Q1 2021 Cloudflare Inc Earnings Call

And the mode. After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero.

As representing our views on the future we undertake no obligation to update these statements. After this call.

And for a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition. Please see our filings with the Securities and Exchange Commission as well as in today's earnings press release and when.

Otherwise noted all numbers, we talk about today other than revenue will be on an adjusted non-GAAP basis.

All current and prior period financials discussed are reflected under ASC 606.

You may find a reconciliation of GAAP to non-GAAP financial measures and our earnings release on our Investor Relations website for historical periods of GAAP to non-GAAP reconciliation can be found in the supplemental financial information referenced a few moments ago we.

And we would also like to inform you that we will be virtually participating and the Jpmorgan Global technology Media and Communications conference on May 25th the.

The Cowen TMT Conference on June 1st the Bernstein strategic decisions conference on June 4th the ever.

Of course TMT conference on June 7th and the Baird Global Consumer Technology and services Conference on June <unk> now I'd like to turn the call over to Matthew.

Thank you, Jason we had an outstanding quarter and Q1, we achieved revenue of $138 million up 51% year over year, two factors drove our accelerating revenue for.

We had notable success, adding new customers overall, our total customer count crossed $4 million and Q1 in particular, we added a record of 117 large customers those that spend more than $100000 per year with us our large customer count was up 70% year over year.

And as expected revenue from large customers now accounts for more than half of our total revenue the.

The second factor driving our outstanding performance and the quarter for the adoption of new products by our existing customers as we shared in February during our Investor day, 88% of our contracted customers now use for or more of cloud for the products up significantly from 18 months ago. When we went public for.

For us a significant number for us because our usage data suggests once someone is using that many products customers consider us a core platform that is very sticky and difficult for any competitor to match.

Other metrics also show our success selling new products to our existing customers.

In particular and Q1, we achieved the dollar based net retention rate of 123% up 400 basis points sequentially since very little of our revenue it's usage based and our success with this metric is driven by our success selling our broad platform to our customers. We saw particular strength in the quarter.

From popular one, which unifies cloud player for infrastructure and cloud for her team solutions into a platform that we believe represents the future of enterprise networking.

It's also worth noting that since we aren't dependent on usage based billing, we see no indication that as the world comes out of the effects of COVID-19, our ability to sell more products to customers is slowing down.

Cloud players engine runs on innovation and in Q1 that engine was firing on all cylinders since our last earnings call. We've hosted two innovation weeks security week and develop per week we.

We announced our made generally available more than 100 products and capabilities, including Magic Wan, our modern mpls replacement Magic firewall browser isolation data loss prevention superb fight mode cloud flow pages and workers on bound we also entered into strategic partnerships with leading SD Wan <unk>.

<unk> vendors datacenter operators database vendors observe ability companies developer ecosystem support services and even the leading graphics processor company in order to bring advanced AI to cloud for their workers, it's been incredible to watch our platform growth.

Our strategy with products has always been to get into the market quickly and then relentlessly improve until we are the category leader across each of the features that make up our platform is what we've done with products like our Ddos mitigation and web application firewall products, which enrich the street analysts like Gartner and Forrester are increasingly.

<unk> as the leaders in their categories.

But we're seeing the same with new products like Bot management, we launch our advanced Bot management feature two years ago at the time there were a number of companies that focus just on this one problem. We started small with only a handful of initial early adopters, but quickly using the incredible data from our vast platform we.

Iterate it to deliver of product. We believe is now the leader in the space.

Revenue from this product has grown north of 400% compounding annually and by the end of this year. We believe we will generate more revenue from just this product and most of the companies focused exclusively on Bot management.

We can build products faster and better because of the leverage we get from cloud players overall platform and today products like cloud flow workers and cloud flow pages are following a similar path to cloud for their advanced Bot management potential category pillars on their own but with all of the benefits for our customers of everything else our platform as of <unk>.

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We had some terrific customer wins throughout the quarter of.

Fortune 500 retailer signed a three year $1 $2 million contract to adopt cloudburst platform.

Preferred are well integrated approach to performance and security over Cobbling together multiple point vendors or using the Frankenstein like solutions. Other companies have tried to create through M&A.

They are implementing our platform and security solutions and the first phase, making extensive use of cloud for their workers edge compute platform Theres room for this relationship to grow and in phase II, we expect them to add Bot management advanced image handling and cloud for their patients.

Fortune 500 financial services firm turned to us when they were under a cyber attack there.

And their existing hardware and telecom provision solutions couldn't mitigate the attack the adopted our magic transit solution to protect their entire network and signed a three year $600000 contract. They were particularly impressed with our roadmap and pace of innovation why don't you go with the long term winter and the space.

On another fortune 500 financial services firm chose cloud player over legacy solutions, they considered in flexible and cumbersome.

And they signed a three year $1 $9 million contract.

And they implemented a number of our security services, including Bot management. They also introduced cloud furloughed workers and to their toolkit, which of their development team is already engaged on and particularly excited about.

One of the leading SaaS e-commerce platforms chose cloud flair to protect and secure all of their customers. They liked what they could offer seamless protection and blazing fast performance. They signed a $3 $6 million 38 month contract, it's worth noting that with this win a majority of the leading E. Commerce platforms are now powered by cloud player.

