Q3 2021 Cloudflare Inc Earnings Call

Good afternoon, My name is Julian and I will be your conference operator today at.

At this time I would like to welcome everyone to cause players Q.

Q3, 2021 earnings call I'll.

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Thank you Jason on head of Investor Relations the floor is yours.

Our views in the future we undertake no obligation to update these statements. After this call 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, unless otherwise noted all numbers, we talk about today other than revenue will be on.

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 in our earnings release on our Investor Relations website for historical periods, our GAAP to non-GAAP reconciliation can be found in the supplemental financial information referenced a few.

Moments ago, we would also like to inform you that we'll be participating in the Jefferies Cyber security summit on November 10th the RBC capital markets P. I N T Conference on November 16th the Credit Suisse Annual Technology Conference on December <unk>, and the Wells Fargo TMT Summit on December 2nd now I'd like to turn the call over to Matthew.

Thank you, Jason we had a landmark quarter in Q3, we achieved revenue of $172 million up 51% year over year, we continued to see particular strength across our large customer segment those that pay us more than $100000 per year and ended the quarter with 1000.

260, large customers up 16% quarter over quarter, and 71% year over year, our average contracted customer now spend over $100000 annually with us up from an average of $72000. When we went public just over two years ago evidencing our success selling into law.

Securities Zero Trust in all around delivery network in the World and birthday week, which is our annual celebration of Kloppers watch, where we announced new products that we think of its innovative gets back to the Internet. These weeks don't just deliver new products. They're also some of the most effective marketing we do to attract new customers during birthday week. This year for example.

Our organic inbound leads spike nearly tenfold.

This is because customers want to bet on the companies that are committed to innovation and we've proven through these weeks over the years that innovation and deep and cloud players DNA prior year's birthday weeks. It had doubled the size of the encrypted web unmeet, our ddos mitigation and launch class our workers our surplus computing platform our strategy is all.

He's been to get these products to market early and then relentlessly iterate to improve them until their best of breed and significant new lines of business for us I'm, particularly excited this year about three birthday, wheat product announcements or to an object store being developed for clouds, our workers, our first email security product, which is an area.

Our customers have been asking us to inner for some time and clubs offices, which will make connecting to our zero Trust network for many of the world's highest occupancy building a matter of merely plugging in a patch cable.

We have two more innovation week scheduled before the end of the year full stack week, where we will detail the newest developments around our workers surplus computing platform and C. I O.

We will launch more products aimed at Cio's and demonstrate how cloud players the network they can plug into and not have to worry about anything else stay tuned.

I'm, often asked about how clouds or innovate. So quickly we have demonstrated not only the ability to release new products, but then build those products into meaningful new lines of business.

Key to our pace of innovation starts with our flexible platform every server that makes up Kloppers network is able to run every one of our features workers, which we've opened up to customers is first and foremost the computing platform on which our developers build most of our own features and are fully software defined network then route traffic to wherever.

Being platform.

With that in mind, let me highlight some wins in the quarter.

A fortune 500 pharmaceutical company expanded their use of our cloud for one platform. They signed a $600000 expansion deal, bringing their total contract over $2 million, they're using a broad range of our services, including cloud Gateway, Our zero Trust web application gateway. They appreciate how the various pieces of our platform fits.

Together to provide one unified network. It was a competitive deal and our unified approach beat out all other zero trust vendors with their narrow point solution, a fortune 500 manufacturing company adopted cloud number one to protect its 50000 employees. They signed a two year contract worth over a half a million dollars.

Previous hardware based approach couldn't keep up with the latest security threats. They were seeing the technical team was familiar with plot there many having used our pay as you go products for developers and championed US did a C suite buyer at the same time the C suite buyer had heard from peer at another manufacturing firm how much they enjoyed working with cloud player and I appreciate.

Our rate of innovation. This is a great example of how we're seeing success selling both bottoms up and tops down within the organization a large European software company adopted our zero Trust solution. They signed a three year $600000 deal evaluating cloud player versus other leading zero trust solution. They judged our products to be richer more flesh.

