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What changed in Cloudflare, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Cloudflare, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+426 added−407 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-21)

Top changes in Cloudflare, Inc.'s 2024 10-K

426 paragraphs added · 407 removed · 362 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

54 edited+10 added−5 removed55 unchanged
Biggest changeOur primary developer-based solutions include: • Cloudflare Workers : Allows developers to augment existing applications or create entirely new ones through a lightweight execution environment without configuring or maintaining infrastructure. • R2 Object Storage : Provides global object storage and the ability to create multi-cloud architectures for data storage. • Workers KV : Helps developers manage states for their applications with a globally distributed key-value storage. • Durable Objects: Enables a customer to build and run collaborative applications, such as chat rooms, games, and whiteboards, on our global network. • Cloudflare Pages : Allows front-end developers to quickly and easily build, collaborate on, and deploy websites. • Cloudflare Stream : Enables live and on-demand video streaming from our global network. • Cloudflare Images : Provides an end-to-end solution to cost-effectively build and maintain image infrastructure.
Biggest changeStorage & Databases • R2 Object Storage : Provides global object storage without egress frees. • Workers KV : Helps developers manage states for their applications with a globally distributed key-value storage. • Durable Objects : Enables a customer to build and run collaborative applications, such as chat rooms, games, and whiteboards, on our global network. • D1 : Enables developers to create serverless SQL databases. • Hyperdrive : Accelerates queries to databases by caching frequent query responses, maintaining primed connection pools, and optimizing routing.
Our cloud-based products provide local and global load balancing to reduce latency by distributing traffic across multiple servers or by routing traffic to the closest geolocation region to the user. • DNS : Authoritative DNS keeps customer Internet properties online and available around the world, and DNS resolver returns the IP addresses of servers when a user enters a domain name. • Argo Smart Routing : Improves Internet performance by intelligently routing end users through less congested and more reliable paths over the Internet using our network. • Video Stream Delivery : Caches and delivers HTTP(S) video content on websites, saving the customer on origin server bandwidth costs. • Web Optimization : Adjusts automatically the way content is delivered based on the particular device accessing the site to improve speed without affecting the customer’s Internet property look or features. • Cache Reserve : Serves a limited copy of a cached website, to keep it online for a customer’s visitors should the customer’s origin server go down. 11 Table of contents • Cloudflare Waiting Room : Allows organizations to route large volumes of users to a custom-branded virtual waiting room, helping preserve customer experience and protect origin servers from being overwhelmed with requests. • Cloudflare Data Localization Suite : Sets rules and controls at the network edge about where data is stored and protected, while taking advantage of Cloudflare's global network.
Our cloud-based products provide local and global load balancing to reduce latency by distributing traffic across multiple servers or by routing traffic to the closest geolocation region to the user. • DNS : Authoritative DNS keeps customer Internet properties online and available around the world, and DNS resolver returns the IP addresses of servers when a user enters a domain name. • Argo Smart Routing : Improves Internet performance by intelligently routing end users through less congested and more reliable paths over the Internet using our network. • Video Stream Delivery : Caches and delivers HTTP(S) video content on websites, saving the customer on origin server bandwidth costs. 11 Table of contents • Web Optimization : Adjusts automatically the way content is delivered based on the particular device accessing the site to improve speed without affecting the customer’s Internet property look or features. • Cache Reserve : Serves a limited copy of a cached website, to keep it online for a customer’s visitors should the customer’s origin server go down. • Cloudflare Waiting Room : Allows organizations to route large volumes of users to a custom-branded virtual waiting room, helping preserve customer experience and protect origin servers from being overwhelmed with requests. • Cloudflare Data Localization Suite : Sets rules and controls at the network edge about where data is stored and protected, while taking advantage of Cloudflare's global network.
We believe we are positioned favorably against these vendors with our cloud-based, multitenant approach that is better suited to an increasingly cloud-based world and that allows customers to treat our services as operational as opposed to capital costs. • Point solution vendors , which provide cloud-based products and services to address a single use case or challenge, in various categories including cloud security vendors, content delivery network (CDN) vendors, domain name system (DNS) services vendors, email security vendors, and cloud SD-WAN vendors.
We believe we are positioned favorably against these vendors with our cloud-based, multitenant approach that is better suited to an increasingly cloud-based world and that allows customers to treat our services as operational as opposed to capital costs. • Point solution vendors , which provide cloud-based products and services to address a single use case or challenge, in various categories including application and network security vendors, content delivery network (CDN) vendors, domain name system (DNS) services vendors, email security vendors, and SD-WAN vendors.
Our primary website and application security product offerings include: • Web Application Firewall (WAF) : Protects a customer’s Internet properties from common vulnerabilities like SQL injection attacks, cross-site scripting, and cross-site forgery requests, with no changes to the customer’s existing infrastructure. • Bot Management : Detects and manages undesired or malicious Internet traffic generated by malicious software programs called bots, while still allowing useful bots to access Internet properties through machine learning and behavioral analytics. • Distributed Denial of Service (DDoS) Protection : Protects a customer’s website applications from DDoS attacks, which are malicious attempts to disrupt the normal operations of an application, targeted server, service or network by overwhelming the target or its surrounding infrastructure with a flood of Internet traffic. • API Gateway : Keeps customer APIs secure and productive with API discovery, integrated API management and analytics, and layered API defenses. • SSL / TLS Encryption : Manages encrypted secure socket layer (SSL) and transport layer security (TLS) web traffic to prevent data theft and tampering to improve security as well as application and website productivity.
Our primary website and application security product offerings include: • Web Application Firewall (WAF) : Protects a customer’s Internet properties from common vulnerabilities like SQL injection attacks, cross-site scripting, and cross-site forgery requests, with no changes to the customer’s existing infrastructure. • Bot Management : Detects and manages undesired or malicious Internet traffic generated by malicious software programs called bots, while still allowing useful bots to access Internet properties through machine learning and behavioral analytics. • Distributed Denial of Service (DDoS) Protection : Protects a customer’s website applications from DDoS attacks, which are malicious attempts to disrupt the normal operations of an application, targeted server, service or network by overwhelming the target or its surrounding infrastructure with a flood of Internet traffic. • API Security (API Shield) : Keeps customer APIs secure and productive with API discovery, integrated API management and analytics, and layered API defenses. • SSL / TLS Encryption : Manages encrypted secure socket layer (SSL) and transport layer security (TLS) web traffic to prevent data theft and tampering to improve security as well as application and website productivity.
Our full suite of products consists of (1) our website and application services to deliver security, performance, and reliability for an organization's websites, applications, and application programming interfaces (APIs), (2) our secure access service edge (SASE) platform — Cloudflare One — which contains our suite of Zero Trust and network services solutions to help ensure traffic in and out of an organization’s internal network and devices is verified and authorized as well as to securely connect data centers, cloud services, and branch offices to an organization with our Connectivity Cloud, (3) our developer-based solutions to build and deploy serverless applications with scale, performance, security and reliability, and (4) our consumer offerings.
Our full suite of products consists of (1) our website and application services to deliver security, performance, and reliability for an organization's websites, applications, and application programming interfaces (APIs), (2) our secure access service edge (SASE) platform, which contains our suite of Zero Trust and network services solutions to help ensure traffic in and out of an organization’s internal network and devices is verified and authorized as well as to securely connect data centers, cloud services, and branch offices to an organization with our Connectivity Cloud, (3) our developer-based solutions to build and deploy serverless applications with scale, performance, security and reliability, and (4) our consumer offerings.
We believe this programmable feature of our network is attractive to our customers for a number of reasons, including: 9 Table of contents • the global reach of our network and how it puts our customers’ applications closer to the world's Internet-connected population; • the nature of our serverless offering, meaning that rather than having to worry about regions, or the deployment and scaling of containers as applications grow in popularity, we do it automatically for them; and • our ongoing deployment of graphics processing units (GPUs) across our global network of servers, which will help our customers build performant AI into their applications natively.
We believe this programmable feature of our network is attractive to our customers for a number of reasons, including: • the global reach of our network and how it puts our customers’ applications closer to the world's Internet-connected population; • the nature of our serverless offering, meaning that rather than having to worry about regions, or the deployment and scaling of containers as applications grow in popularity, we do it automatically for them; and • our ongoing deployment of graphics processing units (GPUs) across our global network of servers, which will help our customers build performant AI into their applications natively.
Copies of our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our Proxy Statements for our annual meetings of stockholders and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as amended, are available free of charge on our investor relations website as soon as reasonably practicable after we file such material electronically 18 Table of contents with or furnish it to the Securities and Exchange Commission (the SEC).
Copies of our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our Proxy Statements for our annual meetings of stockholders and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as amended, are available free of charge on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission (the SEC).
Growth Strategy Key elements of our growth strategy include: • Acquire New Customers : We believe that anyone that relies on the Internet to deliver products, services, or content can be a Cloudflare customer.
Growth Strategy Key elements of our growth strategy include: • Acquire New Customers : We believe that anyone that relies on the Internet to deliver products, services, or content or to operate a business can be a Cloudflare customer.
This suite of products also includes analytics products to provide a customer with the ability to build customized analytics to provide insights and intelligence to further protect and accelerate their Internet properties, such as monitoring 10 Table of contents threats, searching for specific search engine crawlers, understanding DNS query traffic, and analyzing real time data traffic.
This suite of products also includes analytics products to provide a customer with the ability to build customized analytics to provide insights and intelligence to further protect and accelerate their Internet properties, such as monitoring threats, searching for specific search engine crawlers, understanding DNS query traffic, and analyzing real time data traffic.
Providers in these categories are all focused on delivering cloud-based point solutions. However, customers are increasingly looking for an integrated infrastructure platform offering security, performance, and reliability through a single vendor. 16 Table of contents • A subset of services provided by traditional public cloud vendors .
Providers in these categories are all focused on delivering cloud-based point solutions. However, customers are increasingly looking for an integrated infrastructure platform offering security, performance, and reliability through a single vendor. • A subset of services provided by traditional public cloud vendors .
It also allows our network to get more efficient and powerful as we add each incremental server, regardless of where it is located. Every time we add a server or add a new city, our entire network improves. Network Flexibility Our network and products are API-driven and designed for developers.
