Q2 2021 Cloudflare Inc Earnings Call
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Good day, and thank you for standing by and welcome to the clouds flare Q2, 'twenty 1 earnings call at.
At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your Speaker today, Jason Nolan. Please go ahead.
Thank you for joining us to discuss thoughts on its financial results for the second quarter 2021 with me on the call. We have Matthew Prince co founder and CEO of shell that co founder President and COO and Thomas Seifert CFO by now everyone should have access to our earnings announcement this announcement.
Of numbers, we talk about today are they've been revenue will be on and adjusted I got basis, all current and prior period financials discussed of reflected under a S. C..6 O..6 you may find of reconciliation of GAAP to non-GAAP financial measures and our earnings release on our Investor Relations website for historical periods of got to non-GAAP reconciliation.
<unk> can be found on the supplemental financial information referenced a few moments ago.
We would also like to inform you that we will be virtually participating in the Oppenheimer of technology Internet Communications conference on August 10th.
<unk> Technology Conference of August 11th the Deutsche Bank Technology Conference on September 9th the City of Technology Conference on September 13th the pay per Sandler Global Technology Conference on September 14th and the Jeffery Software Conference on September 15th now I'd like to turn the call of the Matthew.
Thank you Jason.
We had our strongest quarter as of public company and Q2, we achieved revenue of $152 million up 53 per cent year over year.
Ah revenue growth continued to accelerate as we saw strength across all customer segment. In particular, you added a record of 143 large customers those the path more than $100000 per year and ended the quarter with 1088 large customers, 19% of the fortune of 1000 are now paying cloudflare customers.
And we continue to see particular strength across on enterprise business.
Of that work anticipating these deals we began making increased investments in Q1 of these investments continued in Q2, and we anticipate will continue through the second half of the year.
We're investing for the long term and we believe winning strategic customers proves how this strategy continues to pay off even with the additional investment we still anticipate we will reach breakeven in Q1 of 2022.
While we're on the topic of profitability I wanted to preview of conversation I anticipate having but some of you. This time next year.
As part of our long term model, we have an operating margin target of 20 per cent.
When we say long term, we really mean it we remain confident in our ability to reach that long term target, but we are not in a rush to get there.
From the point of which we reached breakeven we intend to aggressively reinvest excess gross profit back into growth.
We are nowhere close to being out of ideas for new products to build of customers to buy them Kottler is optimized for innovation and we plan to continue to launch new products add more customers relentlessly execute and reinvest in growth for the foreseeable future.
Security continues to be on the news and was a theme driving customer win.
Major oil and gas pipeline provider sign of $210000 of annual contracts for a portion of our class of 1 solution.
They were looking to help protect their infrastructure against the sophisticated cyber attack. They were facing they were referred to us by a major systems integrator and together, we help better protect their critical infrastructure.
This is evidenced that when companies and their advisor space Cyber security challenges cloud there is increasingly 1 of their first phone calls of.
Fortune 500 transportation provider signed a 3 year 340000 dollar contracts for a portion of our class of 1 solution. This is another deal that came to us through a channel partner, we believe theres an opportunity to more than double the size of our relationship with this customer over the coming year.
A fortunate 500 industrial services provider of decided to year $895000 deal for a number of clouds are 1 component of this customer was targeted by the so-called fancy Lazarus Hacker group.
To enable our solution with spend 4 hours of our first conversation and mitigating the threat.
A fortune 500 auto parts of manufacturing companies face of similar threat and turned to us to solve it.
On that 300000 dollar of annual deal the thesis that the clouds of their team was fantastic. We took this threat very seriously cloth or was there for US you can't make a car with only 99% of other parts. So 1 malicious attack on the supply chain impact everyone and that spirit. He referred us to another fortune 500 manufacturing company, who signed a 2 year 300.
20000 dollar contract.
So of that second firm referred us to a third fortune 500 manufacturing firm decided it 2 year $570000 contract that's over a million dollars from new contracts because of our solutions work and saw some of the problems that are top of mind for every technology leader right now it increasingly feels like cloud players, becoming the de facto of choice for enterprise.
And they are thinking about the future of their network security.