Q3, because I think it shows light at the end of the tunnel, even highly COVID-19 impacted industry like airlines are starting to return to normal and as they do their once again, calling us to help with their network security reliability and performance neat.

If I step back I will note that 232021 with different many ways in Q3, 2020, well last year the seasonality of summer seemed to disappear. It's people canceled vacations and work without a break this year much of the world came out of lock down in a parent desperate need of a vacation.

Lie in August require than normal and a quarter ended up being more back end loaded then we usually see talking with peer companies and listening to earnings calls over the last two weeks. We don't believe there was anything about that unique stuff.

But refresh from a much needed holiday I T organizations now seem to have returned ready to roll up their sleeves and modernise their snacks for a post Covid World October started out very strong in just the first week of prominent social network chose clouser, one as their zero trust solution, sending a contract worth at least $1 million Daniel.

Yeah.

That same week, one of the largest video conferencing services came under attack and Onboarded onto Cloudflare, signing an 8 million dollar annual deal. They push a lot of traffic and we believe we are the only network provider with the scale and agility have been able to onboard them over a weekend and the coolest part we not only mitigated the attacks.

Their network performance actually improves on top of that we're confident overtime will save them more in other provider's network bandwidth fees, and we charge them ourselves, which is a totally magical experience and the recipe for a very sticky customer relationship.

We have no intention of slowing down and I wanted to thank all the teams working hard to help our customers build our business and live up to our mission of helping build a better internet with that I'll turn it over to Thomas to walk through the numbers Thomas taken away.

Thank you Matthew and thank you to everyone for joining us we delivered another excellent quarter driven by record large customer edition, which continues to outpace top line revenue, which.

We choose to an important milestone in the third quarter, reaching non-GAAP operating profit and Mexican come profitability for the first time.

24% consistent with last quarter.

Gross margin was 79, 2%, representing an increase of 120 basis points sequentially network Capex represented 15% of revenue in the third quarter, we remain committed to building out the footprint and capacity of our network and expect that for capex to be 12% to 14% of revenue.

For fiscal 2021 the increase in our network Capex range is due to increased investment in the plants a strategic customer growth.

Turning to operating expenses third quarter operating expenses as a percentage of revenue decreased 3% sequentially and year over year to 78%. We had another strong hiring quarter, where we saw our total number of employees increased 32% year over year to approximately 2240.

At the end of the quarter sales and marketing expenses were $77 6 million for the quarter sales and marketing as a percentage of revenue was flat sequentially and year over year.

Research and development expenses were $32 8 million in the quarter R&D as a percentage of revenue decreased 1% sequentially and decreased to 19 from 21% in the same quarter last year general and administrative expenses were $23 9 million for the quarter G&A as a percentage of <unk>.

Revenue decreased 2% sequentially and year over year to 14% from 16% in the same quarter last year.

We continue to see strong operating leverage in the third quarter with operating margin improving 530 basis points year over year operating income was $2 2 million compared to an operating loss of $4 5 million in the same period last year.

In the last few years, we've repeatedly accelerated our timeline for profitability from initial target of second half of 2022 at the IPO to most recently in the first quarter of 2022 as provided at our Investor Day earlier. This year, we had changed break even in the third quarter due to the inherent operating leverage Curt.

Terrorist acts of all business model that said I will echo what Matthew emphasize now that we've achieved breakeven, we intend to reinvest excess profitability back into the business for growth.

Remain confident in our ability to reach our long term operating margin target of 20% or higher and when we say long term, we really mean it.

Cloud players optimize for innovation and we plan to continue to launch new products grow our customer base relentlessly execute and reinvest for growth to pursue the significant market opportunity ahead of us.

Turning to net income in the balance sheet, our net income in the quarter was $1 4 million or net income per share of zero cents.

Our effective tax rate for the third quarter was 53% we wanted to provide some additional color on financing activities through pursuit in the third quarter.