It also allows our network to get more efficient and powerful as we add each incremental server, regardless of where it is located. Every time we add a server or add a new city, our entire network improves. Network Flexibility 15 Table of contents Our network and products are API-driven and designed for developers.
Our network has been built from the ground up as a single software stack we developed that runs our products in more than 310 cities and over 120 countries worldwide. This allows us to scale quickly while offering a wide range of products and simultaneously lowering operating expenses.
Our network has been built from the ground up as a single software stack we developed that runs our products in more than 335 cities and over 125 countries worldwide. This allows us to scale quickly while offering a wide range of products and simultaneously lowering operating expenses.
Website and Application Services Cloudflare offers a suite of website and application services products to help ensure that Internet properties such as websites, applications, and APIs that are exposed to the Internet are safe from attack, and are fast and reliable.
Website and Application Services 10 Table of contents Cloudflare offers a suite of website and application services products to help ensure that Internet properties such as websites, applications, and APIs that are exposed to the Internet are safe from attack, and are fast and reliable.
A second independent group builds greenfield opportunities that aim to expand our market and reach new markets. In addition, our research team is focused on ensuring that our network, products, and customers are secured with the latest cryptography. 15 Table of contents We prioritize investment in research and development.
A second independent group builds greenfield opportunities that aim to expand our market and reach new markets. In addition, our research team is focused on ensuring that our network, products, and customers are secured with the latest cryptography. We prioritize investment in research and development.
By leveraging the public Internet, Cloudflare One brings together in a single pane of glass how employees connect, on-ramps for branch offices, secure connectivity for applications, and controlled access to SaaS applications. Network Services These products help our customers connect, secure, and accelerate their corporate networks, without the need to manage legacy network hardware.
By leveraging the public Internet, Cloudflare’s SASE platform brings together in a single pane of glass how employees connect, on-ramps for branch offices, secure connectivity for applications, and controlled access to SaaS applications. Network Services These products help our customers connect, secure, and accelerate their corporate networks, without the need to manage legacy network hardware.
SASE Platform (Cloudflare One) Our SASE platform combines network services and Zero Trust security through the Cloudflare One suite of products to provide a comprehensive, cloud-based network-as-a-service solution that is designed to be secure, fast, reliable, and define the future of the corporate network.
SASE Platform Our SASE platform combines network services and Zero Trust security products to provide a comprehensive, cloud-based network- and security-as-a-service solution that is designed to be secure, fast, reliable, and define the future of the corporate network.
Our Customers We view our millions of free and paying customers, which manage millions of Internet properties on our network, as part of a broad, global community. As of December 31, 2023, we had approximately 190,000 paying customers across more than 120 countries.
Our Customers We view our millions of free and paying customers, which manage millions of Internet properties on our network, as part of a broad, global community. As of December 31, 2024, we had approximately 238,000 paying customers across more than 190 countries.
Our implementation of 1.1.1.1 makes it among the fastest resolvers available, and we support DNS over HTTPS (DoH) which encrypts and secures consumers’ DNS requests.
Our 13 Table of contents implementation of 1.1.1.1 makes it among the fastest resolvers available, and we support DNS over HTTPS (DoH) which encrypts and secures consumers’ DNS requests.
Our paying customer base is highly diversified across organizations of all sizes in every major industry vertical including technology, healthcare, financial services, consumer and retail, industrial, non-profit, and government. Our large customer count has increased from 1,416 as of December 31, 2021 to 2,042 as of December 31, 2022 to 2,756 as of December 31, 2023.
Our paying customer base is highly diversified across organizations of all sizes in every major industry vertical including technology, healthcare, financial services, consumer and retail, industrial, non-profit, and government. Our large customer count has increased from 2,042 as of December 31, 2022 to 2,756 as of December 31, 2023 to 3,497 as of December 31, 2024.
Additional information regarding our ESG initiatives and programs can be found in the latest Cloudflare Impact Report and ESG Index, which are located on our website at https://www.cloudflare.com/impact/. The Cloudflare Impact Report, as well as the ESG Index and Emissions Inventory, are updated annually. This website address is intended to be an inactive textual reference only.
Additional information regarding our sustainability initiatives and programs can be found in the latest Cloudflare Impact Report, which is located on our website at https://www.cloudflare.com/impact/. The Cloudflare Impact Report, as well as the sustainability resources and Emissions Inventory, are updated annually. This website address is intended to be an inactive textual 14 Table of contents reference only.
Advanced Certificate Manager (ACM) also provides a consolidated certificate management experience with greater configuration for managing multiple certificates. • Rate Limiting : Provides the ability to configure thresholds, define responses, and gain valuable insights into specific URLs of websites, applications, or API endpoints. • Script Management (Page Shield) : Protects website visitors from customer-side attacks that target vulnerabilities directly in the browser environment. • Security Center : An actionable dashboard that provides insights into threats, risks, and configuration suggestions, acting as a security practitioner’s home page.
Advanced Certificate Manager (ACM) also provides a consolidated certificate management experience with greater configuration for managing multiple certificates. • Rate Limiting : Provides the ability to configure thresholds, define responses, and apply throttling rules across web applications and API endpoints. • Script Management (Page Shield) : Protects website visitors from customer-side attacks that target vulnerabilities directly in the browser environment. • Security Center : An actionable dashboard that provides insights into threats, risks, and configuration suggestions, acting as a security practitioner’s home page.
Zero Trust Security These products shield users of a corporate network from attacks, inspect traffic for threats, and apply privilege rules to grant access to the customer's data and applications. • Cloudflare Access : Enforces Zero Trust application access based on identity. • Cloudflare Gateway : Filters all traffic crossing to customer employee devices to prevent malicious traffic reaching end-user devices. • Remote Browser Isolation : Runs a customer's browsers in the cloud as opposed to on-device, insulating devices from attacks. • Cloud Access Security Broker (CASB) : Provides visibility and control over SaaS applications to help prevent data leaks and compliance violations. • Cloud Email Security : Protects users of a corporate network from phishing, business email compromise, and email supply chain attacks. • Data Loss Prevention : Inspects HTTP/S traffic for sensitive data like personally identifiable information (PII) and prevents exfiltration of customer information with allow or block policies. 12 Table of contents Developer-based Solutions By leveraging our serverless platform, developers can build serverless applications on our network that scale without needing to spend time and effort on infrastructure or operations.
Zero Trust Security These products shield users of a corporate network from attacks, inspect traffic for threats, and apply privilege rules to grant access to the customer's data and applications. • Cloudflare Access : Enforces Zero Trust application access based on identity. • Cloudflare Gateway : Filters all traffic crossing to customer employee devices to prevent malicious traffic reaching end-user devices. • Remote Browser Isolation : Runs a customer's browsers in the cloud as opposed to on-device, insulating devices from attacks. • Cloud Access Security Broker (CASB) : Provides visibility and control over SaaS applications to help prevent data leaks and compliance violations. 12 Table of contents • Cloud Email Security : Protects users of a corporate network from phishing, business email compromise, and email supply chain attacks. • Data Loss Prevention : Inspects HTTP/S traffic for sensitive data like personally identifiable information (PII) and prevents exfiltration of customer information with allow or block policies.
Item 1. Business Overview Cloudflare’s mission is to help build a better Internet. In recent years, the technology industry has undergone a massive transition from on-premises hardware and software that customers buy, to services in the cloud that they rent. Organizations find themselves at different points in this transition to the cloud.
Item 1. Business Overview Cloudflare’s mission is to help build a better Internet. Over the past decade, the technology industry has been undergoing a massive transition from on-premises hardware and software that customers buy, to services in the cloud that they rent. Organizations find themselves at different points in this transition to the cloud.
We allow any eligible campaign to access a variety of our security services, including enhanced firewall protection, DDoS attack mitigation, as well as internal data management and security controls. • Project Cybersafe Schools : In August 2023, we launched Project Cybersafe Schools as part of the White House's Back to School Safely: K-12 Cybersecurity Summit.
We allow any eligible campaign to access a variety of our security solutions, including web application firewall, and DDoS protection, as well as internal data management and security controls. • Project Cybersafe Schools : We launched Project Cybersafe Schools in 2023 as part of the White House's Back to School Safely: K-12 Cybersecurity Summit.
Today, our network spans more than 310 cities in over 120 countries worldwide and interconnects with over 13,000 networks globally, including major ISPs, cloud services, and enterprises. Increasingly, we are finding that our customers are also using our network to build their applications too.
Today, our network spans more than 335 cities in over 125 countries worldwide and interconnects with over 13,000 networks globally, including major ISPs, cloud services, and enterprises. 9 Table of contents Increasingly, we are finding that our customers are also using our network to build their applications too.
As more workloads move to the cloud and employees are increasingly working remotely, there is no point in installing additional hardware boxes on premise. An on-premises box will not solve the problems organizations now face. Nor can a business ship a hardware box to a cloud vendor.
As more workloads move to the cloud and workforces become increasingly distributed globally, there is no point in installing additional hardware boxes on premise. An on-premises box will not solve the problems organizations now face. Nor can a business ship a hardware box to a cloud vendor.
Our Network We have built an efficient, scalable, programmable network that allows us to rapidly develop and deploy our products for our customers and that is architected to be flexible, scalable, and get more and more efficient as it expands.
Our Network We have built an efficient, scalable, programmable network that allows us to rapidly develop and deploy our products for our customers and that is architected to be flexible, scalable, and get more and more efficient as it expands. Our network is built to run every service on every server in every city.
The more than 2,400 recipients of services under Project Galileo include independent journalists reporting on repressive regimes, minority rights and arts groups in closed societies, and civil society organizations supporting democratic movements. • Athenian Project : We created the Athenian Project to ensure that state and local governments’ election websites have the highest level of protection and reliability for free, including through our Zero Trust security solutions.
The more than 2,900 recipients of services under Project Galileo include independent journalists reporting on repressive regimes, minority rights and arts groups in closed societies, and civil society organizations supporting democratic movements. • Athenian Project : We created the Athenian Project to ensure that U.S. state and local governments’ election websites have the highest level of protection and reliability for free through a variety of our security solutions, including Enterprise DDoS protection, web application firewall, SSL certificates, content delivery network, and Zero Trust security solutions.
As we open our serverless platform to third-party developers, we believe we are increasingly competing with public cloud vendors for storage and compute workloads.
