Cloudflare Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Great, thanks for taking my questions guys. Congrats on the quarter, obviously, uneven macro environment. Maybe to start with you, Matthew. You guys sit in front of really 20% of the Internet exits, it's a credible global visibility. And you've talked about your crystal ball. Could you comment on trends you're seeing through early May? Has there been any changes in traffic with all the tariff rhetoric?

Question: Matthew Hedberg - RBC Capital Markets - Analyst : It's really good to hear. And then maybe just a quick one, Thomas. The revenue beat was great to see. Margins were more or less in line with expectations. How do you -- you talked about CapEx spending sort of within the range that you talked about, are you -- how are you thinking about margins this year? Are you pre-spending for some demand that you're seeing? Just any color on that? We're getting a bit of inbound on sort of the margin performance this quarter.

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. Thanks a lot, guys.

Question: Joel Fishbein - Truist Securities - Analyst : Thanks for taking the question and congrats on the excellent execution. I know you commented a little bit on this in the prepared remarks, but I'd love to get a little broad how sales productivity and sales capacity is tracking, especially as it relates to the enterprise segment? And do you still expect the capacity of ramp reps to accelerate in 2Q and again in the second half?

Question: Joel Fishbein - Truist Securities - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, NET.N - Q1 2025 Cloudflare Inc Earnings Call

Question: Mark Murphy - JPMorganChase - Analyst : Thank you a lot, my congrats. Matthew, could you comment on this extreme volume of DDoS attacks, the decider in Q1. We were looking at your stats, it looked like they were up more than 300% year-over-year. And the complexity looked like it went off the charts as well with the hyper volumetric attacks. So I think our understanding is you do not actually charge based on the size of the attack. But I am wondering if you could see a tailwind from that kind of environment and how you feel about defending against that kind of an attack relative to your competitors?

Question: Mark Murphy - JPMorganChase - Analyst : Thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, NET.N - Q1 2025 Cloudflare Inc Earnings Call

Question: Andrew Nowinski - Wells Fargo - Analyst : Congrats on another remarkable quarter. Matthew, you highlighted the longest duration contract in Zero Trust to date as well as some other notable wins. Just wondering if you could double-click on the trends that you're seeing in the SASE and why Cloudflare is kind of winning more of these larger deals than we've heard in the past?

Question: Andrew Nowinski - Wells Fargo - Analyst : Thank you. That's great. And as a follow-up, Matthew, I think you said you won a number of SASE deals with government agencies as well in both the US and APAC. And I'm wondering if you could just expand on the traction you're seeing in the broader government sector.

Question: Andrew Nowinski - Wells Fargo - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, NET.N - Q1 2025 Cloudflare Inc Earnings Call

Question: Keith Weiss - Morgan Stanley - Analyst : Thank you guys for taking the question and congratulations on a strong start to the year. In particular, I wanted to dig into that $100 million Workers-led deal not too many platforms out there that can accrue that much value from one deal. So just congratulations on sort of building that out. Can you give us any detail in terms of like the use case or what they're using the platform for, give us any more color on like what is the $100 million workers deal look like in reality on the ground of what they're going to be doing with the platform?

Question: Keith Weiss - Morgan Stanley - Analyst : Yeah, definitely seeing that in the developer affinity for the platform. As a follow-up, this is more of a go-to-market question. in the quarter, you guys saw a really strong growth in overall customer adds. I think that 13,000 was up almost 80%. But the net adds on the [$100,000] side was a lot skinnier like only 30% up on a quarter-on-quarter basis. any changes in like go-to-market strategy that caused that? Or is that just kind of timing of kind of when those are coming in?

Question: Keith Weiss - Morgan Stanley - Analyst : But on the reverse side, anything that propelled those 13,000 net customer adds overall, any change on that side of the equation?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. Super impressive, guys. Thanks so much.

Question: Shaul Eyal - Cowen Inc. - Analyst : Thank you so much and congrats on solid performance and guidance. Matthew, you mentioned tariffs as potentially being the final straw for some of the final holdouts, we're still using Boxes. Could you elaborate on those conversations and discussions? And how are you managing your network supply chain?

Question: Shaul Eyal - Cowen Inc. - Analyst : Thank you.

Question: Mike Cikos - Needham & Company - Analyst : Great, thanks for taking the questions, guys. Just wanted to start I think going back to the prepared remarks, Matthew, you had cited sequential improvement in sales cycles, which is something that we would not have expected just given this environment and kudos to you guys. Can you just spend some time hashing out those dynamics? I'm just curious what's the sustainability of those improvements that you guys are driving it?

Question: Mike Cikos - Needham & Company - Analyst : And just for a quick follow-up to Thomas. I know we're talking about less certain environment. You guys obviously had a larger magnitude thinking about the 1Q top line beat. Can you just help us think a little bit more as far as the guidance construction here with the reiterated calendar '25 guide. How much of that is essentially incremental conservatism or prudence however you want to phrase it versus visibility moving one way or the other over the last 90 days as it relates to pool of funds deals? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, NET.N - Q1 2025 Cloudflare Inc Earnings Call

Question: Adam Borg - Stifel Nicholas - Analyst : Awesome. Maybe just for Matthew, one of the things when we go back to investor back in March that Mark Anderson talked about was just around the developer speed boat launching this year. And obviously, with the $100 million plus workers deal, I would love to get a sense of if that team

Question: Adam Borg - Stifel Nicholas - Analyst : Excellent, thanks so much.

Question: Jonathan Ho - William Blair - Analyst : Let me echo my congratulations as well. Matthew, could you provide us with an update on the model context protocol that you're and the work that you're doing there? And maybe what this implies for Cloudflare's ability to power AI agents as data sources that AI models are accessing? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, NET.N - Q1 2025 Cloudflare Inc Earnings Call

Question: Jonathan Ho - William Blair - Analyst : Excellent thank you.