In August we took advantage of favorable market conditions and successfully launched one 3 billion principal amount of eight zero interest convertible senior note due in 2026, the additional capital secure these attractive terms position us with greater flexibility to continue to invest.

And scale the business, while cementing our strong financial position, we ended the third quarter with $1 $8 billion in cash cash equivalents and available for sale Securities. This includes approximately $790 million of net proceeds from our convertible note issuance during the quarter.

Free cash flow was negative $39 7 million or 23% of revenue compared to negative $17 9 million or 16% of revenue in the same period last year operating cash flow was negative $6 9 million in the third quarter or 4% of revenue, which decreased $14 4 million.

You have $1 million to break even be expecting that lost their share of one cent to break even for modeling purposes. Please note that if we report positive net income in queue for free expect <unk> to be 345 million fully diluted chair versus 320 million basic share it for you.

Court and that's what we expect of texts expense of $1.6 million for the full year 2021, we expect revenue in the range of 647, two $648 million, representing an increase of 50% to you over here, we expect operating loss for the full year in the range of 10.5 million.

To $9.5 million and we expect net loss per share over that period and the range of six five cents, assuming approximately 312 million come in shifts outstanding we expect that texts expense of $5.9 million and clothing. We are very proud of cross a significant milestone of profitability.

<unk>, which is only two years after I P O and one year ahead of the expected timeline. We initially shared at the time of our I P O.

We get to invest behind the demands not in front of it and I think that the difference is that makes it less likely that we make a mistake as we continue to move up market in terms of the competitive landscape. You know I don't think we've seen a significant change I think we are when rates across competitors continue to be very attractive.

<unk> and and improving we still think that there are a whole bunch of legacy hardware boxes that are out there that we that we are replacing and and I think we're on the right side of history, and so more and more customers are turning to US I think the last thing is that Covid was a real wake up call for I T organizations.

And what I hear over and over again from the largest companies you know even folks that were very cloud reticent in the past is that they never want to live through something like that again, and so organizations that might have been hesitant to to use the service like Plaid Blair now see us as as a note <unk>.

See that as a we we see that because of the fact that we have that attractive pricing, we should be passing that on to customers and and we're excited for building out or to add and seeing how that further enhances our our workers platform, which everyday people are building more and more complicated applications on and.

<unk> and I think this is this is going to allow that to just accelerate.

Thanks Matthew.

Your next question comes from Alex congestion to meet them. Please go ahead. Your line is open.

Great.

I was hoping you could talk a little about the scale of the Tam implied by the the R. Two product.

Clearly, it's a it's a big opportunity, but it's hard for us to to really grasp the scale of that opportunity Ah Ah since most of the data associated with the revenues would would be a masked underneath the larger companies a business and while you're at it if you could talk a little bit about you.

The bitcoin blue.

Locked chain announcement email amounts, but and and that for offices, whether you know what what does that add to your potential opportunity that would be very helpful as well.

Particularly excited about is really a mix of our browser isolation technology with an email security product imagine for instance, if you can make sure that any link that is then in an email.

<unk> actually get executed on your local computer, but instead got executed in a isolated browser, which was running out at our edge. We have all the components to be able to do that and if you. If you look back at all of the security incidents that have happened across across the space that that one technology closes.

The biggest hole in most enterprise I T spaces. So it's a it's a it's an area that we think is extremely exciting copper offices is our announcement about putting our equipment in starting with the it's about a thousand of the most populated Ah Atmos most trafficked office buildings in the world and we think that.

That just is it an easier on ramp to get customers onto our network in one of the things that we're particularly excited about what that is that we can actually create an mpls replacement to connect various branch offices together, but to do it in a way, which is almost instantaneous to turn off whereas you usually have to wait weeks or months to get a private.

Network like that turned up otherwise and I think that you know, what we announced around web three point O N and the crypto space.