In addition, we believe we are increasingly competing with public cloud vendors for storage and compute workloads as more third-party developers utilize our serverless platform.
We provide our employees with competitive salaries, opportunities for equity ownership, and a comprehensive benefits package that promotes well-being across all aspects of their lives, including health care, life and disability insurance, financial savings, family forming and caregiving benefits, and flexible vacation time.
We provide our employees with competitive salaries, opportunities for equity ownership, and a comprehensive benefits package that promotes well-being across all aspects of their lives, including health care, life and disability insurance, financial savings, family forming and caregiving benefits, and flexible vacation time. We allow flexibility in how teams work, while also supporting the benefits of intentional togetherness.
Currently, more than 26 school districts in 14 U.S. states participate in the program. Our Technology Our distributed and proprietary network is the core of our technology and enables us to move data seamlessly from nearly any point on earth in a fast, efficient, and reliable manner.
Our Technology Our distributed and proprietary network is the core of our technology and enables us to move data seamlessly from nearly any point on earth in a fast, efficient, and reliable manner.
We believe that we are positioned favorably against our competitors based on these principal competitive factors. Human Capital Resources As of December 31, 2023, we had 3,682 full-time employees, including 1,592 employees located outside of the United States. We also engage contractors and consultants. None of our employees are represented by a labor union.
We believe that we are positioned favorably against our competitors based on these principal competitive factors. Human Capital Resources 17 Table of contents As of December 31, 2024, we had 4,263 full-time employees, including 1,896 employees located outside of the United States. We also engage contractors and consultants.
We also are continuing to focus on growth in our pay-as-you-go customers (those on paid Pro and/or Business plans) that is predominantly used by our small and medium customers. ◦ Free : In addition to our focus on paying customers, we will continue to invest in awareness and functionality of our products to drive overall customer growth beyond the millions of Internet properties using Cloudflare today. • Expand Our Relationships with Existing Customers : Customers expand their relationships with us by upgrading to premium plans, increasing their usage of our products, or adding products from our different suites of products or across the same product suite. • Develop New Products and Solutions : We continue to invest in new product development and building new solutions for our existing customers and potential new customers, and as we onboard more customers and more traffic on our network, our ability to identify promising new avenues for innovation improves. • Extend Our Developer Solutions Strategy : We have seen a growing number of customers that have chosen to bring applications to market using our developer-based solutions, including Cloudflare Workers.
Customers expand their relationships with us by upgrading to premium plans, increasing their usage of our products, or adding products from our different suites of products or across the same product suite. • Develop New Products and Solutions : We continue to invest in new product development and building new solutions for our existing customers and potential new customers, and as we onboard more customers and more traffic on our network, our ability to identify promising new avenues for innovation improves. • Extend Our Developer Solutions Strategy : We have seen a growing number of customers that have chosen to bring applications to market using our developer-based solutions, including Cloudflare Workers.
In 2023, we committed to setting near-term company-wide emissions reductions in line with climate science with the Science Based Targets initiative. We are also committed to respecting human rights under the United Nations Guiding Principles on Business and Human Rights, and advancing and protecting freedom of expression and privacy consistent with the Global Network Initiative (GNI) Principles.
We are also committed to respecting human rights under the United Nations Guiding Principles on Business and Human Rights, and advancing and protecting freedom of expression and privacy consistent with the Global Network Initiative (GNI) Principles.
We drive organic awareness and adoption of our products by providing a free offering that enables millions of users to experience the benefits of our global network before they adopt our pay-as-you-go offerings or contract for our Enterprise plan. We engage with developers across blogs, social media, and other channels to help build our brand and visibility among technical communities.
We drive organic awareness and adoption of our products by providing a free offering that enables millions of users to experience the benefits of our global network before they adopt our pay-as-you-go offerings or contract 16 Table of contents for our Enterprise plan.
As part of the program, we provide eligible 14 Table of contents school districts with Zero Trust security solutions that help minimize exposure to harmful online content and common cyber threats such as phishing and credential harvesting. We provide these products for free and with no time limit.
We provide eligible school districts with Zero Trust security solutions that help minimize exposure to harmful online content and common cyber threats, such as phishing and credential harvesting, for free and with no time limit. Currently, more than 131 school districts in 30 U.S. states participate in the Project Cybersafe Schools program.
Refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding the definitions of our "paying customers" and "large customers." No single customer accounted for more than 10% of our revenue in the years ended December 31, 2021, 2022, or 2023. 13 Table of contents Environmental, Social, and Governance We believe a better Internet can be not only a force for good but also an engine of global sustainability.
Refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding the definitions of our "paying customers" and "large customers." No single customer accounted for more than 10% of our revenue in the years ended December 31, 2022, 2023, or 2024.
Diversity, Equity, and Inclusion We believe that much of our innovation and success is rooted in the diversity of our teams and our commitment to inclusion. We have fostered an inclusive culture through the development of employee-led communities, educational offerings, incorporating behaviors into performance, and reviews of our processes and policies for fairness and inclusion.
We have fostered an inclusive culture through the development of employee-led communities, educational offerings, incorporating behaviors into performance, and reviews of our processes and policies for fairness and inclusion. We remain committed to extending our diversity and inclusion initiatives across our global workforce.
We further seek to control the use of our proprietary technology and intellectual property rights through provisions in our subscription agreements. Corporate Information Cloudflare, Inc. was incorporated in the state of Delaware in July 2009. Our principal executive offices are located at 101 Townsend Street, San Francisco, California 94107, and our telephone number is (888) 993-5273.
Corporate Information Cloudflare, Inc. was incorporated in the state of Delaware in July 2009. Our principal executive offices are located at 101 Townsend Street, San Francisco, California 94107, and our telephone number is (888) 993-5273. Additional Information Our website is located at https://www.cloudflare.com and our investor relations website is located at https://cloudflare.NET.
We refer to this architecture as “serverless” because it means we can deploy standard, commodity hardware, and our product developers and customers do not need to worry about the underlying servers. Our software is designed to manage the deployment and execution of our product developers’ code and our customers’ code across our network.
This design enables us to grow capacity quickly and inexpensively and to allow us to shift customers and traffic across our network efficiently. We refer to this architecture as “serverless” because it means we can deploy standard, commodity hardware, and our product developers and customers do not need to worry about the underlying servers.
Compensation and Benefits 17 Table of contents We believe that attracting, motivating, and retaining talent at all levels is vital to our success. Our total rewards programs are built to engage employees, provide support, and encourage career best performance.
In 2022, 2023, and 2024, Cloudflare has been recognized as one of the Top 100 Most Loved Workplaces by Newsweek and the Best Practice Institute. Compensation and Benefits We believe that attracting, motivating, and retaining talent at all levels is vital to our success. Our total rewards programs are built to engage employees, provide support, and encourage career best performance.
We also offer remote-friendly and flexible work schedules, which allows us to draw from a much larger talent pool and provides potential and current employees with additional opportunities to grow their careers at Cloudflare, while also providing environmental and other benefits.
This allows us to draw from a much larger talent pool and provides potential and current employees with additional opportunities to grow their careers at Cloudflare, while also providing environmental and other benefits. Diversity, Equity, and Inclusion We believe that much of our innovation and success is rooted in the diversity of our teams and our commitment to inclusion.
We have not experienced any work stoppages, and we believe that our employee relations are strong. Our Culture A healthy company culture has been a critical part of our success. In order to preserve our culture, we define performance by both results and behaviors.
None of our employees in the United States are represented by a labor union, but some of our employees outside of the United States are represented by works councils. We have not experienced any work stoppages, and we believe that our employee relations are strong. Our Culture A healthy company culture has been a critical part of our success.
We work with our managers to develop strategies for increasing the diversity of their teams and ensuring inclusion, equity, and fairness. An important component of our diversity, equity, and inclusion strategy is to grow a diverse talent pool, and we have established recruiting partnership programs with various organizations to reach underrepresented groups.
An important component of our diversity, equity, and inclusion strategy is to grow a diverse talent pool, and we have established recruiting partnership programs with various organizations to reach underrepresented groups. We are focused on understanding our diversity and inclusion strengths and opportunities in order to execute a strategy to support further progress.
We have provided these benefits to more than 390 state and local election websites. • Cloudflare for Campaigns : Since 2020, the Cloudflare for Campaigns program has provided security services to help political campaigns and state political parties in the United States and around the world defend against cyber attacks and election interference.
During the 2024 election cycle in the United States, Cloudflare held more than 50 onboarding and support calls with state and local governments participating in the Athenian Project, and provided cyber threat briefings for more than 300 election officials across the country. • Cloudflare for Campaigns : Since 2020, the Cloudflare for Campaigns program has provided security services to help political campaigns and state political parties in the United States and around the world defend against cyber attacks and election interference.
We are also the registered holder of a variety of domestic and international domain names that include “Cloudflare” (including “Cloudflare.com”). In addition to the protection provided by our intellectual property rights, we enter into proprietary information and invention assignment agreements or similar agreements with our employees, consultants, and contractors.
In addition to the protection provided by our intellectual property rights, we enter into proprietary information and invention assignment agreements or similar agreements with our employees, consultants, and contractors. We further seek to control the use of our proprietary technology and intellectual property rights through provisions in our subscription agreements.
We compete with companies in this category to provide security, performance, and reliability services.
Competition We compete in the market for network services primarily across three categories: • On-premises network hardware vendors . We compete with companies in this category to provide security, performance, and reliability services.
Our Board of Directors, through its nominating and corporate governance committee, oversees Cloudflare Impact and its related corporate social responsibility and sustainability programs and our other environmental, social, and governance (ESG) initiatives and programs.
Cloudflare participates in periodic independent GNI Assessments, which include comprehensive audits of our human rights related policies, practices, and impacts. Our Board of Directors, through its nominating and corporate governance committee, oversees Cloudflare Impact and its related corporate social responsibility and sustainability programs.
We also share stories of how large customers are rapidly adopting our services across use cases, industry verticals, and geographies, to communicate customer trust and our market momentum. Competition We compete in the market for network services primarily across three categories: • On-premises network hardware vendors .
We invest in a variety of targeted digital and non-digital marketing activities and programs to build awareness, engage with prospects, and build pipeline for our global sales teams. We also share stories of how large customers are rapidly adopting our services across use cases, industry verticals, and geographies, to communicate customer trust and our market momentum.
