491 47,502 
Total current assets2,093,018 1,983,077 
Property and equipment, net339,124 322,813 
Goodwill156,162 148,047 
Acquired intangible assets, net21,663 19,564 
Operating lease right-of-use assets141,870 138,556 
Deferred contract acquisition costs, noncurrent144,330 133,236 
Restricted cash2,023 1,838 
Other noncurrent assets18,483 12,636 
Total assets$2,916,673 $2,759,767 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$59,528 $53,727 
Accrued expenses and other current liabilities66,916 63,597 
Accrued compensation 57,813 63,801 
Operating lease liabilities 40,740 38,351 
Deferred revenue370,968 347,608 
Total current liabilities595,965 567,084 
Convertible senior notes, net1,285,342 1,283,362 
Operating lease liabilities, noncurrent112,508 113,490 
Deferred revenue, noncurrent23,579 17,244 
Other noncurrent liabilities17,734 15,540 
Total liabilities2,035,128 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 June 30, 2024 and December 31, 2023; 303,321 and 298,089 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
302 297 
Class B common stock; $0.001 par value; 315,000 shares authorized as of June 30, 2024 and December 31, 2023; 38,216 and 39,443 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
39 40 
Additional paid-in capital1,956,984 1,784,566 
Accumulated deficit(1,074,461)(1,023,840)
Accumulated other comprehensive income (loss)(1,319)1,984 
Total stockholders’ equity881,545 763,047 
Total liabilities and stockholders’ equity$2,916,673 $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
June 30,		Six Months Ended
June 30,
2024202320242023
Revenue$400,996 $308,494 $779,598 $598,669 
Cost of revenue89,011 75,221 174,049 145,653 
Gross profit311,985 233,273 605,549 453,016 
Operating expenses:
Sales and marketing174,501 146,688 368,603 283,689 
Research and development102,547 89,610 190,250 171,149 
General and administrative69,635 53,147 135,944 101,622 
Total operating expenses346,683 289,445 694,797 556,460 
Loss from operations(34,698)(56,172)(89,248)(103,444)
Non-operating income (expense):
Interest income21,715 16,536 42,967 30,023 
Interest expense(1,218)(1,539)(2,318)(3,665)
Loss on extinguishment of debt— (50,300)— (50,300)
Other income (expense), net269 (1,527)1,393 (2,384)
Total non-operating income (expense), net
20,766 (36,830)42,042 (26,326)
Loss before income taxes(13,932)(93,002)(47,206)(129,770)
Provision for income taxes
1,146 1,465 3,415 2,779 
Net loss$(15,078)$(94,467)$(50,621)$(132,549)
Net loss per share attributable to common stockholders, basic and diluted
$(0.04)$(0.28)$(0.15)$(0.40)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
340,648 332,297 339,617 331,448 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
Net loss$(15,078)$(94,467)$(50,621)$(132,549)
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on investments
(915)(171)(3,799)5,587 
Cash flow hedges:
Change in unrealized gain (loss) on cash flow hedges
910 — 910 — 
Reclassification of gain (loss) included in net loss
(414)— (414)— 
Net changes on cash flow hedges
496 — 496 — 
Other comprehensive income (loss), net of tax
(419)(171)(3,303)5,587 
Comprehensive loss$(15,497)$(94,638)$(53,924)$(126,962)

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 June 30, 2024
Class A common stockClass B common stockAdditional
paid-in
capital		Accumulated
deficit		Accumulated
other
comprehensive
loss		Total
stockholders’
equity
SharesAmountSharesAmount
Balance as of March 31, 2024301,023 $300 38,710 $39 $1,857,168 $(1,059,383)$(900)$797,224 
Issuance of common stock upon exercise of stock options72 — 576 1 3,191 — — 3,192 
Issuance of common stock related to early exercised stock options— — 2 — — — — — 
Vesting of shares issued upon early exercise of stock options— — — — 32 — — 32 
Issuance of common stock related to settlement of restricted stock units (RSUs) and performance stock units (PSUs)1,040 1 — — (1)— — — 
Tax withholding on RSU settlement(59)— — — (4,362)— — (4,362)
Conversion of Class B to Class A common stock1,072 1 (1,072)(1)— — — — 
Common stock issued under employee stock purchase plan173 — — — 10,455 — — 10,455 
Other— — — — 1,689 — — 1,689 
Stock-based compensation— — — — 88,812 — — 88,812 
Net loss— — — — — (15,078)— (15,078)
Other comprehensive loss— — — — — — (419)(419)
Balance as of June 30, 2024303,321 $302 38,216 $39 $1,956,984 $(1,074,461)$(1,319)$881,545 