Space, you know again, I think that we want to be the bridge between what was the traditional web and what may be coming with web three point O and we've been investing in this space for quite some time I think we don't know exactly where it's going to go and.

And I don't think I wouldn't necessarily does.

Woman.

Matthew.

Performance from the workers cloud for one with teams.

Also wanted to hear a little bit any any wind associated with magic transit products your ability to displace mpls and I have a follow up on <unk>.

Yes, Thanks, Joe.

I think magic transit is really one of our key winners and I think it's shown.

It's been a very easy product for our existing sales team to sell to to to our existing customers and so a number of the wins that I highlighted in the quarter, including the pharmaceutical company a fortune 500 manufacturing company. They are adopting a magic.

Transit as part of the overall bundle, but I think the thing that I'm hearing more and more is that customers.

<unk> are increasingly not seeing us as providing one single point solution or one single feature but that we have earned being a platform to provide an overall.

<unk> solution to again be that network that customers can plug into and not have to worry about anything else and so magic transit as part of a lot of these deals it becomes very sticky as part of it we think that that will further accelerate with what we're doing for our cloud player for offices and and again, it's been a very nap.

<unk> addition to sell to our existing customer base and also the deal that I highlighted that happened early in in Q4.

The large video conferencing service now that it was it that really.

Was that in fact, when we were designing magic Transit, we said one day, if we build this right. This particular customer or would be able to sign up and not only would be able to help them protect them from a security perspective, but we would also be able to actually accelerate their traffic and that that's exactly what I'm what is.

Ended up happening at the customer came under attack, we were able to very quickly onboard them in their time of need I didn't have a global customer base themselves and and and they were very pleasantly surprised when not only were we able to stop the attack, but their own internal measurements of performance got better that that's why we can.

Call Magic Transit Magic is it it really does for customers feel like magic.

Got it understood and maybe one more on our two apps.

Absolutely early days, but how would you characterize the level of sign ups so far.

We've talked about sort of building out that direct sales force behind that that move up market, a <unk> kind of bring the two together like as you guys expand that that solution portfolio and you're innovating in in different directions, I mean, you're dealing with with core security guys and now guys who were working on the email side of the equation and core networking guys and and and.

Core developers on workers does the distribution strategy in itself has to change do you have to get more segmented or do you have to restructure the salesforce at all to deal with that expansion of of the solution portfolio.

And so we're having to figure out how to navigate horizontally inside organizations, but but and as I highlighted one of the example.

More and more we're building the relationship with the C level executives. So that we have that that executive sponsorship and again, you've got to do multiple things right in order to continue.

To execute the way, we are and and so what our sales team will look like and what our go to market team will look like in five years will be very different than it is now, but I think it's a very natural progression from where we are now to where we'll go.

Thank you very much guys.

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

Hey, guys nice quarter.

That started to do recently, some more for larger enterprise customers around privacy.

Are your expectations for that privacy part of the business over the next few years as it pertains to <unk>.

Because of the fact that it's been very easy for us to be privacy first.

And that's something that you know none of the other cloud providers have they all have advertising businesses attached to them in one way or another.

We are very clean in that sense and so it has allowed us to be a great partner to organization.

<unk> that do believe that privacy is a fundamental human right and and so I think that that's something that is very much aligned.

Across our business and I think we don't exactly know, where where where that will go but I think that if you had to bet that being on the more private side of the Internet is being on the right side of history.

Makes sense and copper for offices.

And a little bit overshadowed by our two so just wanted to touch upon that briefly.

Any sense of the ramp that we could expect for either the number of offices over the next year or how youre thinking about that business in particular, thanks guys.

Yeah, So hum.

I will I'll predict that that that the sleeper announcements from our birthday week that that that might be the most impactful to our business over the course of the next 10 years will be cloud play for offices.

And what we've seen is.

That the excitement from our landlords and real estate groups about being able to offer cloud services to their tenants is is is.