In addition, our consumer products, including 1.1.1.1 and WARP, provide an effective and differentiated marketing channel to expand the awareness of our brand. We invest in a variety of targeted digital and non-digital marketing activities and programs to build awareness, engage with prospects, and build pipeline for our global sales teams.
We engage with developers across blogs, social media, and other channels to help build our brand and visibility among technical communities. In addition, our consumer products, including 1.1.1.1 and WARP, provide an effective and differentiated marketing channel to expand the awareness of our brand.
Our issued patents are scheduled to expire between 2030 and 2043, and cover various aspects of our network and products. In addition, we have registered “Cloudflare” as a trademark in the United States and other jurisdictions, and we have filed other trademark applications in the United States.
As of December 31, 2024, we had 334 issued patents and 72 pending patent applications in the United States and abroad. These patents and patent applications seek to protect our proprietary inventions relevant to our business. Our issued patents are scheduled to expire between 2030 and 2044, and cover various aspects of our network and products.
We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, contractual provisions, and confidentiality procedures to protect our intellectual property rights. As of December 31, 2023, we had 290 issued patents and 67 pending patent applications in the United States and abroad. These patents and patent applications seek to protect our proprietary inventions relevant to our business.
Intellectual Property Our success depends in part upon our ability to protect and use our core technology and intellectual property rights. We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, contractual provisions, and 18 Table of contents confidentiality procedures to protect our intellectual property rights.
In recognition of our inclusive culture, we were named one of Human Rights Campaign's 2022 Best Places to Work for LGBTQ Equality. We remain committed to extending our diversity and inclusion initiatives across our global workforce. We value diversity at all levels and are committed to promoting the advancement of leaders from different backgrounds.
We value diversity at all levels and are committed to promoting the advancement of leaders from different backgrounds. We work with our managers to develop strategies for increasing the diversity of their teams and ensuring inclusion, equity, and fairness.
This enables developers to deliver more performant applications that have global scale, all while improving their productivity.
Developer-based Solutions By leveraging our serverless platform, developers can build serverless applications on our network that scale without needing to spend time and effort on infrastructure or operations. This enables developers to deliver more performant applications that have global scale, all while improving their productivity. Our primary developer-based solutions include products categorized for AI, compute, storage & databases, and media.
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Our network is designed to be able to grow capacity quickly and inexpensively; to allow for every server, in every city, to run nearly every Cloudflare service; and to allow us to shift customers and traffic across our network efficiently.
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We are also expanding the capabilities of our network servers to enable AI workloads that are suited to take into account the widely distributed nature of our network. Additionally, our software is designed to manage the deployment and execution of our product developers’ code and our customers’ code across our network.
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In 2023, we conducted our first GNI Assessment, which is a comprehensive audit of our human rights systems, policies, and procedures associated with implementing the GNI Principles.
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We also are continuing to focus on growth in our pay-as-you-go customers (those on paid Pro and/or Business plans) that is predominantly used by our small and medium customers. ◦ Free : In addition to our focus on paying customers, we will continue to invest in awareness and functionality of our products to drive overall customer growth beyond the millions of Internet properties (e.g., domains, websites, application programming interfaces (APIs), and mobile applications) using Cloudflare today. • Expand Our Relationships with Existing Customers : We continue to focus on improving our customers’ experience through our product offerings and customer support in order to strengthen and expand existing customer relationships.
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The results of our assessment were presented to GNI's multi-stakeholder board, which includes information and communication technology companies, civil society organizations (including human rights and press freedom groups), academic experts, and investors from around the world, for review and evaluation.
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AI • Workers AI : Enables developers to run machine learning models, powered by serverless GPUs, on our global network. • Vectorize : Allows developers to easily store and query embeddings, representations of values or objects commonly consumed by machine learning models. • AI Gateway : Provides observability, caching, security, and routing features for AI applications.
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We are focused on understanding our diversity and inclusion strengths and opportunities in order to execute a strategy to support further progress. Intellectual Property Our success depends in part upon our ability to protect and use our core technology and intellectual property rights.
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Compute • Cloudflare Workers : Allows developers to augment existing applications or create entirely new ones through a lightweight execution environment without configuring or maintaining infrastructure. • Cloudflare Pages : Allows front-end developers to quickly and easily build, collaborate on, and deploy websites.
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Additional Information Our website is located at https://www.cloudflare.com and our investor relations website is located at https://cloudflare.NET.
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Media • Cloudflare Stream : Enables live and on-demand video streaming from our global network. • Cloudflare Images : Provides an end-to-end solution to cost-effectively build and maintain image infrastructure. • Cloudflare Calls : Enables developers to build real-time audio and video applications.
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Cloudflare Impact We believe a better Internet can be not only a force for good but also an engine of global sustainability.
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In 2023, we committed to setting near-term company-wide emissions reductions in line with climate science with the Science Based Targets initiative (SBTi), and as required by SBTi, we expect to submit our proposed reduction targets in 2025.
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We have provided these benefits to more than 425 state and local election websites.
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In order to preserve our culture, we define performance by both results and behaviors.
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In addition, we have registered “Cloudflare” as a trademark in the United States and other jurisdictions, and we have filed other trademark applications in the United States. We are also the registered holder of a variety of domestic and international domain names that include “Cloudflare” (including “Cloudflare.com”).

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMany of our existing and potential competitors have or could have substantial competitive advantages including, among others: 25 Table of contents • greater name recognition; • longer operating histories; • larger customer bases; • larger sales and marketing budgets and capital resources; • broader distribution and established relationships with channel partners and customers; • greater customer support resources; • greater resources to make acquisitions and enter into strategic partnerships; • lower labor and research and development costs; • more mature products and services developed for large customers; • larger and more mature intellectual property rights portfolios; • control of significant technologies, standards, or networks, including operating systems, with which our products must interoperate; • higher or more difficult to obtain security certifications than we possess; and • substantially greater financial, technical, and other resources.
Biggest changeMany of our existing and potential competitors have or could have substantial competitive advantages including, among others: • greater name recognition; • longer operating histories; • larger customer bases; • larger sales and marketing budgets and capital resources; • broader distribution and established relationships with channel partners and customers; • greater customer support resources; • greater resources to make acquisitions and enter into strategic partnerships; • lower labor and research and development costs; • more mature products and services developed for large customers; • larger and more mature intellectual property rights portfolios; • control of significant technologies, standards, or networks, including operating systems, with which our products must interoperate; • higher or more difficult to obtain security certifications than we possess; and • substantially greater financial, technical, and other resources. 26 Table of contents In addition, some of our larger competitors have substantially broader and more diverse product and services offerings, which may allow them to leverage existing commercial relationships, incorporate functionality into existing products, sell products and services with which we compete at zero or negative margins, offer fee waivers and reductions or other economic and non-economic concessions, bundle products and solutions, maintain closed technology platforms, or render our products unable to interoperate with such platforms.
In addition, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2026 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. Transactions relating to the Notes may affect the value of our Class A common stock.
In addition, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2026 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. Transactions relating to the 2026 Notes may affect the value of our Class A common stock.
Despite precautions taken at these facilities, such as disaster recovery and business continuity arrangements, the occurrence of a natural disaster or an act of terrorism, a decision to close the co-location facilities without adequate notice, interference with, or sabotage of, our equipment at these facilities, or other unanticipated problems at these facilities could result in interruptions or delays in the availability of our network and products, impede our ability to scale our operations, or have other adverse impacts upon our business, results of operations, and financial condition.
Despite precautions taken at these facilities, such as disaster recovery and business continuity arrangements, the occurrence of a natural disaster or an act of war or terrorism, a decision to close the co-location facilities without adequate notice, interference with, or sabotage of, our equipment at these facilities, or other unanticipated problems at these facilities could result in interruptions or delays in the availability of our network and products, impede our ability to scale our operations, or have other adverse impacts upon our business, results of operations, and financial condition.
In addition, we file registration statements to register shares reserved for future issuance under our equity compensation plans. As a result, subject to the satisfaction of applicable exercise periods, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSU awards are available for immediate resale in the United States in the open market.
We file registration statements to register shares reserved for future issuance under our equity compensation plans. As a result, subject to the satisfaction of applicable exercise periods, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSU awards are available for immediate resale in the United States in the open market.
Our success will depend in part on our ability to manage this growth effectively, which will require that we continue to improve our administrative, operational, financial, and management systems and controls by, among other things: • effectively attracting, training, and integrating a large number of new employees, particularly members of our sales, marketing, engineering, and management teams; • effectively managing a rapidly increasing number of employees in a growing number of countries around the world, particularly in circumstances when employees are working completely remotely; 27 Table of contents • ensuring the integrity and security of our network and IT infrastructure throughout the world; • maintaining our corporate culture, which we believe fosters innovation, teamwork, and an emphasis on customer-focused results and contributes to our cost-effective business model; • successfully acquiring and integrating companies and assets to improve, expand, and diversify our business and products through strategic acquisitions, investments, and partnerships; • further improving our key business applications, processes, and IT infrastructure, including our network co-location facilities, to support our current and anticipated business needs; • enhancing our information and communication systems to ensure that our employees and offices around the world are well coordinated and can effectively communicate with each other and our growing base of channel partners, customers, and users; • maintaining high levels of customer support; and • appropriately documenting and testing our IT systems and business processes.
Our success will depend in part on our ability to manage this growth effectively, which will require that we continue to improve our administrative, operational, financial, and management systems and controls by, among other things: • effectively attracting, training, and integrating a large number of new employees, particularly members of our sales, marketing, engineering, and management teams; • effectively managing a rapidly increasing number of employees in a growing number of countries around the world, particularly in circumstances when employees are working completely remotely; • ensuring the integrity and security of our network and IT infrastructure throughout the world; • maintaining our corporate culture, which we believe fosters innovation, teamwork, and an emphasis on customer-focused results and contributes to our cost-effective business model; • successfully acquiring and integrating companies and assets to improve, expand, and diversify our business and products through strategic acquisitions, investments, and partnerships; • further improving our key business applications, processes, and IT infrastructure, including our network co-location facilities, to support our current and anticipated business needs; • enhancing our information and communication systems to ensure that our employees and offices around the world are well coordinated and can effectively communicate with each other and our growing base of channel partners, customers, and users; • maintaining high levels of customer support; and • appropriately documenting and testing our IT systems and business processes.