A major of credit reporting agency side of four year of $3 $6 million contract. The cloud for one proposition resonated with them and they adopted a broad set of our services. They are using cloud player to decommission of spiders web of legacy hardware boxes and upgrade to a modern cloud based solution.

Cloud for one was the real star this quarter.

We saw wins against more established competitors for our Zero Trust solutions. These included of public Voip company that purchased 2008 hundred feet of.

A large public security company that purchased 1800 seats of <unk>.

Fast growing private security organization that adopted cloud for one architecture.

And even in the industrial drone company that is ensuring the highly sensitive data the collective safe using cloud <unk> browser isolation technology.

As I said, we had an outstanding quarter when of quarter goes as well as this one the natural temptation is to wonder what could go wrong. So I thought I'd share of some of the things that I worry about.

First I worry about security and Theres been a dramatic uptick and the volume and sophistication of cyber attacks targeting our customers and our company directly while our team security posture and awareness is world class, we are vigilant and monitoring and addressing the ride and the sophisticated attacks second.

I worry about our team and our culture and.

Cloud player I believe we did an incredible job transitioning to a remote work environment, but in the months to come as we transition to whatever is next I worry there will be and upheaval across industries as employees reassess not just the future of work, but their future outlook.

Finally, I worried about regulatory risk it seems the tech companies of swung from being able to do no wrong to now being able to Juno right. That's a growth simplification, but its accurate to say that the regulatory landscape on a global basis is getting far more complicated and less consistent.

We've always been ones to turn lemons and the eliminate and our team is good at turning my concerns into products and opportunities. While we are constantly under attack. We're using those threats to product tied the sort of zero Trust network solutions, we couldnt find from any other vendor.

And while employees are likely to use the end of the pandemic as an opportunity to reassess the careers. We are doubling down on actively recruiting and hiring the best talent. The previously wouldnt consider changing jobs and as the regulatory environment becomes more complex, we're using technologies like cloud for their workers and durable object to not only.

The meet the data residency and locality requirements, we have ourselves, but also solve those problems for our customers.

Year over year.

EMEA represented 26% of revenue and increased 54% year over year.

APAC represented 16% of revenue and increased 30% year over year.

We were pleased to see revenue accelerate and the us and we continue to ramp our go to market footprint outside of the U S and.

And China, specifically, we've seen some headwind to revenue as baidu ramps down, but we are pleased to see the transition to J D track to our expectations.

Turning to our customer metrics, we had a record number of total customer additions and the first quarter, adding roughly 600000 free and paying customers and we ended the quarter with more than $4 1 million total free and paying customers, representing an increase of 46% year over year.

We exited the quarter with about 119200 paying customers, representing an increase of 34% year over year.

We saw notable acceleration and large customer additions and the first quarter I.

I think the 117 large customers sequentially and 389 year over year.

We ended the quarter with 945 large customers, representing an increase of 70% year over year.

On a 1 million dollar large customer cohort continues to be the fastest growing the large customer cohorts that we disclosed on our investor day in February.

We continue to see a balanced mix of new customers and the expansion customers and our large customer cohort.

We saw significant expansion from our large customers, which helped to drive for a record dollar based net retention rate of 123% for.

Presenting and increase of 400 basis points sequentially.

Oh and price go to market efforts continue to generate significant ROI scene and the success across our customer funnel from free to large customers as well as and our strong dollar based net retention. In addition, our customer acquisition cost is trending favorably and gives us confidence to continue.

New to invest and our large enterprise go to market activities.

First quarter Cross margin was 77, 6%, representing a decrease of 50 basis points sequentially.

Net of our Capex for a percentage 50% of revenue on the first quarter.

We've seen some constraints on the global electronics supply chain, but we believe we are very well positioned to absorb those challenges and continue to expect metro capex could be 10% to 12% of revenue for fiscal 2021.

Turning to operating expenses.

The first quarter operating expenses as a percentage of revenue increased 1% sequentially and decreased 11% year over year to 83%.

We had another strong hiring quarter with an increase of 41% year over year, bringing our total number of employees to 1931 at the end of the quarter.

Sales and marketing expenses were $63 1 million for the quarter.

Sales and marketing as a percentage of revenue was flat sequentially and decrease of 46% from 48% and the same quarter last year.

And the response, but the underlying strength, we are seeing and the business. We plan to continue to ramp large enterprise sales capacity and expand our global footprint.

Research and development expenses for $28 5 million and the quarter.

R&D as a percentage of revenue increased 1% sequentially and decreased 21% from 22% and the same quarter last year.

General and administrative expenses were $23 1 million for the quarter G&A as a percentage of revenue increased 1% sequentially and decreased to 17 from 24% and the same quarter last year.

We continue to see strong operating leverage and the first quarter with operating margin improving of thousand 40 basis points year over year.

Operating loss was $7 5 million compared to $14 4 million and the same period last year.

Net loss and the quarter was $9 3 million or net loss per share of <unk>.

Our effective tax rate for the first quarter was negative 16%.

Turning to the balance sheet.

We ended the first quarter was $1 billion and cash cash equivalents and the available for sales securities free.

Free cash flow was negative $2 2 million.

For 2% of revenue compared to a negative $36 million of.