I'm extremely excited about pop era offices watch this space, because I think they're gonna be a lot of exciting partnerships as we as we bring that forward and and then it will be something that we can deliver a real value to customers around the world.

Your next question comes from Patrick while I'm, even some JMP security. Please go ahead. Your line is open.

Hey, Thanks. This is Trevor Walsh on for Pat Thanks for taking our questions.

If you wanted to just see you had mentioned in your prepared remarks around a lot of the winds talked about zero trust over the quarter is kind of the driving force and just wanted to see if you could provide some further details around whether those were coming in via Rfps or rfid's, just generally for as part of a larger kind of ecosystem of zero tests vendors are.

Our players or just kind of or wasn't really more cloudflare or in any competitively centric that way and how that kind of how those played out.

<unk> Trevor Thanks for that thanks for the question I eat almost all of those cases those were competitive deals that were coming through either R. A P. R. F I process or they were even if it wasn't a formal RFP or or if I process. It was there there were other names.

That were providing more limited set of zero Trust Uhm features and what we are seeing is that we are winning in those competitive head to head deals because first of all we are significantly easier to deploy and implement secondly, we have a rich.

Your feature set when you, especially when you take into account the entire platform Uhm third we deliver significantly higher R. O Y for the investment that's there and then fourth there's a natural integration across the entire network that is is provided so I am I I think.

This is obviously a newer area that we have that we have gotten into but I I am very proud of our team and the wind right that we have against some better known vendors in the in the zero Trust space and and I think that that there is a very big opportunity for us to continue deliver because again, we built a platform that.

Can scale in a way that I don't think that any other zero trust vendor has.

Awesome, Great and maybe one quick one for maybe Thomas best to handle when I also noticed that you guys expanded the proprietary network again this quarter I was wondering if there are any of the supply chain issues kind of made that process a little bit more challenging shall we say, giving some of the constraints there.

[noise] not really can we.

Our or infrastructure team has managed to us and the the footprint of the network really well through Covid under supply chain disruption Sweet we ordered early we signed longterm agreements and we sometimes order the head off or need just to make sure that we are protected so I I I would.

Save you saw hardly any impact in in Malibu Dream.

The third quarter from from some of my junior and interruptions.

Great. Thanks, all congrats on the corner.

Your next question comes from <unk> from Jeffries. Please go ahead no line is open.

Hey, guys you have Joe on for Brown really appreciate the question and congrats on the results can you guys provide just a an update on the APAC region and how the rollout is going in China and maybe when we can expect growth in that region, you know bouncing back to more company norms.

[laughter], so weird weird actually happy with the progress we're seeing them to know remember on the last two earnings cause we send it would take us about towards the end of the year until we are back to historical cross right and a pack and I think that there's still holds true we've seen the first.

In a corner over a quarter of improvement in the dark Walker, where you over your crossway dislike you picking up and the team there's the ringer reboot chop to to get us on target. So like I think we we are I'm trying to work reset before and put back to would be packed historic with growth rates by the end of their.

By the end of this fiscal year.

That's great to hear and it's great to hear about the strength in large deals maybe just an update also on the federal business and any initiatives there.

Sure. So I can I can take that uhm, we as we talked about last quarter. We we along with Accenture were able to secure a big deal across across the business. We don't anticipate as we said last time that that will have a material impact on revenues until 2022, but that is going.

Very well and and I think that what we're seeing is more and more agencies within the federal business are excited to to work with US. We also anticipate that early in 2022, we will we will reach our moderate full fedramp compliance, we're already able to with the with.

The achievement that we have cell into the federal government under under the provisional compliance that we that we have in place and so I think that that uhm puts us in place to be able to deliver that and we're hiring right now to be able to build out our federal team to to be able to handle what we anticipate will be strong demand.

Thanks, guys.

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

Thanks, just to take us on one of the other question was asked around sort of distributions you guys are offering more products and you have.

It seems like closer one and.

And workers and so forth you know is there a <unk>.