In connection with our Web3 suite of products and our potential future participation in various Web3 protocol governance activities, we expect to hold certain types of cryptocurrency and similar types of digital assets that may be subject to unique regulatory and accounting risks, volatile market prices, and risks of loss, which could harm our business and reputation.
In connection with our Web3 suite of products and our potential future participation in various Web3 protocol governance activities, we expect to hold certain types of cryptocurrency and similar types of digital assets that may be subject to unique regulatory risks, volatile market prices, and risks of loss, which could harm our business and reputation.
Our future success is substantially dependent on our ability to attract, integrate, retain, and motivate the members of our management team and other key employees throughout our organization. In particular, we are highly dependent on the services of our co-founders, Matthew Prince, our Chief Executive Officer, and Michelle Zatlyn, our President and Chief Operating Officer.
Our future success is substantially dependent on our ability to attract, integrate, retain, and motivate the members of our management team and other key employees throughout our organization. In particular, we are highly dependent on the services of our co-founders, Matthew Prince, our Chief Executive Officer, and Michelle Zatlyn, our President.
As a result, it is difficult to predict whether or when a sale to a prospective large customer will be completed, how much incremental revenue or gross profit will result from such sales over the duration of the agreement, and when revenue from a subscription will be recognized or will cease.
As a result of the foregoing, it is difficult to predict whether or when a sale to a prospective large customer will be completed, how much incremental revenue or gross profit will result from such sales over the duration of the agreement, and when revenue from a subscription will be recognized or will cease.
These international operations will require significant management attention and financial resources and are subject to substantial risks, including: • geopolitical, economic, and social uncertainties, including the potential nationalization of key peering partners by foreign governments or political unrest that affects our ability to continue to work with particular peering partners, potential terrorist activities, military conflict or war, trade policies and sanctions, and the unknown impact of regional or global health crises, or epidemic or pandemic diseases, such as the COVID-19 pandemic; • changes in a specific country’s or region’s political or economic conditions; • unexpected costs for the localization of our products, including translation into foreign languages and adaptation for local practices, certifications, and legal and regulatory requirements; • greater difficulty in enforcing contracts and accounts receivable collection, and longer collection periods; • reduced or uncertain protection for intellectual property rights in some countries; • requirements to open local offices or otherwise maintain a local presence in some countries; • greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties, including with respect to our business in China; 54 Table of contents • increased risk to our local employees of government pressure, including potential threats of prosecution or imprisonment, in connection with enforcement of local legal and regulatory requirements; • greater risk of a failure of foreign employees and channel partners to comply with both U.S. and foreign laws, including antitrust regulations, anti-bribery laws, export and import control laws, and any applicable trade regulations ensuring fair trade practices; • heightened security risks associated with our co-location facilities and related equipment in high-risk countries and the software code and systems access shared with our service providers located in such countries, including in the Hong Kong region as a result of the National Security Law passed in June 2020; • greater security and oversight risks associated with third-party contractors that we use to install and maintain our hardware in co-location facilities in foreign countries and the limited background checks and screening that we can perform on such service providers; • laws and regulations related to privacy, data protection, security requirements, data localization, or content restriction that could pose risks to our intellectual property, increase the cost of doing business in a country, subject us to greater risks of claims and enforcement actions by regulators or others, subject us and our current and potential customers to burdensome requirements, increase the chance that current and potential customers may be unable to use our products or may be required to lessen or alter how they use our products, or create other disadvantages to our business or negative impacts on our results of operations; • increased expenses incurred in establishing and maintaining office space and equipment for our international operations; • greater difficulty in identifying, attracting, and retaining local qualified personnel and the costs and expenses associated with such activities; • differing employment practices and labor relations issues, which may make expansion or contraction of our workforce, or changes in the terms of employment, in such countries more costly and time-consuming and subject us to a greater risk of disputes or litigation; • increased regulatory requirements and litigation risk related to the presence of our physical infrastructure in countries around the world; • difficulties in managing and staffing international offices and increased travel, infrastructure, and legal compliance costs associated with operating multiple international locations; and • fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business, particularly the United Kingdom, the European Union, and Singapore where we have large offices or a large number of employees and pay employees in local currency.
These international operations will require significant management attention and financial resources and are subject to substantial risks, including: • geopolitical, economic, and social uncertainties, including the potential nationalization of key peering partners by foreign governments or political unrest that affects our ability to continue to work with particular peering partners, potential terrorist activities, military conflict or war, trade policies and sanctions, and the unknown impact of regional or global health crises, or epidemic or pandemic diseases; • changes in a specific country’s or region’s political or economic conditions, including the impact of elections and other changes in governments; • unexpected costs for the localization of our products, including translation into foreign languages and adaptation for local practices, certifications, and legal and regulatory requirements; • greater difficulty in enforcing contracts and accounts receivable collection, and longer collection periods; • reduced or uncertain protection for intellectual property rights in some countries; • requirements to open local offices or otherwise maintain a local presence in some countries; • greater risk of unexpected changes in regulatory practices, increased costs due to tariffs, and tax laws and treaties; • increased risk to our local employees of government pressure, including potential threats of prosecution or imprisonment, in connection with enforcement of local legal and regulatory requirements; • greater risk of a failure of foreign employees and channel partners to comply with both U.S. and foreign laws, including antitrust regulations, anti-bribery laws, export and import control laws, and any applicable trade regulations ensuring fair trade practices; • heightened security risks associated with our co-location facilities and related equipment in high-risk countries and the software code and systems access shared with our service providers located in such countries, including in the Hong Kong region as a result of the National Security Law passed in June 2020; • greater security and oversight risks associated with third-party contractors that we use to install and maintain our hardware in co-location facilities in foreign countries and the limited background checks and screening that we can perform on such service providers; • laws and regulations related to privacy, data protection, security requirements, data localization, or content restriction that could pose risks to our intellectual property, increase the cost of doing business in a country, subject us to greater risks of claims and enforcement actions by regulators or others, subject us and our current and potential customers to burdensome requirements, increase the chance that current and potential customers may be unable to use our products or may be required to lessen or alter how they use our products, or create other disadvantages to our business or negative impacts on our results of operations; • increased expenses incurred in establishing and maintaining office space and equipment for our international operations; 55 Table of contents • greater difficulty in identifying, attracting, and retaining local qualified personnel and the costs and expenses associated with such activities; • differing employment practices and labor relations issues, which may make expansion or contraction of our workforce, or changes in the terms of employment, in such countries more costly and time-consuming and subject us to a greater risk of disputes or litigation; • increased regulatory requirements and litigation risk related to the presence of our physical infrastructure in countries around the world; • difficulties in managing and staffing international offices and increased travel, infrastructure, and legal compliance costs associated with operating multiple international locations; and • fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business, particularly the United Kingdom, the European Union, and Singapore where we have large offices or a large number of employees and pay employees in local currency.
Any real or perceived flaws in our network, or any actual or perceived security breaches of, or security incidents impacting, our customers, could result in: • a loss of existing or potential customers or channel partners; • delayed or lost sales and harm to our financial condition and results of operations; • a delay in attaining, or the failure to attain, market acceptance of our products; • the expenditure of significant financial resources in efforts to analyze, correct, eliminate, remediate, or work around errors or defects, to address and eliminate vulnerabilities, and to address any applicable legal or contractual obligations relating to any actual or perceived security breach or incident; • negative publicity and damage to our reputation and brand; and 44 Table of contents • legal claims and demands (including for stolen assets or information, repair of system damages, and compensation to customers and business partners), litigation, regulatory audits, proceedings or investigations, and other liability.
Any real or perceived flaws in our network, or any actual or perceived security breaches of, or security incidents impacting, our customers, could result in: • a loss of existing or potential customers or channel partners; • delayed or lost sales and harm to our financial condition and results of operations; • a delay in attaining, or the failure to attain, market acceptance of our products; • the expenditure of significant financial resources in efforts to analyze, correct, eliminate, remediate, or work around errors or defects, to address and eliminate vulnerabilities, and to address any applicable legal or contractual obligations relating to any actual or perceived security breach or incident; • negative publicity and damage to our reputation and brand; and • legal claims and demands (including for stolen assets or information, repair of system damages, and compensation to customers and business partners), litigation, regulatory audits, proceedings or investigations, and other liability.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers, or other employees to us or our stockholders; (iii) any action arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers, or other employees to us or our stockholders; (iii) any action arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does 64 Table of contents not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
We generate revenue primarily from subscriptions to our products. We offer subscription plans that provide varying degrees of functionality, and also offer separate subscriptions to various add-on products and network functionality.
We generate revenue primarily from subscriptions to our products. We offer subscription plans that provide varying degrees of functionality and usage, and also offer separate subscriptions to various add-on products and network functionality and usage.
All of our co-location and ISP-partner facilities and network infrastructure are vulnerable to damage or interruption from a variety of sources including earthquakes; weather events; floods; fires; power loss; system failures; computer viruses; physical or electronic break-ins; human error; malfeasance; or interference, including by disgruntled employees, former employees, or contractors; terrorism; and other catastrophic events.
All of our co-location and ISP-partner facilities and network infrastructure are vulnerable to damage or interruption from a variety of sources including earthquakes; weather events; floods; fires; power loss; system failures; computer viruses; physical or electronic break-ins; human error; malfeasance; or interference, including by disgruntled employees, former employees, or contractors; military conflicts; terrorism; and other catastrophic events.
However, our rate of revenue growth has slowed in recent periods and may continue to slow in future periods. You should not consider our recent growth in revenue as indicative of our future performance.
However, our rate of revenue growth has slowed in recent periods and may continue to slow in future periods. You should not consider our historical growth in revenue as indicative of our future performance.
In order to deliver appropriate customer support and engagement, we must successfully assist our customers in deploying and continuing to use our network and products, migrating from their existing vendors, resolving performance issues, addressing interoperability challenges with the customers’ existing IT infrastructure, and responding to security threats and cyber attacks and performance and reliability problems that may arise from time to time.
In order to deliver appropriate customer support and engagement, we must successfully assist our customers in deploying and continuing to use our network and products, migrating from their existing vendors, resolving performance issues and billing inquiries, addressing interoperability challenges with the customers’ existing IT infrastructure, and responding to security threats and cyber attacks and performance and reliability problems that may arise from time to time.