And 34% of revenue and the same period last year.

Operating cash flow of positive $23 5 million from the first quarter was 17% of revenue, which increased $32 $3 million sequentially and $37 $8 million year over year.

We mentioned and our prior earnings call the collection for a strong and generally and that trend continued through the first quarter, which primarily drove the sequential increase and Q1 operating cash flow.

As we've mentioned previously we expect to see some level of variability and cash flow margins due to ongoing fluctuations in working capital the growth and our large enterprise business and seasonal factors.

Before moving to guidance for the second quarter and full year I'd like to provide a brief update on the COVID-19 related impacts and the associated provisions we shared last quarter.

Throughout 2020, we've disclosed the percentage of revenue represented by customers and COVID-19, and macro sensitive industries, such as transportation and hospitality and retail.

This cohort represented 8% of revenue and Q1 of 2020, and 7% and the quarters thereafter, including first quarter of 2021.

Customer concessions and bad debt also came in well below expectations again, this quarter and that remained consistent with historical levels. This is the last quarter. We are planning to disclose COVID-19 sensitive industry metrics since their performance has been consistent and encouraging.

And Q1, we saw another strong quarter of new ACB growth solid retention and large customers, making longer term commitments for cloud for there.

Remaining performance obligations or our Po remained strong and the first quarter coming in at $439 million.

Hunting and increase of 14% sequentially and 88% year over year current RPI of about 76% of total RPM.

Given the strong momentum, we're seeing we remain optimistic and confident and the continued growth of our business as such we are pleased to once again raised our outlook for both the quarter and full year.

For the second quarter, we expect revenue and the range of $145 five per $146 $5 million.

Representing an increase of 46% of 47% year over year.

We expect operating loss and the range of $10 million from $9 million.

We expect net loss per share and the range of four to <unk>.

Assuming approximately 308 million common shares outstanding and we expect and effective tax rate of negative 14%.

For the full year 2021, we expect revenue and the range of 612 to six and that $16 million, representing an increase of 42% to 43% year over year.

We expect operating loss for the full year and the range of $28 million to $24 million. We expect the net loss per share over that period and the range of 11% of 10 <unk>.

Assuming approximately 310 million common shares outstanding.

And the effective tax rate for 2021 of negative 21%.

In closing it was another very strong quarter and like and want to thank our talks of the employees for their continued dedication and delivering exceptional service for our customers partners and communities and with that I'd like to open it up for questions.

Greater please poll for questions.

To ask a question. Please press star one on your telephone keypad. The first question from Brian <unk> of Jefferies. Please go ahead of your line is open.

Thanks and afternoon, Matthew maybe if you could talk a little bit about the the go to market. This year, obviously, one and some great enterprise contracts and I am curious in terms of your approach and your your your.

Your go to market, if there's any anything you're changing up the share as it is it more of the same formula of the EBIT and <unk> been executing on and the last year.

So Brian Thanks for the question.

I think that over the course of the last year, we were very well served.

From our experience being able to sell.

And without without necessarily going and seeing people on person that obviously is the scale that a lot of other companies had to learn that's something that goes back to <unk> original original days I think what is changing is that we continue to invest and bringing in some of the best field sales.

Net debt, we need to service the larger and larger customers over time and so we are of spend fortunate that over the course of the last year, we've seen an incredible.

Number of candidates that have a bit of applied and and I think we disclosed that and not 2020 and nearly 200000 applicants supply to work a cloud player of about half of those were for sales and marketing roles and the caliber that those those those people are coming from is really just it's really just extraordinary and so we've been.

And we've been continuing to invest and go to where customers are but I think our strategy remains the same which is we invest on a very data driven basis.

First behind demand, we invest in a way that ensures that we have a successful share across our of our sales team and that that has that has allowed us to continue to move up market and sell and sell more.

New logos and and deliver that I think the other thing which is really bad.

Highlight of the last year has been how our expanding platform has allowed us to sell more to our existing customers and so <unk> seen that expand where as I said in the prepared remarks, 88% of our customers are now using for more cloud products and we are becoming one of their critical platform.

And I think that over time, that's going to do as we as we still have a lot of products that we are developing and releasing on a regular basis, that's going to allow us to continue to expand with those existing customers and and I'm incredibly proud of of our team's ability to get to 123% dollar based net retention.

And which is which is all driven by our ability to sell new products.

Great just a quick follow up for Thomas on the on the China headwind, you mentioned and the transition to Jamie.

Is that largely going to be on.

Is that going on.

And thankfully finish off on the second half of this year when and when does that when does that headwind debate.

Yes.

And we talked about the heavier weighted on our last earnings call and terms and offset that.

It was part of our guidance. So how we look at the the remainder of the year is digested and can the outlook we gave them.

And if it hadn't been for the headwind our growth rate and Asia have been would have been on historical levels.

And it will return.

So of that performance over the course of the year.

Great. Thank you.

Your next question comes from Matt Hedberg of RBC capital markets. Please go ahead of your line is open.

Oh, Hey, guys great. Thanks for taking my questions. Congrats on the acceleration of Q1.

Matthew I wanted to drill into the your comment about the multi product sales, which is really interesting.

I guess I'm wondering if you could refresh our memory on on some of the top for products today, but I think even more interesting. If we look back two three years from now what do you think you have today that could be and say a top five list for you guys.