A fortune 500 borne on the web e-commerce provider expanded their use of cloud flare they were already using our WAF and content delivery of products, they're team turned to us when they were looking for a developer friendly zero Trust security solution in a competitive process with other zero trust vendors, we won that technically sophisticated customers business in the <unk>.
To stitch together multiple vendor solution.
Love how easy it is for developers on their team to get up and running on the platform because of the broad programming language support and rich developer tools that had been honed and battle tested and production since workers launch nearly 4 years ago.
And Asian, Fintech provider expanded their use of cloud player by half a million dollars, making their annual spend now $1.3 million, they're using workers to accelerate their development cycle and replace spend with some of the traditional hyperscale compute providers decided workers ease of use and global performance as key drivers of their decision to double down on <unk>.
Sort of flat.
From old school manufacturing of crypto currency from the United States government to some of the largest companies in the world I was particularly struck this quarter, how cloud players resonating across industry segments and geographies as the answer whenever someone who is looking for the future of a secure of programmable network.
Finally, I wanted to make sure you all had a chance to catch our announcements last week, we have of tradition of hosting innovation weeks, where we launched new products and features we typically host about 8 of these weeks per year last week with our first impact week. During the week, we highlighted project Pangea, which provides internet connectivity at new.
Cost of underserved communities worldwide, a number of initiatives to drive down cloud those environmental impact and help our customers cut their carbon output our commitment to human rights of sustainable work force and our vision for a more inclusive of future of work.
<unk> of revenue continue to accelerate in the U S. This quarter.
Continued to ramp of our go to market international footprint.
In China, we are pleased to see the transition of customers from Baidu to J D progressing well.
In addition, net.
Of our performance metrics of J D have already surpassed historical performance in China, Q2 expanded network coverage and streamline integration.
Turning to our customer metrics, we exited the quarter with 126000, and 735 paying customers, representing an increase of 32% year over year.
We saw a record number of large customer additions in the second quarter, adding 143 large customers sequentially and 451 year over year.
We ended the quarter with 1088 lots of customers, representing an increase of 71% year over year.
We saw a significant expansion from our large customers, which helped to drive a record dollar based net retention rate of 124%, representing an increase of 100 basis points sequentially.
We were encouraged to see Oh of customer acquisition costs continue to trend favorably this quarter, giving us confidence to continue to invest in our large enterprise go to market activities.
Second quarter gross margin was 78%.
Representing an increase of 40 basis points sequentially.
Network Capex represented 6% of revenue on the second quarter.
We continue to expect network capex could be 10% to 12% of revenue for fiscal 'twenty 'twenty 1.
Turning to the operating expenses second quarter operating expenses as a percentage of revenue decreased 2% sequentially and decreased 5% year over year to 81% we.
We had another strong hiring quarter with an increase of 34% year over year, bringing our total number of employees to approximately 2050 at the end of the quarter.
Sales and marketing expenses were $68.4 million for the quarter.
Sales of marketing as a percentage of revenue decreased from 1% sequentially and decreased to 45 per cent from 48% in the same quarter last year.
Research and development expenses were $31 million from the quarter R&D as a percentage of revenue decreased 1% sequentially and year over year to 20% from 21%.
General and administrative expenses were $24.4 million for the quarter G&A as a percentage of revenue decreased 1% sequentially and year over year to 16% from 17%.
We continue to see strong operating leverage from the second quarter with operating margin, improving 690 basis points year over year.
Operating loss was $4 million compared from $9.5 million from the same period last year.
Net loss in the quarter was $7.3 million or net loss per share of <unk>.
Our effective tax rate for the second quarter was negative 26%.
Turning to the balance sheet.
We ended the second quarter with $1 billion thing of cash cash equivalents and available for sales securities.
Free cash flow was negative $9.8 million 4 of 6% of revenue compared to negative $22 million of 20% of of revenue in the same period last year.
Operating cash flow was positive $7.5 million from the second quarter of 5% of revenue, which decreased $60 million sequentially and increased $3.5 million year over year.
As we've mentioned previously we expect to continue to see some level of variability in cash flow margins true to ongoing fluctuations in working capital the growth in our large enterprise business and seasonal factors.
Remaining performance obligations, our Arco remains strong in the second quarter coming in at $484 million.