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 June 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 March 31, 2023289,372 $289 42,395 $41 $1,536,367 $(877,973)$(6,138)$652,586 
Issuance of common stock upon exercise of stock options 147 — 567 — 3,754 — — 3,754 
Repurchases of unvested common stock (17)— — — — — — — 
Vesting of shares issued upon early exercise of stock options — — — 1 580 — — 581 
Issuance of common stock related to settlement of RSUs818 1 133 — (1)— — — 
Tax withholding on RSU settlement (20)— (5)— (1,325)— — (1,325)
Conversion of Class B to Class A common stock 1,283 1 (1,283)(1)— — — — 
Common stock issued under employee stock purchase plan249 — — — 10,450 — — 10,450 
Stock-based compensation — — — — 70,426 — — 70,426 
Net loss — — — — — (94,467)— (94,467)
Other comprehensive loss— — — — — — (171)(171)
Balance as of June 30, 2023291,832 $291 41,807 $41 $1,620,251 $(972,440)$(6,309)$641,834 

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)

Six Months Ended June 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 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 options186 — 1,592 2 7,612 — — 7,614 
Issuance of common stock related to early exercised stock options— — 2 — — — — — 
Vesting of shares issued upon early exercise of stock options— — — — 63 — — 63 
Issuance of common stock related to settlement of RSUs and PSUs2,154 2 — — (2)— — — 
Tax withholding on RSU settlement(102)— — — (8,763)— — (8,763)
Conversion of Class B to Class A common stock2,821 3 (2,821)(3)— — — — 
Common stock issued under employee stock purchase plan173 — — — 10,455 — — 10,455 
Other— — — — 1,689 — — 1,689 
Stock-based compensation— — — — 161,364 — — 161,364 
Net loss— — — — — (50,621)— (50,621)
Other comprehensive loss— — — — — — (3,303)(3,303)
Balance as of June 30, 2024303,321 $302 38,216 $39 $1,956,984 $(1,074,461)$(1,319)$881,545 



The accompanying notes are an integral part of these condensed consolidated financial statements.
13
CLOUDFLARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)

Six Months Ended June 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 options240 — 1,280 1 7,058 — — 7,059 
Repurchases of unvested common stock(17)— — — — — — — 
Vesting of shares issued upon early exercise of stock options— — — 1 1,170 — — 1,171 
Issuance of common stock related to settlement of RSUs1,533 2 322 — (2)— — — 
Tax withholding on RSU settlement(41)— (13)— (3,383)— — (3,383)
Conversion of Class B to Class A common stock3,307 3 (3,307)(3)— — — — 
Common stock issued under employee stock purchase plan249 — — — 10,450 — — 10,450 
Stock-based compensation— — — — 129,535 — — 129,535 
Net loss— — — — — (132,549)— (132,549)
Other comprehensive income— — — — — — 5,587 5,587 
Balance as of June 30, 2023291,832 $291 41,807 $41 $1,620,251 $(972,440)$(6,309)$641,834 