Sure So I think foundational agent.

The way that we see customers is that what they want and the network and they can plug into and not have to worry about anything else. So they want and network, which is fast and network, which is reliable and the network, which is secure and so there are a lot of different products that map shoe.

And so some of the the legacy hardware boxes that are out there, so load balancing our firewall or or or.

And you know VPN and those sorts of things, but foundational Lee what customers want is that next generation corporate network and so I think we always struggle at some level of answering this question.

What we think we're doing and selling that next generation network and providing the the functionality for customers that they that they need and where they're headed too. If you look at and our products. It's a little bit like of mastermind game, where we really don't per where a customer starts a lot of times that initial into.

Risk starts with something like of security products.

And wanting to stop the denial of service attack needing to patch, a particular vulnerability, but that really begin to the conversation and which allows us to sell more to them over time, and so I think that when you look at our vision for cloud for their one which incorporates the classified for teams products and the clouds of their infrastructure products and that's the.

The direction, we think we're headed and again what it foundational is providing is that network that you can plug into and get performance security and reliability. All all in one unified package and that's I think that that's going to make a lot of the point cloud solutions that just do one of those things well look more like features.

And then that individual products or standalone companies on their own in terms of what I'm excited about we saw incredible strength this last quarter and.

And the cloud for one offerings and cloud so for teams winning very large deals and I think that that is only accelerating over the next period of time I think that that the features that we that we have and there will be something that we will see more and more adoption of cross across our customers and so that's an area that I would keep.

A close eye on and then obviously cloud for their workers, which is sort of that which of one of these things is not like the other.

And that opens obviously, a whole new market for us and I've been really impressed that in production from some of the largest companies and the world. They are now relying on cloud for their workers as one of their key technologies that their teams are using to build and maintain their applications. So this isn't this isn't vaporware. This is what you're on.

You're going and checking your credit report.

There's a good chance that you actually rely on parts of our workers to to do that.

That's fantastic Great overview, and then I guess, maybe the follow up to that you guys had on the announcements with Nvidia. This.

This quarter in terms of of partnership and I know, it's probably on a revenue generating king here and at least for the short term, but the talk to us about what that does for the speed at the edge and it seems like it just amplifies everything you've done historically, but maybe talk to the importance of that partnership.

So we want to make cloud for their workers. The most powerful development platform in the world and not the most powerful edge computing platform and the world. We wanted to be the most powerful development platform and the world and we think of ourselves as competing not with niche edge computing vendors, but with.

The core <unk>.

Computing vendors that are out there and so as we talk to customers and as we look at our own needs. One of the things wishes of rising importance is being able to do artificial intelligence and model mapping and do it and in a way which is incredibly performance and so we were looking for a partner to help us.

Drive.

AI running at the edge Nvidia is ease of leader through their graphics processor units, we use their technology internally to drive a lot of our AI models for products like Bot management, and and others already and so this is a way that we can bring that intelligence and that power to all of the.

Developers and I guess I think it's one of many different ways that we're going to make the plethora of workers' platform.

And that what we think is the pre eminent a computing platform for developers whatever they're trying to do.

Thanks, a lot guys.

Your next question is from Sterling Auty of Jpmorgan. Please go ahead. Your line is open.

Yeah.

Hey, this is true on for Sterling.

The success of Bot management and mentioned that cloud for workers on pages are following a similar path I was wondering if you could expand upon that point and the trajectory that you're seeing with those type of products.

Sure. So we we believe that we want to get products into the market.

Quickly and early on.

And and then use the data and use all of the customers Cross cloud flair to iterate on those products and improve over time and so what we've seen.

It with Bot management, and we've seen with a number of new products.

That we've launched is that if we get them there that should get customer feedback and that allows us to very very quickly make those products significantly better and so I talked a little bit about workers comp of our pages.

And the ability for us to really satisfy some of the needs of developers.

There are a number of companies that are focused exclusively on doing what are called the <unk> stack.

Elements environment, that's something that we heard from a cluster of workers developers are the tens of thousands of developers that sign up for classes of workers every single quarter and they were interested in we had the technology and platform to be able to deploy that across our entire infrastructure without adding.

Significant additional cost and Thats just cabinet for developers over over time, it helps them move to our platform and makes our platform stickier and stickier and so that again I think as a and embodiment of how cloud player thinks about product development and how can we take the network that we have.

And how can we take the customers that we have learned from them use the data that we generate from our network and then provide products, which are not only faster and more secure more reliable, but also just provided greater ROI as part of the overall bundled clouds of their experience and so that's been.

The real success, I think and something that is driving more and more developers to our platform and and causing the MTA build entire application relying rely on top of the workers and and the adjacent products.

Got it that's very helpful. Thank you.

Your next question is from James Fish of Piper Sandler. Please go ahead. Your line is open.

Hey, guys. Thanks for the questions and congrats on another great quarter.

Maybe Thomas for you. It does seem like durations, increasing again is that just a factor of larger customers signing up more greater prepayments by those customers or any sales incentive innovation and then Matthew for you what do you see as those regulatory risks you were highlighting in your prepared remarks.

Yeah. So our sales cycles are actually getting a little bit shorter, but our contract.