Section of your customer base, it's maybe not large enterprise and not the small and that can be served by a channel partner type of sales scenario, where you're not putting as much of your own resources into it but can still generate sales in that in that spaces. So that mid market enterprise starts to really figure out that they need a lot of the products that you're offering.

Yeah, I I think that channel is something that has been part of our mix for quite some time, but has not yet at the place where where we think there's an opportunity for it to be and so you know channel has always been a challenge for for SaaS.

<unk> and I think historically uhm wanted to check problems for channel partners with asked was if for a lot of our our traditional products you know it it took five minutes to onboard and so there wasn't a lot of value to add for value added reseller, but I think what you're seeing is as our products are getting.

More sophisticated that that channel partners are able to really create value and specialization and customization for that so you said that with Accenture, which we went to market with obviously you're on on the on the large into Pat we have had a long term channel partnership relationship.

I B M, which has been very successful for us, but I think that expanding the already use of the channel I N. In 2022 is one of the focus areas and I agree with you that that's an area, where we can get even further leverage in our our go to market spent.

Great. Thanks.

Your next question comes from Andrew No Winski from Laos Fargo. Please go ahead. Your line is open.

Great. Thank you for taking the questions I just have a one a follow up on the talks are one and the sassy market.

Other vendors you know claim you need a more of a proxy based architecture to apply.

<unk> <unk> user basis to really be effective and that.

Sort of zero Trust market I'm, just wondering if you could provide any more color on whether that comes up in your bake-offs and zero trust her sassy space. Thanks.

Yeah, Andrew Uhm. So so we are a proxy uhm I think sometimes people people think that because we started out what's known in the industry as a reverse proxy that that that that you that we aren't that we can't be a forward proxy, but it turns out that it's it's easy to make that.

The the traffic flow one way through the pipe as it is to make it flow the other way through the pipe and so what's really powerful is because not only built that proxy infrastructure and we are in you know more than 250 cities worldwide. We have you know an incredible amount of capacity and scalability and we have all of the existing security.

Features built in that I hate that our proxy when it's compared head to head with some of the other providers shines both on a on a performance perspective, where we we actually usually will accelerate customers traffic, whereas other solutions typically slow it down and then also on a broad security threat basis, where we're increasingly seeing attackers.

One thing like denial of service attacks and and the traditional providers just don't have the capacity to be able to stay ahead of that whereas we we we do because that's part of what has been our more historic product I think what what we are building out it is actually more of the clients that that exist on individual device.

Says to augment the proxy services and so the great news for that for US is that because we've had consumer facing products like cloth or war, yeah. The world's biggest Q a organization, where there are literally tens of millions of people using warp everyday kicking the tires and making sure that it works well not only on your desk.

Thompson laptops, but on really difficult environments, like mobile phones, where where where usually I. You know competitive solutions will will massively burn battery life or decreased performance. So I think that you know we are very well positioned to be able to to win that space. I think there are challenges just making sure.

Sure that uhm people and there's awareness and that we we really refine our go to market motion Uhm, but we're seeing success and we're seeing when then when we'd go head to head with some of the other competitors out there I really like our win right.

That's great. Thank you for that color and then I just maybe shifting gears I just wanted to ask another question or two do you think the some of the more typical use cases, where you'll see started deployed and are too are are the traditional enterprise workloads or do you think that maybe is more of an extra and use cases like autonomous cars.

Et cetera. Thanks.

The interest I mean, <unk>. So we're focused on the present and focused on building solutions for for companies that exists today and problems that exist today and so I know we have we have an internal rule that anyone who mentions you know driverless cars when talking and.

<unk> you know clapper workers has to has to do a shot and so I think that we I I I I I I would rather bat an application that that exists today and what we're seeing for example from the the the very large retailer that's concerned about.

You know the the the the traffic volumes of her Black Friday, Yeah. We're building a solution that easily scaled to them to you know over 100000 requests per second you know if you. If you do the math out on that that is across one customer well over a trillion <unk> over a trillion request for quarter and.