Other factors, many of which are out of our control, may now or in the future impact our ability to add new paying and free customers, including: • potential customers’ commitments to existing equipment or vendors; • potential customers’ greater familiarity and/or comfort with on-premises, appliance-based products and concerns about potential risks associated with using cloud-based solutions; • actual or perceived switching costs; • our failure to develop new products and features, and to adapt to technological developments, that our potential customers' demand, including potential large customers; • the failure of our new or existing products and features to perform in the manner demanded or expected by potential customers and our existing customers, particularly large customers; • delays in the general availability release of products and features after we have announced their development or beta availability; • our failure to generate demand for our products through effective marketing efforts related to our business and products; • our failure to obtain additional, or maintain existing, government or industry security certifications for our network and products, such as the Federal Risk and Authorization Management Program (FedRAMP) moderate authorization that we achieved in 2022; • negative media, industry, or financial analyst commentary regarding our products and our network and the identities and activities of some of our paying and free customers; • the adoption of new, or amendment of existing, laws, rules, or regulations that negatively impact the utility of, or increase the risk of using, cloud-based solutions generally or our network and products specifically, including changes in new or modified laws and regulations relating to privacy, data protection, and information security; • our failure to effectively recruit, expand, develop, retain, and motivate our sales and marketing personnel; • our failure to develop or expand relationships with existing channel partners or to attract new channel partners; • our failure to help or provide support to our customers, particularly large customers, in order to successfully deploy and use our products in a manner required by them, their industry, or applicable regulators; 21 Table of contents • our failure to educate our customers about our network and products; • the perceived risk, commencement, or outcome of litigation; • deteriorating general economic conditions, including inflation, rising interest rates, and the actual or perceived failure or financial difficulties of financial institutions; and • impacts of the Hamas-Israel and Russia-Ukraine conflicts or other areas of geopolitical tension around the world, or any worsening or expansion of those conflicts or geopolitical tensions.
Other factors, many of which are out of our control, may now or in the future impact our ability to add new paying and free customers, including: • potential customers’ commitments to existing equipment or vendors; • potential customers’ greater familiarity and/or comfort with on-premises, appliance-based products and concerns about potential risks associated with using cloud-based solutions; 21 Table of contents • actual or perceived switching costs; • our failure to develop new products and features, and to adapt to technological developments, that our potential customers' demand, including potential large customers; • the failure of our new or existing products and features to perform in the manner demanded or expected by potential customers and our existing customers, particularly large customers; • delays in the general availability release of products and features after we have announced their development or beta availability; • our failure to generate demand for our products through effective marketing efforts related to our business and products; • our failure to obtain additional, or maintain existing, government or industry security certifications for our network and products, such as Federal Risk and Authorization Management Program (FedRAMP) moderate authorization that we achieved in 2022; • negative media, industry, or financial analyst commentary regarding our products and our network and the identities and activities of some of our paying and free customers; • the adoption of new, or amendment of existing, laws, rules, or regulations that negatively impact the utility of, or increase the risk of using, cloud-based solutions generally or our network and products specifically, including changes in new or modified laws and regulations relating to privacy, data protection, and information security; • our failure to effectively recruit, expand, develop, retain, and motivate our sales and marketing personnel; • our failure to develop or expand relationships with existing channel partners or to attract new channel partners; • our failure to help or provide support to our customers, particularly large customers, in order to successfully deploy and use our products in a manner required by them, their industry, or applicable regulators; • our failure to educate our customers about our network and products; • the perceived risk, commencement, or outcome of litigation; • deteriorating general economic conditions, including inflation, rising interest rates, and the actual or perceived failure or financial difficulties of financial institutions; and • impacts of the conflicts in the Middle East and Ukraine and other areas of geopolitical tension around the world or any worsening or expansion of those conflicts or geopolitical tensions and impacts of geopolitical events such as elections and other governmental changes.
Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, applicable laws or regulations, or any of our other legal obligations relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability or cause our customers to lose trust in us, which could cause them to cease or reduce use of our products and otherwise have an adverse effect on our reputation and business.
Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, applicable laws or regulations, or any of our other legal obligations relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability or cause our customers to lose trust in us, which could cause them to cease or reduce use of our 51 Table of contents products and otherwise have an adverse effect on our reputation and business.
In addition to these global facilities, much of the infrastructure for our global network and for our business and operations is maintained through a core co-location facility located in the greater Portland, Oregon area, a second core co-location facility located in Luxembourg that provides certain redundancy to the U.S. core facility, and through a limited number of other U.S. co-location facilities that provide limited subsets of our network support.
In addition to these global facilities, much of the infrastructure for our global network and for our business and operations is maintained through a core co-location facility located in the greater Portland, Oregon area, a second core co-location facility located in Amsterdam that provides certain redundancy to the U.S. core facility, and through a limited number of other U.S. co-location facilities that provide limited subsets of our network support.
Factors that could cause fluctuations in the trading price of our Class A common stock include: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks or high growth companies; • changes in operating performance and stock market valuations of other technology or high growth companies generally, or those in our industry in particular; • sales of shares of our Class A common stock and Class B common stock by us or our stockholders; • issuance of shares of our Class A common stock and Class B common stock, whether in connection with an acquisition, upon conversion of some or all of our outstanding 2026 Notes, or in connection with employee equity awards; • failure of securities analysts to maintain coverage of us, changes in financial estimates or share price targets by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial guidance we may provide to the public, any changes in such guidance, or our failure to meet such guidance; • announcements by us or our competitors of new products, features, or services or any delays in our general release of products we previously announced as being in development or beta testing; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • investments we may make in equity that is, or may become, publicly held, and volatility we may experience due to changes in the market prices of such equity investments; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • actual or perceived network or data security breaches or other network or data security incidents, including any network or product outages or failures; • announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors; • failures or alleged failures to comply with laws or regulations applicable to our business; • new laws or regulations or new amendments to, or interpretations of, existing laws or regulations applicable to our business; 61 Table of contents • changes in accounting standards, policies, guidelines, interpretations, or principles; • any departure of one of our co-founders from our company or any other significant change in our management; and • general economic conditions and slow or negative growth of our markets, including inflation and related changes in monetary policy, rising interest rates, volatile energy prices, and other impacts of the Hamas-Israel and Russia-Ukraine conflicts, or other areas of geopolitical tension around the world, or any worsening or expanding of those conflicts or geopolitical tensions.
Factors that could cause fluctuations in the trading price of our Class A common stock include: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks or high growth companies; • changes in operating performance and stock market valuations of other technology or high growth companies generally, or those in our industry in particular; • sales of shares of our Class A common stock and Class B common stock by us or our stockholders; • issuance of shares of our Class A common stock and Class B common stock, whether in connection with an acquisition, upon conversion of some or all of our outstanding 2026 Notes, or in connection with employee equity awards; • failure of securities analysts to maintain coverage of us, changes in financial estimates or share price targets by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial guidance we may provide to the public, any changes in such guidance, or our failure to meet such guidance; • announcements by us or our competitors of new products, features, or services or any delays in our general release of products we previously announced as being in development or beta testing; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • investments we may make in equity that is, or may become, publicly held, and volatility we may experience due to changes in the market prices of such equity investments; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • actual or perceived network or data security breaches or other network or data security incidents, including any network or product outages or failures; • announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors; • failures or alleged failures to comply with laws or regulations applicable to our business; • new laws or regulations or new amendments to, or interpretations of, existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • any departure of one of our co-founders from our company or any other significant change in our management; and • general economic conditions and slow or negative growth of our markets, including inflation and related changes in monetary policy, rising interest rates, volatile energy prices, and other impacts of the conflicts in the Middle East and Ukraine, or other areas of geopolitical tension around the world, or any worsening or expansion of those conflicts or geopolitical tensions.
From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions prior to the maturity of the applicable series of Notes (and are likely to do so following any conversion, repurchase, or redemption of such Notes, to the extent we exercise the relevant election under the applicable capped call transactions).
From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions prior to the maturity of the 2026 Notes (and are likely to do so following any conversion, repurchase, or redemption of the 2026 Notes, to the extent we exercise the relevant election under the applicable capped call transactions).
Our broad portfolio of products exposes us to competition from a large number of competitors in a number of different markets, including companies and their product and services offerings in, among others, virtual private networks, internal and external firewalls, web security (including web application firewalls and content filtering), distributed denial-of-service (DDoS) prevention, intrusion detection and prevention, application delivery controls, content delivery networks, domain name systems, email security vendors, advanced threat prevention, and wide area network (WAN) technology.
Our broad portfolio of products exposes us to competition from a large number of competitors in a number of different markets, including companies and their product and services offerings in, among others, virtual 25 Table of contents private networks, internal and external firewalls, web security (including web application firewalls and content filtering), distributed denial-of-service (DDoS) prevention, intrusion detection and prevention, application delivery controls, content delivery networks, domain name systems, email security vendors, advanced threat prevention, and wide area network (WAN) technology.
In addition, in March 2022 and October 2023, breaches of the systems of our identity access management vendor resulted in attacks on our systems.
In addition, in March 2022 and October 2023, breaches of the systems of our former identity access management vendor resulted in attacks on our systems.
For example, the United States enacted the Inflation Reduction Act in August 2022, which, among other provisions, implements a 15% corporate alternative minimum tax on adjusted financial statement income, effective in taxable years beginning after December 31, 2022, and a 1% excise tax on share repurchases, effective for repurchases made after December 31, 2022, which could include transactions with respect to capped call transactions such as those we entered into in 2020 and 2021.
For example, the United States enacted the Inflation Reduction Act in August 2022, which, among other provisions, implements a 15% corporate alternative minimum tax on adjusted financial statement income, effective in taxable years beginning after December 31, 2022, and a 1% excise tax on share repurchases, effective for repurchases made after December 31, 2022, which could include capped call transactions such as those we entered into in 2020 and 2021.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect 63 Table of contents directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
Competition for these personnel in the San Francisco Bay Area, where our headquarters is located, and in Lisbon, London, Singapore, Austin, Texas, and other locations where we employ personnel, is intense, especially for experienced sales professionals and for engineers experienced in designing and developing cloud applications.