Contract duration is moving out publicly from 12% to 13% to 13% to 14 months and.

And even more importantly of few way or.

On the contract duration of dollar based it's appropriate for 16 months and the springs.

So early of payments with all of the good benefits that you saw on the cash flow side too so moving upmarket being robbed the successful and large cohorts is driving the growth the results. The do you see.

Yes.

And Jim I don't think Theres anything unique to cloud flare about the regulatory risk.

Debt that we face, but I do think that the regulatory environment around the world is getting much more complicated.

We're seeing as different countries are requiring data locality and data residency requirements, that's forcing companies to find ways to make sure that all of their customer data and doesn't leave India, or Brazil, or Germany, or or the sort of patchwork of regulatory environment.

And I think it is coming down the line that impacts us to some extent, but I don't think of it impacts on any more than any other company, which is which is out there what I do think it does because we have and awareness and Mike.

And my parents will be happy that the three years I spent and law school weren't weren't completely for waste.

That the that allows us to think about how we can build products and not only help ourselves meet that increasingly complicated environment, but also help our customers and so and example of that is something that we launched at the end of last year and brought the G. A this last quarter, which is durable objects that allows the day.

<unk> to write data into a data store and then tag that data with the particular geography, saying and particular don't ever let this data leaves, Germany don't ever let this data and leave India and yet still right through a single application the ability to address that as we talk to and as we see.

Cloth of workers being adopted across some of the largest companies and the world what what's driving them to that often time is that complicated regulatory environment and so I think today. If you look at and if you look at our customer profile, it's about one and six.

Websites. According to third party data today is using cloud clear that that obviously means that we have a responsibility, but I think that that responsibility is something which is allowing us to build products, which can help service a global audience and that's part of why you see.

The large fortune 500 companies adopting platforms like clouds of our workers.

Got it and Matthew I'm sort of your parents are proud of you either way law career or not.

Quickly supply chain shortage out there it looks like Capex picked up a bit I guess it seems like you guys are trying to pre buy some of the underlying equipment and I understand you guys don't have a huge amount of capacity that's required because youre not in the media gave but how are you guys managing through the supply chain constraints.

I think I think we have invested a lot in and delivering what we think of as almost of just in time infrastructure delivery service and that allows us to take advantage of times, when we were able to get deals.

And in the and the hardware components that we need and it allows us to be very nimble and flexible and that was important as we as we got through the last 14 months, where we saw unprecedented growth.

Growth and we were able to deliver and build out our network even even in the face of that growth also say that one of the things that we invested in starting back in 2015, which is starting to pay off out is the flexibility across our platform to not be dependent on any one particular chip vendor. So we can easily migrate.

Not only between Intel and AMD chips, but also to arm based chips and so right now we have arm based chips in production running across our our network and processing.

Use of requests and and in a way that's incredibly efficient that flexibility allows us to I think have.

More options as the world is dealing with some of the shortages of of of chips and of the other semiconductors and I think that that that is that that engineering that flexibility and with.

Which we've been doing for quite some time is allows us to be very NIM.

Nimble as we need to build build out our of our network, but it's something we watch carefully it's something that we're on top of but I think that we have more nimbleness and flexibility because of the and and the engineering work that we've done. So I think we are less exposed to it than some others in the space.

Helpful. Thanks, guys.

Your next question is from of Joel Fishbein of choice of Securities. Please go ahead. Your line is open.

Thanks for taking the question Hey, Matthew This is a follow up to one of the earlier questions.

Obviously, you guys have a huge breadth of products I think over 100 product capabilities now the industry. Some of the industry players are talking about turning products into I guess features can you tell me or tell us how cloud for us playing into that and how you guys think about that going forward.

Sure Joel I mean, I think the that's a big part of our strategy.

And if you look at the company is that get to the next stage.

They are they are taking their they are broad and feature set and combining it into what are effectively site licenses for large customers to deliver a broad platform that solves a large set of needs and so as we compete with companies that just do one.

Paying well.

We are good at doing multiple things well and we're able to use the overall platform to solve not just one need but many of them and give our customers and enormous amount of flexibility as we as we do that and so I think that in the past there used to be a company its focus entirely on.

And something like Ddos mitigation, we've turned that into a feature of they used to be companies focused entirely on web application firewall, we've turned that into a feature.

And I think that as you see us go into a lot of the zero Trust market.

It's powerful is that when we sell against somebody who is just providing the zero Trust gateway services or zero Trust access services, we can often times when and those in those markets and not only providing a better product, but then also bundling it together with other features like Ddos mitigation.

Laugh DNS and.

And and and other and other things and so over time that platform becomes richer and richer and we're making sure that we have the sales sophistication as we move off the organizational chart selling.

All of the million dollar deals to be selling what is essentially the entire platform to the CIO or CTO and so I think that's going to be a big part of our story going forward I think that that's a that is the strategy that we're embarking on and I and I think that it's it is a tried and true strategy over time and the one thing that's a little bit different about us and.

And some others is we have been able to develop the broad set of platforms without engaging in very significant M&A over over that period of time and and that has the benefit that it is not only more efficient but it also means that our platform is very tightly integrated and that's something that we that we hear over and over again.

As a real differentiator, where you don't have to have the sort of Franklin Frankenstein like approach of a bunch of companies that were bought through M&A.