Representing an increase of 10% sequentially and 77% year over year current <unk> of 77% of total ARPA.
Given the strong momentum we are seeing we remain optimistic and confident in the continued growth of our business.
We're pleased to once again raise on our revenue outlook for both the quarter and the full year.
As Matthew mentioned previously we saw some exciting customer wins in the second quarter net to <unk> increased investment in our network of engineering staff.
These wins lean heavily into the security aspect of our offering and give us a roadmap to further extend our platform and and hence on teacher partnerships and <unk>.
<unk> steel wheel.
Began making these investments in the first quarter. These investments continued in the second quarter and we anticipate we'll continue sort of the second half of the year.
Turning to guidance for the third quarter, we expect revenue on the range of $165 million to $166 million representing.
Representing an increase of 45% year over year.
Recall in our third quarter 2020 revenue, we had a 1 time benefit of 1.9 million related to a customer reading of them.
Without this 1 time benefit our third quarter guidance would represent an increase of 47% to 48% year over year.
We expect operating loss in the range of $9.5 million to $8.5 million.
And we expect net loss per share in the range of 4 to 3.
Assuming approximately 300 of 10 million common share outstanding we expect an effective tax rate of negative 15%.
For the full year 2021 we expect revenue in the range of 629 to 600 of $33 million per.
Representing an increase of 46% to 47% year over year.
Our first question coming from the line of Matt Hedberg with RBC capital markets. Your line is open.
Oh, Hey, guys. Thanks for taking my questions and congrats on a really strong quarter here.
Matthew it's.
It is clear that the large federal deal stood out to me and is impressive because I think you've hit some additional levels of fed ramp certification, but youre still pretty earlier in your in your fed or public sector journey can you talk a little bit more about I guess.
How extensive.
The public sector just in general all the way down on the state and local governments could be for you guys.
Or are you putting more resources behind that it seems like you talked about GSI is but it is a little bit more on that of that increasing opportunity.
Sure Matt.
As you mentioned, we are in the process of getting our fed ramp certification and we anticipate.
That in the first half of next year will be fully fed ramp certified but we're already in the marketplace.
<unk> since we're going going through the process and it is going very smoothly and we anticipate that that will go.
Turning to go well, we have always had a broad set of.
Federal customers. The FBI has been a customer for a long time U S State Department of Library of Congress.
On a number of other than I think that's because when some of the most sophisticated organizations in the world look at that are under constant threat look at the solutions that are that are out there.
They increasingly understand and have for quite some time that we're the best solution for stopping the.
The cyber threats that they face and so I think that there is a significant opportunity we are investing.
Both in terms of partnerships with GSI like Accenture, but then also building out our own team to be able to just to be able to service that in and I think over the last 10 years, we've done a terrific job of building relationships with the people that are really leading the cyber security efforts.
In the U S Federal government and that's now now really paying off 1 of the things that's important about us and 1 of the reasons why.
This is important is cutler fundamentally is the foundation on top of which a number of other companies build their products and so as other companies are looking for companies that they can trust.
These sorts of wins, we see resonating across the entire industry and again I'm really proud of our team for the success that we've had.
Selling our zero Trust solutions to what is literally the biggest buyer on the world.
That's fantastic and then Thomas I think the other thing so that 71% growth in large large deals and of record out of which was impressive can.
Can you talk about the success of bundling I know some of your some of your bigger customers are taking 10 or more products.
But just thoughts on leveraging bundles and I guess, maybe called sort of 1 in particular I know it was introduced last year, but how successful was that in driving some of this momentum of the large enterprise wins.
Do you are you heard from Matthew but he he you.
Picked on a couple of deals during the quarter that were.
1 of our in park loan volume driven so as we migrate in our evolution of the product portfolio from.
Thanks Thomas.
Many of asked just in the second half of the guidance is implying a pretty significant deceleration is there anything that we should keep in the in mind in terms of modeling other than the bigger comps of you're coming up on.
Right.
You have to keep in mind as I said.
In my remarks before we the third part of last year was driven by a 1 time customer renewal.
So if you were to take this into account of the guidance is now getting up to 2 of 46 of 47% year over year, it's probably the strongest guidance.