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)
Six Months Ended June 30,
20242023
Cash Flows from Operating Activities
Net loss$(50,621)$(132,549)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense59,767 65,182 
Non-cash operating lease costs23,124 21,925 
Amortization of deferred contract acquisition costs36,991 29,011 
Stock-based compensation expense155,714 125,793 
Amortization of debt issuance costs1,980 2,470 
Net accretion of discounts and amortization of premiums on available-for-sale securities
(24,028)(19,050)
Deferred income taxes(1,310)(613)
Provision for bad debt4,770 6,037 
Loss on extinguishment of debt— 50,300 
Other291 494 
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net(6,715)(35,413)
Contract assets(1,876)(381)
Deferred contract acquisition costs(48,085)(43,348)
Prepaid expenses and other current assets(24,726)(13,996)
Other noncurrent assets1,941 (1,991)
Accounts payable15,996 6,602 
Accrued expenses and other current liabilities254 1,454 
Operating lease liabilities(25,031)(18,149)
Deferred revenue29,695 56,460 
Other noncurrent liabilities263 627 
Net cash provided by operating activities148,394 100,865 
Cash Flows from Investing Activities
Purchases of property and equipment(61,681)(56,289)
Capitalized internal-use software(12,831)(10,703)
Asset acquisitions and business combinations, net of cash acquired
(13,977)— 
Purchases of available-for-sale securities(790,675)(795,096)
Sales of available-for-sale securities— 20,248 
Maturities of available-for-sale securities792,354 857,456 
Other investing activities18 59 
Net cash provided by (used in) investing activities
(86,792)15,675 
Cash Flows from Financing Activities
Repayments of convertible senior notes— (172,249)
Cash paid for issuance costs on revolving credit facility
(2,148)— 
Proceeds from the exercise of stock options7,614 7,059 
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(8,763)(3,383)
Payment of indemnity holdback— (9,208)
Net cash provided by (used in) financing activities
7,164 (167,365)
Net increase (decrease) in cash, cash equivalents, and restricted cash
68,766 (50,825)
Cash, cash equivalents, and restricted cash, beginning of period91,224 215,204 
Cash, cash equivalents, and restricted cash, end of period
$159,990 $164,379 
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest$63 $595 
Cash paid for income taxes, net of refunds$2,741 $2,557 
Cash paid for operating lease liabilities$22,788 $18,306 
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Stock-based compensation capitalized for software development$4,950 $3,525 
Accounts payable and accrued expenses related to property and equipment additions
$14,243 $8,347 
Vesting of early exercised stock options$63 $1,171 
Indemnity holdback consideration associated with business combinations$2,023 $— 
Operating lease right-of-use assets obtained in exchange for operating lease liabilities$22,870 $16,636 
Maturity of marketable securities in other current assets
$5,000 $— 