Great. Thank you so much.

Your next question comes from Keith Weiss of Morgan Stanley. Please go ahead. Your line is open.

Excellent. Thank you for taking the question guys and really really nice quarter.

Two questions one I think it's true for.

From Matthew.

Yeah, obviously, one of the most impressive stats this quarter was the the pace of new customer additions can you help us understand how much of that is just kind of the sort of the market getting better and.

And people looking for these types of solutions overall understanding of the risk environment and.

And how much is cloud for US is there anything particular from an operational perspective, or an execution perspective that really kicked into gear for you guys that enabled those new customers to really turn on and the quarter and then all of a follow up for Thomas.

Yeah I think.

I think that the the first thing is that.

I think of lot of companies.

In the past, we're sort of clinging to what we what we referred to as kind of their email boxes IMU the the flightless bird.

Which which you know is he is.

And it perfectly good birds, but it can't fly so there's no way, it's ever going to get to the cloud.

On the that over the last year.

Became something which.

Just was untenable and as people shifted.

To remote work and so a lot of the.

Companies that in the past, we're somewhat reticent to shift to cloud based services.

Now found found themselves, saying, we're open to that so I don't think I actually don't think that the COVID-19 with was of particular tailwind for us over and over the course of the last year and as we've talked about.

And in previous calls and in a lot of weighted was a real headwind because we we had to adjust to a lot of things, but I do think that it accelerated the digital transformation and it freed up a lot of companies and financial services in Europe in small business or the sort of cloud reticent.

<unk> and the past to say, okay, we got to take the serious and they now and so I think what's happening is as <unk>.

People are coming back and it's not an emergency situation anymore.

Teams are saying, okay, now we need to take that call from cloud clear because it's time for us to get serious about about making sure that we never have to go through what we went through and and the spring of 2020 again, and so I think that's what's changed and the in the market and I think that that will be a positive factor for us for.

For the for several years to come and going forward I think the thing has changed the cloud player is we've just done what we always do which is we keep getting.

And more sophisticated and our sales motion and more sophisticated and our go to market motion I think we've added really great people to our team across the board.

From individual account managers up to the odd that the management of of our sales and marketing teams and I think that that is allowing us to better attract the these customers. You can also see it just and things like and industry analyst reports, where kotlarz and showing up in almost all of the categories. We're in.

We compete as one of the category leaders and in the must consider list and so I think that that that has always been our approach. We start in one place we work our way up both in terms of customer size and different geographies and and different industry verticals and youre seeing that that continues.

To to execute on going.

And going through this quarter.

Got it.

Remarkably and Thats, the second time and email referenced has come up on conference calls over the past two weeks.

And pretty remarkable there.

And it sounds like a question for you.

When he gets to present, the Tam and you break it down into App services Zero Trust services network services is that a valid way to kind of think about the the revenue buckets on a go forward basis in terms of of revenue segments on the go forward basis or is that just kind of market opportunity and and revenue segments should be thought of separately.

Yeah.

We would think about the time differently and and.

And how describe for the time today is largely driven by whole box of square so old and some are still our coach today. So true if you want to monitor the kids weight and it continues to be 50% for us into their security part of it and 60% close into the reliability and performance bucket, but the.

Bundling of the product is really describing the how we are sort of customer needs and how we address the market and and clearly cloud tier one and.

As the biggest opportunity for us from the dollar perspective and how.

How are we how we see the market moving forward.

Got it that's helpful.

Thank you guys.

Your next question is from Alex Henderson of Needham. Please go ahead. Your line is open.

Great. Thank you.

I appreciate the great print hopefully people will realize at the you really aren't the CDN and don't compete with Fastly.

And after the after the print.

I wanted to change the subject of little bit.

One of the critical variables that I think.

Makes your company is so different from everybody else is the degree to which you are able to reach and penetrate.

The code and community and you share some statistics on that.

For two back and I was hoping you could give us an update.

And maybe the number of coders that are currently co.

Coating on your system the growth rate.

Of that coding base.

How many developers.

And along those lines and that would help us to understand just how large of it and how critically important and do you have become to the code and community.

Yeah, Alex Thanks for the question I.

And I, we havent, we havent ton of respect for Fastly, and and and Akamai and and limelight.

We're in a very different business than than they are.

And where we were not usage based on by and large.

M, which which last year actually felt.

And the heart because use of its going up but we werent able to automatically bill more revenue of the good news from that though is that we also don't feel like we've got an overhang going into the back half of this for this or that the the rest of the remainder of this year.

And so I think the fact that that that just shows that it's just a very different business I actually looked up the data and.

Firstly it is a we don't we just don't see them and deals because again I think that they are very much going after the media space and doing media delivery and that's something that's just very different than what the what we've ever.

Intended to do so I appreciate you recognizing the difference for that that's not to say that they don't have a great business.

I think they do it is just not one that we really compete with them.

In terms of in terms of developers, we've continued to see very strong growth.

Growth across the developer platform, we've seen that the rates that we had of new developer add in Q4 continued through Q1, we launched our developer weak in Q1, which was had enormous amount of success and and a real engagement.

And from from the developer community and you've seen us add products like plasma of pages, which solve some developers needs and really speaks to that that community and the other thing. That's been amazing has been that we have really started to engage with developers where they are we have of developer relations.