We have given in our license of public company from a growth of expectation perspective, but it also served us well.
It's hard to be prudent in how we think about our future and weighed the there are headwinds and <unk> that we have in this guidance is consistent with our approach over the last 8 quarters, taking everything into account that we know and and then making sure we continue to be thoughtful.
And a quick follow up from Matthew on me.
From your perspective, you know something that maybe we all can see that youre seeing that your particular surprise of proud about that maybe just didn't come through on the financials is there 1 or 2 things that are really servicing that debt.
Of that.
There may be surprising even even U S architect in the leadership of this move.
I think I'll come back to the team that we have and <unk> and the strength that we're seeing across applicants.
For that team.
Across the industry are there there are a lot of people as we come out of the other end of Covid, who are thinking about what it is that they can do with their career, everyone who gets a job of cloud player book.
Bunch of other places.
And yet we continue to see both the retention of our current team.
Seed, what our expectations are but but also just the caliber and quality of of people across not just our R&D organization, but in the sales and marketing organization and I think that companies are just collections of people and so the fact that we have at this time.
People are thinking about what is it that they want to do with their their career.
You know some of the best and most talented people that I've ever seen are saying you know if I can be part of helping build of better internet that that's that's what I, what I want to spend the next chunk of my career doing and I think that that that really sets us up well for for just continuing to.
Execute as as we as we scale. So I'm I'm really really really proud of our team and I think that it's amazing that we keep raising the bar on that team.
Yeah.
Some of our next question coming from the line of James Fish with Piper Sandler Your line is open.
Hey, guys. Thanks, a lot of questions you guys clearly don't have enough conferences on your schedule coming up but nice quarter guys wanted to start off with a question from Matthew really on private Apple private right of way they've got a mouse you know what can you say about the reports about this offering of it seems like traffic is already known.
Coming in across clouds of our service is that the right way to think about it and how can a relationship like this really change the industry dynamics or any other deal.
So Jim.
We are we have a policy of not talking about any of our customers.
M without without their permission and I'm certainly not going to speculate here on on on that but I will tell you know 3.3 stories I got.
Hum about about Apple M.
Back in 1978 Ah when there were 2.
We're known as hobbyists at the time, we now call them developers, but you know Steve jobs that he's wozniak had an idea to build that personal computer. They went to venrock, which was that venture capital arm of the of the Rockefeller family and raised raised their first capital.
I I feel of certain catch up to that because when clod flow started we went to venrock and they were the first capital N M and cloud player on actually I was I was hanging out with Brian Roberts of few weeks ago, who who runs that firm and he said that quad play of actually is the first company in the venture capital firms history to till now have surpassed the return.
That they had with Apple so that that's something that we're proud of.
Inc. Second debt, which is a little bit more personal was 18 years later, a 1996 that was actually in law school and I heard that Steve jobs is actually coming back to Apple on my dad at at the time was that was that a stockbroker and I had worked as a ski instructor of the year before and saved up a little bit of money and so I called him I said, you know I think on.
1 of the 5000 shares of Apple stock.
And that turned out to be a pretty good decision, which largely paid for my ability to among other things I'd go to business School. If you used a few years later, where I met Michele and we were able to you know start to start off on from that so so you know I've been an Apple fanboy for a long time and it's it's a it's definitely a company that we really admire the last 4 of which is actually.
You know 19 years after that.
I remember I was invited to a a very small gathering of tech leaders are meeting with senior government officials.
To talk about how technology companies can help.
With with the the fight against various law enforcement requests and terrorism.
And it was pretty pretty incredible group of it was also around the same time that the San Bernardino for.
Joan was wasn't of news about whether or not Apple would unlock that and you know I. We were definitely of the smallest company to her there were 12 tech leaders and it was sort of the who's who of the big Tech companies and and I remember Tim Cook in this in this closed meeting I started to talk about privacy in a way that was.
You know really you know clearer that it came from you know of deep and personal place and talked about privacy is a fundamental human right and that was long before Apple was running commercials on TV about the importance of privacy and so I think that's something that you know day at times gone a little bit of Flak thing, that's just marketing, but I think I've seen from their senior leadership.