We you know we see nearly a trillion request per day from from the from the users of of workers, So our ability to scale and deliver real applications Uhm. It has it really been built over the fact that we had that product and market for the last four years and as we add things like are too.

I think it it just continues to make it a richer platform and that we're seeing you know real large retailers financial services health care adopt an <unk> you know Sunday driverless cars use it too that's great, but but but in the meantime, we'll we'll focus on real problems of of the moment.

That's great. Thank you guys.

Juliann can we take questions from one last time, let's please.

Secondly, your last question will come from <unk> from ever car. Please go ahead. Your line is open.

Perfect. Thanks, I'm glad I made it under the line there I guess I have to that both on our too as well Matthew I'm wondering if AWS tomorrow was to take the egress Fichu zero in theory, what would the value proposition for our to become in that scenario and I'm trying to understand it what would you say are the reasons one should go to our to worse as AWS beyond the English fees.

If if AWS takes <unk> tomorrow, I will do a dance of joy for all of our mutual customers and that will put us in a position I think I've. Finally, realizing what is the ultimate opportunity of the cloud, which is how do we allow customers to take advantage.

The best of what Amazon offers the best of what you Google offers the best of what Microsoft offers the best of what Oracle offers and the basketball Kotler offers and if we can be the fabric that connects all of that together that that's great. In the meantime, you know because I don't think that AWS is gonna.

<unk> E recipes to zero tomorrow, we're going to make products that perform at least as well as as theirs do but don't right customers over the cold for what are egregious egress fee uhm. So so so I I I I hope that I hope that your hypothetical comes through.

<unk> I think it's unlikely that it would but but that would be a great thing for customers and I think it would <unk>. It would force us to continue to innovate in that space just like it would force everyone else to innovate in the space and who wins in that case is customers.

So not enough and then you do you probably talked about the goal is eventually become the fourth major public clouded and I'm curious.

To be that what does that do to your time, you know what you're talking about being 100 billion in a couple of years, what does it do to due to that and then what's the Capex investments you need do you need to make to achieve the school.

Well again I think the good taking the second part of the question first the good news is we've made substantial capex investments around the world and the efficiency of running an edge network like hours Uhm is actually substantially lower capex.

Versus a traditional centralised cloud providers, we we we get the benefits of taking advantage of the entire internet and the routing system around the world and then can put data wherever it makes the most sense for for our customers.

And store it there so we've got substantial storage <unk> and and compute capacity across our entire network. One of the one of the things that was important about the fact that we started out very much as a security company.

Is it security applications require significant compute.

And so we have actually deployed unlike some of the more you know point C D and solutions. When you look at our note, they're very heavy on computer and that's part of why we've been able to scale up our computing solution as as quickly as possible. They also have a ton of desk in them and so.

So that means that there's there's storage that we can that we can provide in those locations. We're confident that we can provide the R. Two service in a way that has very attractive economics for us and we're also confident in part because our infrastructure team has gotten so good at building.

To the capacity that we need that as if we do see demand, which is is significant that we will be able to invest in capex behind that demand. So I don't think that as a percentage of revenue are to meaningfully changes are capex spend but but it but it might.

But but if it is wildly successful or capex might go up but that would be correlated with our revenue going out does that that makes sense and answer your question.

It's a perfectly thank you very much.

Thank you.

Yeah, I, just kind of our questions today I would like to take the call back over to management for closing remarks.

I appreciate everyone at Cloudflare for the hard work of delivering what really was a milestone quarter for us we are incredibly proud of achieving profitability and we I just wanted to repeat one more time, what would I said with Thomas at which is we are nowhere near out of ideas of things to build in customer sell.

Them too and so we're going to continue to reinvest our profits back into the business in order to build what we really believe is going to be one of the truly iconic technology companies. Thank you all for being investment investors. Thank you for tuning in we'll see you next quarter.

This concludes today's conference call. Thank you for your participation you may not disconnect.

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