Team, which is in a chat room on on discord on stock exchange on on all of the different developer communities that are out there constantly commuting hitting with developers and if you look at alpha for their workers is getting built.

It's great that we've got all of the sort of fortunate 500 companies that are adding a cluster of workers for there.

The stack, but it's also amazing that individual developers are able to build applications with the incredible amount of sophistication on just on their own and our goal still remains that we want to be the first platform that allows the developer to build of $1 billion application by themselves and.

And I and I feel I feel pretty confident that's going to happen.

I generally think of you guys are focused on.

Domains of the main the main to user.

Data and flight protection and.

Performance optimization.

That kind of leaves a big space.

The opportunity open, which I don't hear you talk too much about which is moving backwards into the Dev ops.

Arena and participating earlier and earlier in the and.

On the programming function.

Can you talk a little bit about to what extent, you're you're extending beyond.

The data and flight to data and development.

Yeah, you know I think that we you know I think one of the things that's important.

About the company is knowing knowing what you do and and also knowing what you what you don't do.

Think that we there are places, where we think that it makes more sense for us to partner with other Dev and ops companies. So for instance, and we announced during developer of weak and extensive partnership with with the Terraform platform and Hashi Corp.

To be able to configure.

Cloud for their in a in a very programmable and and and and developer centric way, that's somebody that resonates not only with developers, but resonates with even though the large fortune 500 companies that that we work with and so I think that we're always looking for ways to be able to play well within the <unk>.

Water ecosystem and and facilitating that ecosystem. We think is is super super important so.

I think that there may be maybe some things that make sense for us to do.

But again I don't think that we are under any illusion that we that we would rather be good partners to the overall Dev ops space and then and feel like we have to own every part of it is similar to how I think we're a much better partner to the identity providers that are out. There then and then wanted to build our own identity provider, we're much better part.

<unk> to the endpoint security providers that are out there than ever wanted to get for that space. We do we do the network's super well and that's a and that's and that's something that every developer needs and so we want to make sure that we're providing that in a way that works well within the broader ecosystem.

Alright, that's true, but there and we've got it thanks.

Thanks, Alex.

Operator next question please.

Your next question is from at least the Rafi of B.

The Securities. Please go ahead of your line is open.

Oh, yeah. So thank you very much can you quantify your cloud flair for teams offering it was I think last year of less than 10% of revenue has it crossed the 10% bogey for example, which products they're group, perhaps more than expected access for example, do you expect to come down.

And as the world recovers from COVID-19 and.

Do you expect browser isolation of the deal pizza to ramp well this year.

So we are not breaking out.

Revenue on the on the on a product level and on the product basis for most of last year our team product for.

And for free so there's not a lot of.

Revenue of two.

Contribution and in last year's numbers. So the sleeves of course, a bigger opportunity for this year, but will not give guidance moving forward for them on.

On the on the product base that's for sure.

How we think about the business in terms of bundling and Ob are.

And specific situations, especially against the companies and competitors that only have one product as you heard from Matthew So of the Attunity the stream and the bundling of the products here.

And.

We are really proud with the product or solution.

Offering that we just launched the.

It's an exciting product and.

The draws a lot of them.

The interest from from all of them.

Okay, and then one more you said bot management was up more than 400%, that's quite impressive and and it's more than any pure play out there in terms of revenue.

Can you share with us what the number is for the other companies, but what what's the highest revenue that's out there from the pure plays.

What I said about human and part of our solution is also true for parts of mitigation of I'm not going to talk up on or specific revenue numbers and I think what is more important is they're there and the transformation that Matthew was talking about the tweet turning products Standalone products and do features on our network and mitigate.

And that's one of those future rice offerings are and where do you see tremendous success based on the strength of our platform and most.

For the product itself.

Okay. Thank you.

Your next question is from James Breen of William Blair. Please go ahead. Your line is open.

Thanks for taking the question and just a couple of one on the sales and marketing side around 46% of revenue this quarter.

On the long term model of being 27 and 29. It seems like you hired a lot of people and that group. How do you think about that as we move out over the next couple of years.

As the sales team in place now the gross with the topline.

And can that start to come down and then just from a business perspective, you get a lot of revenue globally.

Any thoughts there on your customer base and you know you had multiple customers taking products and multiple locations.

And then just just lastly on cash of $1 billion and cash you're hovering around cash flow breakeven right now yes.

What are your thoughts on that you haven't really done and any M&A does it seem like you need to do it to grow.

Just sort of the strategic thoughts and on the cash balance.

Yeah, maybe I'll start there and then.

And talk about sales and marketing and.

The message we couldn't comment on the other Christian.

The 1 billion from upstream so certainly not for any new Poland our pocket.

Therefore, it's a transaction that we started last year during the bid and timely for outlook and dip.

Business environment was very for smart grid of certain certainly doesn't.

Given us and incentives to be super aggressive on the merchant on.

M&A activities.

And we always talked about how we how we have the natural bias towards internal development, because it's just really difficult plus the <unk>.

And the attractive targets that are created.

Craveable and our software stack.

And so it was supposed to make our balance sheet strong and make us opportunistic and to.