Somebody that they deeply care about and that's of value that we can definitely share with them and so I've been on an Apple fanboy for quite some time and hopefully that's a long enough answer on not answering your question.
There was a a good sell side of answer honestly, but as you continue to move up market you know hows of engagement and go to market changing how should we think about that evolution of cloud first go to market away like moving away from that freemium funnel towards the more direct large enterprises over time, thanks guys.
Yeah. So you know I don't think we've ever been sort of of traditional freemium M customer, we don't think of.
And from time to time, we get great customers that come in through that free funnel, but by and large that's really.
That's not the purpose of of that the purpose of that is it's really good to be able to just innovate as quickly as we can.
Such a broad.
Set of of customers and that's that paid off incredibly well I think that if you fast forward 10 years from now on cloud.
<unk> go to market motion looks just like any other big Enterprise company and I think we're building that out you heard a number of of deals where you know we have now named accounts on specific sales reps on increasingly on enterprise sales team increasingly working with channel partners and jet and systems integrators.
What's different about US is that we have use data to build out our go to market function in the same way that we use data across our entire company and and that's that's allowed us to both go into a new geographies of new markets and new customer.
Our segment in the industry and to move up in terms of servicing larger customers in a way that again, we're not we're not here to tell you that we don't need salespeople. We we believe that we do but I think what we've been able to do is use the data from our our existing customers.
Invest behind the demand per rather than ahead of the demand curve and all of that gets us to the same point that any any enterprise sales of sales company gets to I think what it allows us to do is very relentlessly execute and make it much less likely that we'd make a misstep along the way.
We have our next question coming from the line Osha O'neil with Cowen Your line is open.
Thank you good afternoon, guys congrats on the ongoing outperformance.
Matthew or Thomas Thanks for the color on paying customers and the large customer addition, this quarter.
But can you also provide us with an update on the total customer count any qualitative or even crunchy 8 of these will be appreciated and I have a follow up.
Sure Thanks, St Charles M C.
So we were actually causing a day the reporting of the total customer count on.
This quarter, although we were going to bring it back is just a reminder of total customers included both free and paying customers and throughout the quarter. We saw continued strength in that the problem was that they really sort of described of different business than we're in today. It is looked at on active internet property and real.
Only covered on those products that that relied on actually having like a web site and that's in it.
Include a lot of the new products like cloud player 1 and on other bets and so we don't feel like that statistic was representative.
So we're pausing it we're going to bring it back in the meantime, if you do want to continue to track something like that there are a lot of external services.
<unk> kind of what sign up rates are we've continued to see strength.
Our cross across that M. W..3 tax.
The report that on a on a month to month basis and so if that's what many of you want to continue to track that that would be the place that I would look to to get that in and we're looking forward to bringing our total customer count back in a way that's more accurate going forward.
Got it understood.
And maybe another 1 Matthew or Thomas.
On the topic of billings versus our appeal on some investors some within the investment community are using billings as the metric to track maybe average relates to cloud is very good actually misconstrue, how healthy underlying trends or do you think our appeal could be their preferred metric too.
But what's what's the internal thinking on.
On this topic.
Yeah, Let me just.
It started here.
We think that our P. O is the cause of better indicator for the health of our business. Instead of certainly the number we are focusing on our industry 13 of its up 77% year over year and remember in the last quarter current appeal of that is the <unk> on the balance sheet, but we break.
From a use over the next 12 months.
Mm mm 60, north of 60% billing.
Billings can be sometimes an arbitrary number just depending on how many of your billing cycles, you run over a quarter, we sink carpio.
<unk> is a better metrics on that is the number that we have and we are currently of our our focused on from or how we run the business from Tobey.
What Kpis, we tried true.
Got it thank you understood good luck.
We have our next question coming from the line of Sterling Auty with Jpmorgan. Your line is open.
Hey, guys. This is drew on for Sterling and Matthew could you expand upon your commentary surrounding the long term investing trajectory, including the timeline of that and what areas are you expecting to lean into them on.
Sure drew.
So we're.
To 2 areas.
Obviously, we continue to invest in our sales and marketing.
<unk> motion.
And think about how as we continued to go up market, we have the team in place.