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 June 30, 2024, the condensed consolidated statements of operations and of comprehensive loss for the three and six months ended June 30, 2024 and 2023, the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 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 June 30, 2024, its results of operations for the three and six months ended June 30, 2024 and 2023, and its cash flows for the six months ended June 30, 2024 and 2023. The results for the three and six months ended June 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 experience and on various other assumptions that are believed to be reasonable. Due in part to the Hamas-Israel
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and Russia-Ukraine conflicts, 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 August 1, 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 $11.9 million for the six months ended June 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 six months ended June 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 June 30,Six Months Ended June 30,
2024202320242023
(dollars in thousands)(dollars in thousands)
AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue
United States$207,008 51 %$161,692 53 %$403,471 52 %$314,610 53 %
Europe, Middle East, and Africa
110,968 28 %84,346 27 %216,352 28 %162,677 27 %
Asia Pacific52,126 13 %40,399 13 %99,777 13 %79,617 13 %
Other30,894 8 %22,057 7 %59,998 7 %41,765 7 %
Total$400,996 100 %$308,494 100 %$779,598 100 %$598,669 100 %
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The following table summarizes the revenue from contracts by type of customer:
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
(dollars in thousands)(dollars in thousands)
AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue		AmountPercentage
of Revenue
Channel partners
$76,686 19 %$47,148 15 %$147,137 19 %$88,151 15 %
Direct customers
324,310 81 %261,346 85 %632,461 81 %510,518 85 %
Total$400,996 100 %$308,494 100 %$779,598 100 %$598,669 100 %
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 six months ended June 30, 2024 and 2023, the Company recognized revenue of $270.3 million and $169.7 million, respectively, 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 June 30,Six Months Ended June 30,
2024202320242023
(in thousands)(in thousands)
Beginning balance$137,527 $98,427 $133,236 $93,145 
Capitalization of contract acquisition costs
25,687 23,957 48,085 43,348 
Amortization of deferred contract acquisition costs
(18,884)(14,902)(36,991)(29,011)
Ending balance$144,330 $107,482 $144,330 $107,482 
The Company did not recognize any impairment losses of deferred contract acquisition costs during the periods presented.
Remaining Performance Obligations
As of June 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,421.0 million. As of June 30, 2024, the Company expected to recognize 69% 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 and restricted cash are comprised of highly liquid money market funds. 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 June 30, 2024 and December 31, 2023.
(in thousands)    Reported as:
June 30, 2024Amortized
Cost		Unrealized
Gain		Unrealized
(Loss)		Fair ValueCash &
Cash
Equivalents		Available-for-sale securitiesRestricted
Cash (Current and Non-Current)
Cash$60,979 $— $— $60,979 $57,956 $— $3,023 
Level I:
Money market funds
99,011 — — 99,011 99,011 — — 
Level II:
Corporate bonds
408,749 40 (690)408,099 — 408,099 — 
U.S. treasury securities
1,036,063 162 (1,178)1,035,047 — 1,035,047 — 
U.S. government agency securities
59,151 — (73)59,078 — 59,078 — 
Commercial paper
98,205 1 — 98,206 — 98,206 — 
Subtotal
1,602,168 203 (1,941)1,600,430 — 1,600,430 — 
Total assets measured at fair value on a recurring basis
$1,762,158 $203 $(1,941)$1,760,420 $156,967 $1,600,430 $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 June 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 June 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 $1,117.9 million and $1,185.1 million as of June 30, 2024 and December 31, 2023, respectively. The amortized cost of available-for-sale investments with maturities greater than one year was $484.3 million and $399.7 million as of June 30, 2024 and December 31, 2023, respectively.
As of June 30, 2024, net unrealized loss on investments was $1.8 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 June 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 June 30, 2024, the fair value of the 2026 Notes was $1,176.4 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 June 30, 2024 and December 31, 2023.
Note 5. Balance Sheet Components
Accounts Receivable, Net
As of June 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 June 30, 2024 and 2023 was $1.5 million and $4.4 million, respectively, and for the six months ended June 30, 2024 and 2023 was $4.1 million and $6.0 million, respectively. Write-off of uncollectible accounts receivable for the three months ended June 30, 2024 and 2023 was $1.0 million and $2.7 million, respectively, and for the six months ended June 30, 2024 and 2023 was $2.4 million and $3.7 million, respectively.
Property and Equipment, Net
Property and equipment, net consisted of the following:
June 30, 2024December 31, 2023
(in thousands)
Property and equipment:
Servers—network infrastructure$383,716 $330,295 
Construction in progress33,728 45,557 
Capitalized internal-use software92,944 75,163 
Office and computer equipment35,784 32,043 
Office furniture8,998 9,003 
Software5,513 5,422 
Leasehold improvements44,469 42,984 
Asset retirement obligation826 826 
Gross property and equipment605,978 541,293 
Less accumulated depreciation and amortization(266,854)(218,480)
Total property and equipment, net$339,124 $322,813 
Depreciation and amortization expense on property and equipment for the three months ended June 30, 2024 and 2023 was $26.3 million and $28.4 million, respectively, and for the six months ended June 30, 2024 and 2023 was $50.4 million and $54.2 million, respectively. This includes amortization expense for capitalized internal-use software which totaled $5.9 million and $5.3 million for the three months ended June 30, 2024 and 2023, respectively, and $11.4 million and $10.7 million for the six months ended June 30, 2024 and 2023, respectively.
Goodwill
As of June 30, 2024 and December 31, 2023, the Company's goodwill was $156.2 million and $148.0 million, respectively. During the three months ended June 30, 2024, the Company recorded $8.1 million of goodwill in connection with the acquisition of BastionZero. For further details on this acquisition, refer to Note 13 to these condensed consolidated financial statements. No goodwill impairments were recorded during the six months ended June 30, 2024 and 2023.
Acquired Intangible Assets, Net
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Acquired intangible assets, net consisted of the following:
June 30, 2024
Gross Carrying
Amount		Accumulated
Amortization		Net Book
Value
(in thousands)
Developed technology$16,431 $3,105 $13,326 
Customer relationships11,600 3,263 8,337 
Total acquired intangible assets, net$28,031 $6,368 $21,663 
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 $2.0 million and $4.9 million for the three months ended June 30, 2024 and 2023, respectively, and $7.2 million and $9.8 million for the six months ended June 30, 2024 and 2023, respectively.
As of June 30, 2024, the estimated future amortization expense of acquired intangible assets was as follows:
Estimated
Amortization
(in thousands)
Year ending December 31,
2024 (remaining six months)$4,833 
20259,065 
20263,053 
20271,450 
20281,450 
Thereafter1,812 
Total$21,663