Competition for these personnel in the San Francisco Bay Area, where our headquarters is located, and in Lisbon, London, Singapore, and Austin, Texas, as well as other locations where we employ personnel, is intense, especially for experienced sales professionals and for engineers experienced in designing and developing cloud applications.
Factors that may cause fluctuations in our quarterly results of operations include: • our ability to attract new paying customers, especially large customers, and, to a lesser extent, convert free customers to paying customers; • our ability to retain and upgrade paying customers and expand the number of products sold to paying customers, especially our large customers; • the timing of expenses and recognition of revenue; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure, as well as entry into operating and capital leases and co-location, interconnection, and similar agreements related to the expansion of our network; • the timing of expenses related to acquisitions; • any large indemnification payments to our customers or other third parties; • changes in our pricing policies or those of our competitors; • the timing and success of new products, product features and service introductions by us or our competitors; • network outages or actual or perceived security breaches or incidents; • our involvement in litigation or regulatory enforcement efforts, or the threat thereof; • changes in the competitive dynamics of our industry, including consolidation among competitors and the emergence of new competitors; • increases in length of the sales cycle for our contracted customers, particularly as the relative proportion of our revenue from large customers increases and as the sizes of our large customers increase; 28 Table of contents • changes in laws and regulations that impact our business; and • general political, regulatory, economic, market, and social conditions, including inflation, rising interest rates, actual or perceived failure or financial difficulties of financial institutions, other adverse changes in global and regional macroeconomic conditions, and other impacts of the Hamas-Israel and Russia-Ukraine conflicts, or other areas of geopolitical tension around the world, or any worsening of those conflicts or geopolitical tensions.
Factors that may cause fluctuations in our quarterly results of operations include: • our ability to attract new paying customers, especially large customers, and, to a lesser extent, convert free customers to paying customers; • our ability to retain and upgrade paying customers and expand the number of products sold to paying customers, especially our large customers; • the timing of expenses and recognition of revenue; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure, as well as entry into operating and capital leases and co-location, interconnection, and similar agreements related to the expansion of our network; • the timing of expenses related to acquisitions; • any large indemnification payments to our customers or other third parties; • changes in our pricing policies or those of our competitors; • the timing and success of new products, product features and service introductions by us or our competitors; • network outages or actual or perceived security breaches or incidents; • our involvement in litigation or regulatory enforcement efforts, or the threat thereof; • changes in the competitive dynamics of our industry, including consolidation among competitors and the emergence of new competitors; • increases in length of the sales cycle for our contracted customers, particularly as the relative proportion of our revenue from large customers increases and as the sizes of our large customers increase; • changes in laws and regulations that impact our business; and • general political, regulatory, economic, market, and social conditions, including inflation, rising interest rates, actual or perceived failure or financial difficulties of financial institutions, other adverse changes in global and regional macroeconomic conditions, and other impacts of the conflicts in the Middle East and Ukraine, or other areas of geopolitical tension around the world, or any worsening or expansion of those conflicts or geopolitical tensions.
Such incidents, whether or not successful, could result in our incurring significant costs related to, among other things, changes to our internal systems, remediating or replacing equipment within our global network, implementing additional threat protection measures, making modifications to our products and our global network, defending against litigation, responding to regulatory inquiries or actions, paying damages, providing customers with credits under our agreements with them or other incentives to maintain a business relationship with us, or taking 37 Table of contents other remedial steps with respect to third parties, as well as incurring significant reputational harm.
Such incidents, whether or not successful, could result in our incurring significant costs related to, among other things, changes to our internal systems, remediating or replacing equipment within our global network, implementing additional threat protection measures, making modifications to our products and our global network, defending against litigation, responding to regulatory inquiries or actions, paying damages, providing customers with credits under our agreements with them or other incentives to maintain a business relationship with us, or taking other remedial steps with respect to third parties, as well as incurring significant reputational harm.
A substantial majority of our revenue in the year ended December 31, 2023 was from contracted customers that were acquired through our inside and field sales teams, and we expect our sales teams to continue generating the majority of our revenue for the foreseeable future.
A substantial majority of our revenue in the year ended December 31, 2024 was from contracted customers that were acquired through our inside and field sales teams, and we expect our sales teams to continue generating the majority of our revenue for the foreseeable future.
While the network equipment and servers we purchase generally are commodity equipment and we believe an alternative supply source for servers on substantially similar terms could be identified quickly, our business could be adversely affected until those efforts are completed.
While the network equipment and servers we purchase generally are commodity equipment and we believe an alternative supply source or location for servers on substantially similar terms could be identified quickly, our business could be adversely affected until those efforts are completed.
Our Chinese operations are substantially dependent on our relationship with JD Cloud and due to economic and political challenges in servicing the Chinese market, the loss of this arrangement could have a significant adverse effect on our business and results of operations.
For example, our Chinese operations are substantially dependent on our relationship with JD Cloud and due to economic and political challenges in servicing the Chinese market, the loss of this arrangement could have a significant adverse effect on our business and results of operations.
Although the impact of the attacks did not have a material impact on our reputation or 43 Table of contents results of operations or financial condition, other future attacks like these may materially and adversely impact our reputation, results of operations or financial condition if we cannot effectively stop or mitigate the attacks and otherwise suffer performance issues or downtime that exceeds the service level commitments under our agreements and terms of service with our paying customers.
Although the impact of the attacks did not have a material impact on our reputation or results of operations or financial condition, other future attacks like these may materially and adversely impact our reputation, results of operations or financial condition if we cannot effectively stop or mitigate the attacks and otherwise suffer performance issues or downtime that exceeds the service level commitments under our agreements and terms of service with our paying customers.
If our global network that delivers our products or the core co-location facilities we use to operate our network are damaged, interfered with, or otherwise fail to meet the requirements of our business or local regulations, our ability to provide access to our network and products to our customers and maintain the 39 Table of contents performance of our network could be negatively impacted, which could cause our business, results of operations and financial condition to suffer.
If our global network that delivers our products or the core co-location facilities we use to operate our network are damaged, interfered with, or otherwise fail to meet the requirements of our business or local regulations, our ability to provide access to our network and products to our customers and maintain the performance of our network could be negatively impacted, which could cause our business, results of operations and financial condition to suffer.
We derived 48%, 47%, and 48% of our revenue from our international customers for the years ended December 31, 2023, 2022, and 2021, respectively. We are continuing to adapt to and develop strategies to address international markets and our growth strategy includes expansion into geographies around the world, but there is no guarantee that such efforts will be successful.
We derived 49%, 48%, and 47% of our revenue from our international customers for the years ended December 31, 2024, 2023, and 2022, respectively. We are continuing to adapt to and develop strategies to address international markets and our growth strategy includes expansion into geographies around the world, but there is no guarantee that such efforts will be successful.
While we immediately began investigating the intrusion and believe we cut off the threat actor’s access prior to significant impact on our customer data or systems, we expect we will continue to be subject to similar threats of unauthorized access in the future and we may not be as successful in quickly identifying such intrusions and mitigating the impacts of such intrusions.
While we immediately began investigating the intrusion and believe we cut off the threat actor’s access 37 Table of contents prior to significant impact on our customer data or systems, we expect we will continue to be subject to similar threats of unauthorized access in the future and we may not be as successful in quickly identifying such intrusions and mitigating the impacts of such intrusions.
If the exemptive order were revoked or we are unable otherwise to rely on the exemptive order or another applicable exemption, we may be required to institute burdensome requirements to comply with the 1940 Act, which may restrict our activities in a way that could adversely affect our business, results of operations, and financial condition.
If the exemptive order were revoked or we are unable otherwise to rely on the exemptive order or another applicable exemption, we may be required to institute 54 Table of contents burdensome requirements to comply with the 1940 Act, which may restrict our activities in a way that could adversely affect our business, results of operations, and financial condition.
Conversely, our paying customers may convert to lower-cost or free plans or reduce the number of products they purchase from us if they do not see the marginal value in paying for 22 Table of contents our higher-cost plans or for our specific products, or due to challenging macroeconomic conditions and/or reduced operating budgets, thereby impacting our ability to increase revenue.
Conversely, our paying customers may convert to lower-cost or free plans or reduce the number of products they purchase from us if they do not see the marginal value in paying for our higher-cost plans or for our specific products, or due to challenging macroeconomic conditions and/or reduced operating budgets, thereby impacting our ability to increase revenue.
Given the trillions of Internet requests that route through our network on a monthly basis and the large array of Internet properties (e.g., domains, websites, APIs, and mobile applications) we service, the impact of any such error, failure, vulnerability, or bug can be large in terms of absolute numbers of affected requests and customers.
Given the trillions of Internet requests that route through our network on a monthly basis and the large array of Internet properties (e.g., domains, 39 Table of contents websites, APIs, and mobile applications) we service, the impact of any such error, failure, vulnerability, or bug can be large in terms of absolute numbers of affected requests and customers.
Whether as a result of this or otherwise, we may continue to see more findings from privacy regulators around the world against cloud service providers relating to cross-border personal data transfers, and may find it necessary or appropriate to modify our policies and practices to address any such findings or other legislative developments relating to cross-border personal data transfers.
Whether as a result of these developments or otherwise, we may continue to see more findings from regulators around the world against cloud service providers relating to cross-border personal data transfers, and may find it necessary or appropriate to modify our policies and practices to address any such findings or other legislative developments relating to cross-border personal data transfers.
We may not be effective in policing 59 Table of contents unauthorized use of our intellectual property rights, and even if we do detect violations, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and any such litigation could be unsuccessful, lead to the invalidation of our proprietary rights, or lead to counterclaims by other parties against us.
We may not be effective in policing unauthorized use of our intellectual property rights, and even if we do detect violations, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and any such litigation could be unsuccessful, lead to the invalidation of our proprietary rights, or lead to counterclaims by other parties against us.
In addition, upon vesting of equity 29 Table of contents awards, many of our employees have acquired or may soon acquire a substantial amount of personal wealth. This may make it more difficult for us to retain and motivate these employees, and this wealth could affect their decision about whether or not they continue to work for us.
In addition, upon vesting of equity awards, many of our employees have acquired or may soon acquire a substantial amount of personal wealth. This may make it more difficult for us to retain and motivate these employees, and this wealth could affect their decision about whether or not they continue to work for us.