To service that and again I think what's unique about us is that we're able to invest behind the demand, but we do believe that sales people and we do believe that marketing matters are we will continue to invest in that because when you're when you're servicing customers that are as large as as we have they want they want to do that and it also helps.
As we want to expand those customers across our entire product set to have people, who can be the advocates who can talk to them in an M. B a b of part of that I think the second area, where we continue really to invest in our research and development efforts on cloud.
Club of runs on innovation and we have designed on our entire business in order to be on innovation machine and so on over the course of of the year. We have a number of new products that we continue to relief I don't see that slowing down anytime.
Anytime soon and we definitely as as what we like to do is is designed the way that we think about R&D as making a number of that are in the area on iterating quickly on those that across our broad customer base.
And then and then by the time something is ready for us to take it to are our largest customers.
Battle tested and something that we continue to a true to run on so I don't think that the formula changes.
But I do think that as we get to breakeven and being able to pour resources back into that if anything should just accelerate the rate at which we're able to drive real innovation across across the company.
Okay got it that's helpful I'm thinking of them.
Okay. All of our next question coming from the line of Tim Horan with Oppenheimer. Your line is open.
Thanks, guys. So just 2 questions 1 on I think youre, implying the net dollar retention can improve here.
You talk a little bit how can you improve it still a pretty high number and maybe where can it go and then secondly.
All of the carriers are out there of partnering with some of the cloud providers.
Think they can.
You know basically pivot to become a better competitor against you or <unk> are you seeing anyone else out there that's really pursuing a similar strategy to compete.
Sure. So let me let me take both questions then and then Thomas May want to add.
To the first.
So we so first of all with carriers.
We work in.
And have had partnerships with carriers for for quite some time on most of the new deployment.
We go into we are deploying directly into the carriers' networks and we have a very symbiotic relationship.
With with them and had been able to continue to invest in that we're able to see what the traffic flows are across across public clouds, and we don't see that there's much residents.
For some of the carrier partnerships with the public clouds, yet, but it's something that we obviously are watching closely and carefully and I think that that that the opportunity that we have is to continue to be of great partner to those carriers.
Wherever they are around the world both to deliver our services and and be able to drive drive drive drive down our costs as.
We continue to build.
And I apologize if any of them in the process of answering that I forgot what your first question was but can you can you repeat it just quickly.
Oh, Yeah, Yeah, that's why I just think of it.
It's all of retention rate, how do you put them on.
On on whats really good number.
Yeah, So so again, where where that is something that we focused on what I love about clappers when we focus on something.
Really good at at improving it I think that it's been driven by new products a M.
And since we don't have a usage based model, where you know what.
We're sort of revenue can trombone up and down over overtime, but instead, we have a subscription model. It really requires on to sell more products and I think that that's been a piece of it I think going back to what Thomas spoke about earlier as as the bundling opportunity that that feels like.
The opportunity for us to be able to continue to improve that number over time and I will say that there might be some noise in in the dollar based net retention number on where where we we definitely have have worked hard to get it above 120 per cent and we and we think that that's that's great. We're not satisfied with where it is.
There may be from quarter to quarter of little bit of noise in that in that metric, but we do think that over time, we can continue to improve on that metric.
Thank you.
1 of addition, maybe some of them. So it's good to keep in mind that the.
The dollar net retention of a lagging indicator for us Toby reported from it.
First of flagging the the initiatives that we tried we all sorts of pay as you go business that is very important for us on in terms of how we drive efficiency in the business more of them, but remember we always said that this is a business that is difficult to expand so everything you see from a day and our performance perspective.
Good day drag with of Bay of Hugo business and is a lagging indicator to the industry suite of startup.
Thank you we have our next question is coming from the line of Jonathan <unk> with Baird. Your line is open.
Yes, hi, so in thinking about workers you you've discussed in the past I would still need emerging tech group in price for adoption compared to revenue and on what.
If you could provide any insight.
This might change if nothing specific there you know what kind of criteria you might be looking for and evaluating and taking that to market and is it more of a chore solution.
Yeah. Thanks, Jonathan So I think it's a pretty mature solution, we launched it in 2.
2017.
And it is we're seeing very very very large companies.
You know that their businesses on on workers. So I think that that it is a large solution I think that what we have been hesitant to do is is break out what the specific revenue is because it tends to be part of the larger.