The business opportunities that might show up but it certainly is not putting any increased pressure on us to burn and the money on the M&A.

On the sales and marketing side. We are we are committed to our long term model, but we also realize that we on it.

For a very unique position that every dollar of recurrent and spend on our and home sales and marketing is delivering superior ROI in terms of top line growth, whether it's new logo acquisition or expansion of existing customers and we always said as long as our investments get rewarded with the peer Ria rich.

Turns we are going to continue to spend in this direction and plenty of opportunity to expand our footprint.

And more importantly, and not only as of this.

The ore is good our customer acquisition costs are tracking also really favorable so we feel good about the strategy of the Nazi was talking about before and <unk>.

Moving the data following the behind the demand for that we see from a customer perspective and as long as the ROI is right. We will continue with the strategy.

Great and just just on the globalization of the product you're talking about having.

Customers taking for products.

Do you have multiple customers take going across multiple regions.

He's talking about the out of it.

Yeah, So I mean, when we're whenever we're selling to.

The fortune 500 customer.

And they're gonna be across you know many many of our different regions and and as our sales team has gotten more sophisticated and helps us supports a day.

They are the that these more complicated sales.

But copper was a global company from almost of the incident that we launched and we're adding the capacity to service our customers around the world and I think the thing that is for mains.

Something that is different about us is how international where we're about 50% of our revenue does come from outside the United States.

We have the we have that built in already I think we of a brand that resonates around the around the rest of the world and as we add sales capacity around the world.

That helps I also think of what people want if you know if you're a fortune 500 companies you want to be able to have one company that can service you anywhere you have and office and the fact that today, we're in more than 200 cities worldwide, where with the.

And you know milliseconds of of the vast majority of the world's population that that day and enormous advantage, especially as we work with more sophisticated customers and so if you look at you know one of the largest mining companies and the world.

And they literally operate on every continent, except except Antarctica. They rely on cloud players networks for a broad set of services and and and and that's something that having the global presence that we do it is critical to winning these larger and more sophisticated customers.

Great. Thanks, Thanks, Jim the.

The Cheryl can we take questions from one more analyst please.

Certainly the last question is from Amit <unk>.

And Gary Army of Evercore. Please go ahead your line is open.

Perfect and a lot of made it under the line there.

I have two questions and lots of them at the same time and make it quickly for you all.

Matthew if I think about the Tam, it's gone from 32 billion and IPO, which I think 70 80 billion today your penetration rate of would imply it's about half a percentage of maybe a percent now.

How do you manage between focusing on expanding your Tam, which is you know kind of what you've done so far versus perhaps penetrating of time for the how didn't go away from those two buckets and then Thomas was there anything one off on the on the dollar based net retention number was a nice uplift. So how do we think of that as the go forward. Thank you.

So.

And I think that from the beginning we designed our cloud players' R&D infrastructure to be able to walk and chew gum at the same time.

And so we.

And so I think we I think it's sort of of false dichotomy, if you've if you've built your R&D organization right. So we have 90 per cent of our R&D organization and it's really focused on how do we go deep on any of the products and features that debt a debt that we've launched and they are always thinking about how do we continue.

You too take feedback from customers, whether they're their current customers or customers or prospects in order to build out the functionality across our platform. So that we can service whatever it is that they need the power of that is that if we if we build.

Reporting for want you know more sophisticated reporting for one of our products that has the benefits across all of our products and that's the power of being the unified platform that we that we have created 10% of our team is really dedicated to and organization. We call E. T I, which is which is the emerging technology.

And incubation team and their job is to invent the future and are and we don't we don't spend their day.

They there and.

They have incentives around thinking up what is the product or feature of which two years from now you guys aren't going to say Wow that was a huge way that the cloud flare expanded expanded tam they they they take lots of shots on goal not all of them are are successful, but they are the team that came up with cloth of her team.

And there the team that came up with a popular workers and so there. They are often when we do expand the Tam dramatically and the team that is driving that and so I think having that that ability to walk on go deeper on the existing products that we have and also chew gum.

And make the.

And maybe new products the dramatically leverage the network that we have to go into new industries, and and and and the surprising of the direction I think that's how you build what is on Iconix technology company over time and that and we have we have we of note.

It's exactly what we've set out to do and and how we've designed the company from the beginning.

On the DNR and unlike in the third quarter of last year, we don't have any one time items and the first quarter of this year, the and artist points of lagging indicators. So what you see today is really hard and.

Focused working on over the last 12 months, starting to pay offs and being visible in and the DNR metrics and it will continue to pick up.

But not in the straight line, you'll see some variability over the quarters, but we still think we have room for improvement and.

And we'll continue to go up.

Yeah.

Thank you very much.

I will now turn the call over to Matthew Prince for closing remarks.

I just wanted to say thank you to all of the cloud for their team for an incredibly hard work you make my Michelle and jaw and and Thomas' job up here easy when we have quarters like this it takes us delivering great products that takes us servicing and servicing our customers well and it takes you know.

Everyone and cloud flair to build the iconic technology company that we aim to aim to become over time and so I wanted to appreciate everyone on the team. Thank you for all of your hard work and we're hard at work already on Q2. So see you back a few of few months from now on the at the same time and and and and.

Until then I look forward to and to a great and strong quarter. Thank you.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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