A component of of how were.
Of how we're selling our solution, but we we continue to see strength.
In workers, we see people building and not not random.
Random startups, but really sophisticated large companies building sophisticated complicated applications using workers and so and so it's it is already taking workloads off of the traditional public clouds.
And and and the people and then that the organizations.
Just find it magical so so so again I think that that that the lease.
I went I, even at the prices that we.
Charge for workers today. It is it is very margin accretive.
And so and so again I think it is it is a competitive product, we think that being a very cost effective as it is important when youre selling cloud products, we don't think of ourselves as competing with other niche edge computing platforms, we think of ourselves as competing with there.
The big public cloud platforms, and so when we think about pricing, we think about pricing it in a way that that is competitive.
With with those other other public clouds and even at those rate again its margin accretive for us.
Okay. That's that's helpful. And then just as a quick follow on in terms of drivers of of surplus of server list of Matthew 1 of the things you hit on is just the compliance use case can you just touch on that.
A bit more of it if you are seeing that starting to take hold in the market yet.
Yeah. So you know the first that is the computing piece of edge computing is the easy piece of hard piece of storage and what I think you've seen us do is think through how to have.
Distributed storage in a way that is still easy for developers to wrap their heads around and build on.
But at the same time gives them the flexibility where they can do things like require a piece of data never leave.
Of particular geography and so.
I think we are that the regulatory environment for our customers continues to get more and more complex. We're seeing a lot of of attention for the regulatory concerns which are coming out of out of the EU.
But what we hear from customers is that that's just the tip of the iceberg.
And places like India, and Brazil, and you know, obviously, China and others are also putting in place on requirements that require people to keep their their data from users in country in that in that particular region and so I think that workers is.
Perfectly positioned for what is a much more complex our.
Regulatory environment, we are today and well over 100 countries worldwide.
We're on a path to being in virtually every country worldwide and what that allows us to do is help our customers comply with these increasingly complex regulation around the world, we talked earlier about fed ramp.
That's very U S focused we're doing similar efforts for example, with with the German equivalent.
And others around the world and again, I think that sets us up very well to be able to satisfy the regulatory and compliance needs of of.
So many large large enterprises and it's it's it's what we keep hearing as the as the real killer feature.
Distinguishes workers from from any other computing platform.
Yeah, that's great. Thank you.
We have our next question coming from the line of Alex Henderson with Needham Your line is open.
Thanks.
I just wanted to compliment you for the first of on the.
Hotel, California, Amazon data commentary on your blog I thought it was really really well done.
I was hoping you could talk a little bit about the developer community adoption.
Any change in the rates are any metrics around the size of it.
Everybody focuses on the financial side of it but I think it's of.
Dev ops community.
Integration is such a key piece.
Could you talk give us some metrics or something too.
To qualify and quantify that please.
Yeah sure. So you know more than 50000 developers.
Developers wrote their first.
Workers.
Script or code this time and that's not signed up for an account that's actually wrote code and deployed and application.
We we can that continues to grow over time and the retention of those developers you know they don't they don't tend to just write something and then go away, but we see them.
<unk> 2.
We deliver more and more applications and more and more sophisticated applications.
As we watch what what developers are building and so I think when we think about when.
When we think about the platform I completely agree with you on.
Whoever whoever has the most developers win.
We want to make our platform, which yes satisfies the the CIO and CTO and general counsel for its regulatory compliance. Yes is caught incredibly cost effective of courses is incredibly consistent were already of the facet.
On that that's out there, but then we really need to continue to invest in making that plant of developing that platform ecosystem..1 of the things that I'm excited about is while we've largely talk about big customers here, we're increasingly seeing startups that are building entire.
<unk> applications from from scratch on the Workers' platform and that's exciting both because it it's.
It's it's really just a a very fervent area of of excitement and its how you build communities and build ecosystem.
But it also is a great way for us to be looking out of.
And whether or not there are on you know.
Really great features that maybe other other companies and small companies develop it might be natural either things.
Things that we can bring into our marketplace or maybe even a potential tuck in acquisitions.
Don't have the technical right yeah the.
<unk> risk that that would be if they were using completely different platform. So I'm excited about it if you if you search on Twitter. If you go on our discord channel you'll see the developers are excited about it and and again, it's picking up steam.
Great. Thanks.
We all of our next question coming from the line of James Breen with William Blair. Your line is open.
Thanks for taking the question.
From time to time, you sort of update your what you guys believe is the addressable market just given sort of all the new product launches et cetera can you just talk about how you see that moving now and then a little bit of off with Tim Hortons question, just around your existing customer base growth.
Any sort of metrics there on the security side in terms of of your paying customers. You know how many products are taking and how that's maybe changed over time. Thanks.
So all of them.
I'll take that the second half of that and then and Thomas can come from tenants can comment on on the first half.
So so we are at our last Investor day.
We updated that day.
Day, they it's north of of I think it's 80% in terms of correct me if I'm wrong of customers are using 4 or more of of our cost of our products and that tends to be the magic number for us in terms of really having stickiness and and really differentiating ourselves.
<unk> in them in the marketplace and typically customers will span across both security, but then also performance and reliability of that about 50 per cent of our our revenue of 50 per cent of sort of the initial interest that we get it comes from our security products are about 25 per cent from performance of about 25%.
From reliability, but I think that that somewhat mischaracterizes, what what cloud really is which is a platform that allows you to have all 3 of those things in 1 unified solution. So we continue to see that customers are taking more of our products as we launch products, where we are we're really building out that engine.
And that makes it so that we can very quickly for new products into our existing customer base and have them are adopted and and that again I think that that is it is very difficult to compete with us once we once we get customers to understand the power of using the broad platform that we.
Yeah.
Yeah, I wouldn't want to disclose any new or additional M data, but I think the points of Matthew took from me is important relating it back to our ability to bundle them.
First of all of a product portfolio gets broader and proud of our ability to customize bundles for specific customer needs and compete more of them.
We're effectively of going against point solution providers or you think this is the opportunity of the dress there.
And I got the I looked it up quickly on it.
88% of our contracted customers used 4 or more cloud from abroad.
And 79% of fiber more.
Great. Thank you very much.
Okay. All of our next question coming from the line of Gregg Moskowitz with Mizuho. Your line is open.
Okay. Thank you and good afternoon, guys are Matthew you mentioned zero Trust of couple of times is driving some important wins for you this quarter and as part of this I was wondering if cloud of flare for teams is starting to compete on a head to head basis more frequently at the enterprise level.
Yeah, absolutely I think that that if you look at what for example of the United States Government Ah Ah chose and and it's going to be offering a.
To all civilian federal agencies that was it.
That's a subset of the clouds or per teams product in order to make sure that government workers are not a targeted by malware or don't don't fall for phishing scams and so we're really proud of that win but there were many many many more wins, where cloud wherever teams is going up against.
Companies that only do that.
Sort of zero trust types of solution.
And our win rates are very strong I think the place where we have really excelled on.
<unk> is in both ease of use.
And and it sort of ease of use of needs of deployment, which which again I think comes from the heritage of that.
That we've always really thought about how can we make things incredibly easy to use and then secondly, we really resonate with a developer of community and so for the more technical buyers.
They are they.
If we win those those deals up down left right and sideways I think where we continue to invest and where we where we will make progress is making sure that we are you know top right in Gartner and Forrester and all of the other analysts briefings, but again, starting with some of these great customer wins that we have.
Key in order to in order to maintain.
Well to demonstrate that.
The industry and all of Us and and we think we're well on on the path to a 2 chip to being you know in the <unk>.
Consideration set for anyone who is is thinking about zero trust solution.
Alright, Thats really helpful. And then just a quick follow up on workers. So even at its a somewhat low scale. Today. This is a very margin accretive offering for Ya.
Yes.
It is a it is it is margin accretive.
Even at 78% gross margin.
Alright terrific thanks very much.
Thank you there are no further questions at this time I will now turn the call back over to the presenters for any closing comments.
We had an absolutely terrific quarter really appreciate all of our team are working hard to deliver the results that we have looking forward to seeing many of you at the upcoming.
Shareholder and and and technology conferences, and on and we're going to get back to work, helping build of better interest. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Some of them.
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Moving on.
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