We may need additional capital, and we cannot be certain that additional financing will be available on favorable terms, or at all. 35 Table of contents Historically, we have financed our operations primarily through the sale of our equity and equity-linked securities as well as payments received from customers using our global cloud network and products.
We may need additional capital, and we cannot be certain that additional financing will be available on favorable terms, or at all. Historically, we have financed our operations primarily through the sale of our equity and equity-linked securities as well as payments received from customers using our global cloud network and products.
For example, in November 2023, our control plane and analytics services experienced an outage triggered by a power failure at one of our core data centers in the greater Portland, Oregon area, which impacted certain customers' access to some of our products and services for several days and the loss of certain customer logs.
For example, in November 2023, our control plane and analytics 40 Table of contents services experienced an outage triggered by a power failure at one of our core data centers in the greater Portland, Oregon area, which impacted certain customers' access to some of our products and services for several days and the loss of certain customer logs.
We rely on our leadership team in the areas of operations, security, marketing, sales, support, research and development, and general and administrative functions, and on individual contributors on our research and development team. Although we have entered into employment offer letters with our key personnel, these agreements have no specific duration and constitute at-will employment.
We rely on our leadership team in the areas of operations, security, marketing, sales, support, research and development, and general and administrative functions, and on individual contributors on our research and development team. Although we have entered into employment offer letters with our key personnel, these 29 Table of contents agreements have no specific duration and constitute at-will employment.
We also frequently provide significant incentives for key employees of acquired companies to remain as our employees after the completion of the acquisition in order to facilitate integration and allow us to achieve the benefits we expect from the acquisition, but these incentives may not prove to be successful in retaining those new key employees.
We also frequently provide significant incentives for key employees of acquired companies to remain as our employees after the completion of the acquisition in order to facilitate integration and allow us to achieve the benefits we expect from the acquisition, but these incentives may not prove to be successful 35 Table of contents in retaining those new key employees.
For example, during August and September of 2023, an unknown threat actor exploited a vulnerability in the standard HTTP/2 protocol critical to the function of the Internet and websites. This threat actor worked to generate a series of the largest-scale DDoS attacks against our network that we have recorded to date.
For example, during August and September of 2023, an unknown threat actor exploited a vulnerability in the standard HTTP/2 protocol critical to the function of the Internet and websites. This threat actor worked to generate a series of the largest-scale DDoS attacks against our network that we have recorded prior to that time.
Historically, the implementation period to start using, or expanding the use of, our products has been short, with most customers under our pay-as-you-go plans implementing usage of our products within a matter of minutes and our sales cycle for customers under our Enterprise plan lasted less than one quarter.
Historically, the implementation period to start using, or expanding the use of, our products has been short, with most customers under our pay-as-you-go plans implementing usage of our products within a short period of time and our sales cycle for customers under our Enterprise plan lasted less than one quarter.
If we are ultimately unable to achieve or improve profitability at the level or during the time frame anticipated by industry or financial analysts and our stockholders, our stock price may decline. If we are not able to maintain and promote our brand, our business and results of operations may be adversely affected.
If we are ultimately unable to achieve or improve profitability at the level or during the time frame anticipated by industry or financial analysts and our stockholders, our stock price may decline. 30 Table of contents If we are not able to maintain and promote our brand, our business and results of operations may be adversely affected.
Our business depends, in part, on sales to the United States and foreign government organizations, which are subject to a number of challenges and risks. We derive a portion of our revenue from contracts with government organizations, and we believe the success and growth of our business will in part depend on adding additional public sector customers.
Our business depends, in part, on sales to the United States and foreign government organizations, which are subject to a number of challenges and risks. 32 Table of contents We derive a portion of our revenue from contracts with government organizations, and we believe the success and growth of our business will in part depend on adding additional public sector customers.
There can be no assurance that we will not face similar litigation in the future or that we will prevail in any litigation we are facing or may face. An adverse decision in one or more of these lawsuits could materially and adversely affect our business, results of operations, and financial condition.
There can be 47 Table of contents no assurance that we will not face similar litigation in the future or that we will prevail in any litigation we are facing or may face. An adverse decision in one or more of these lawsuits could materially and adversely affect our business, results of operations, and financial condition.
Even if an alternative solution is identified, we cannot be certain that the economic terms or performance of any such alternative arrangement will be comparable to our existing relationship with JD Cloud, which could materially negatively impact our financial results and customer satisfaction with such alternative arrangement.
Even if an alternative solution is identified, we cannot be certain that the 57 Table of contents economic terms or performance of any such alternative arrangement will be comparable to our existing relationship with JD Cloud, which could materially negatively impact our financial results and customer satisfaction with such alternative arrangement.
In addition, we must comply with laws and regulations relating to the formation, administration, and performance of contracts with the public sector, including U.S. federal, state, and local governmental organizations, as well as foreign governmental organizations, which affect how we and our channel partners do business with governmental 32 Table of contents agencies.
In addition, we must comply with laws and regulations relating to the formation, administration, and performance of contracts with the public sector, including U.S. federal, state, and local governmental organizations, as well as foreign governmental organizations, which affect how we and our channel partners do business with governmental agencies.
If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2026 Notes or make cash payments upon conversions thereof in accordance with 65 Table of contents the terms of the 2026 Indenture.
If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2026 Notes or make cash payments upon conversions thereof in accordance with the terms of the 2026 Indenture.
Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. We may also be unable to 33 Table of contents reduce our cost structure in line with a significant deterioration in sales or renewals.
Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. We may also be unable to reduce our cost structure in line with a significant deterioration in sales or renewals.
We cannot ensure that the final determination of tax audits or tax disputes will not be different from 52 Table of contents what is reflected in our historical income tax provisions and accruals and that the outcomes from these continuous examinations will not have an adverse effect on our results of operations.
We cannot ensure that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals and that the outcomes from these continuous examinations will not have an adverse effect on our results of operations.
Any failure to preserve our culture also could further harm our ability to retain and recruit personnel, innovate and create new products, operate effectively, and execute on our business strategy. Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Any 28 Table of contents failure to preserve our culture also could further harm our ability to retain and recruit personnel, innovate and create new products, operate effectively, and execute on our business strategy. Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
The failure by our management to apply these proceeds effectively could adversely affect our business, results of operations, and financial condition. Pending their use, we may invest our proceeds in a manner that does not produce income or that loses value.
The failure by our management to apply these proceeds 63 Table of contents effectively could adversely affect our business, results of operations, and financial condition. Pending their use, we may invest our proceeds in a manner that does not produce income or that loses value.
Attracting, expanding, and retaining sales to large customers involve risks that may not be present, or that are present to a lesser extent, with sales to smaller customers, including: • competition from companies that traditionally target larger enterprises and that may have pre-existing relationships or purchase commitments from such larger enterprise customers, including companies that seek to bundle sales of their new or existing products that are competitive to our products, or that may have more experienced sales personnel or greater budgetary resources available or committed to such larger enterprise customers; • longer evaluation periods, more detailed evaluations, and more cumbersome contract negotiation and approval processes, including potential requirements for such purchasing decisions to be approved by senior executives of such companies; • increased purchasing power and leverage in negotiating pricing terms and other contractual arrangements with us; • requirements for more technically complex configurations, integrations, deployments, or features; • greater customer support or assistance with migrating their systems from another vendor to our network and products; • more stringent requirements in terms of the security, performance, and reliability of our products and our network and our support and compliance obligations related to our products; • increased usage of our global network that may require us to incur greater network infrastructure expenditures; and • longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer that elects not to purchase, expand, or continue to purchase our products.
Attracting, expanding, and retaining sales to large customers involve risks that may not be present, or that are present to a lesser extent, with sales to smaller customers, including: • competition from companies that traditionally target larger enterprises and that may have pre-existing relationships or purchase commitments from such larger enterprise customers, including companies that seek to bundle sales of their new or existing products that are competitive to our products, or that may have 23 Table of contents more experienced sales personnel or greater budgetary resources available or committed to such larger enterprise customers; • longer evaluation periods, more detailed evaluations, and more cumbersome contract negotiation and approval processes, including potential requirements for such purchasing decisions to be approved by senior executives of such companies; • increased purchasing power and leverage in negotiating pricing terms and other contractual arrangements with us, which may result in us being subject to additional, or greater levels of, contractual risks than our sales to smaller customers; • requirements for more technically complex configurations, integrations, deployments, or features; • greater customer support or assistance with migrating their systems from another vendor to our network and products; • more stringent requirements in terms of the security, performance, and reliability of our products and our network and our support and compliance obligations related to our products; • increased usage of our global network that may require us to incur greater network infrastructure expenditures; and • longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer that elects not to purchase, expand, or continue to purchase our products.
Any such delays could result in adverse publicity or brand reputation, loss of revenue or market acceptance, or claims by 36 Table of contents customers brought against us, all of which could have a material and adverse effect on our reputation, business, results of operations, and financial condition.
Any such delays could result in adverse publicity or brand reputation, loss of revenue or market acceptance, or claims by customers brought against us, all of which could have a material and adverse effect on our reputation, business, results of operations, and financial condition.
The rapid expansion of proposed regulations, as well as possible conflicting requirements, may make it challenging for us to identify and comply with all new global regulations that may apply to our services. These laws and regulations impose added costs on our business.
The rapid expansion of proposed regulations, as well as possible 49 Table of contents conflicting requirements, may make it challenging for us to identify and comply with all new global regulations that may apply to our services. These laws and regulations impose added costs on our business.
Not only is the number of data protection laws rising 49 Table of contents globally and within the United States, but existing laws and regulations are evolving. Together, this legislative framework may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.
Not only is the number of data protection laws rising globally and within the United States, but existing laws and regulations are evolving. Together, this legislative framework may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.
In the United States, various federal laws and regulations already apply to the 50 Table of contents collection, processing, disclosure and security of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996, and the Gramm-Leach-Bliley Act.
In the United States, various federal laws and regulations already apply to the collection, processing, disclosure and security of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996, and the Gramm-Leach-Bliley Act.
We rely on software, services, and other technology from third parties that we incorporate into, or integrate with, our network and products. We also rely on software, services, and other technology from third parties in order to operate critical functions of our business, including enterprise resource planning and customer relationship management services.
We rely on software, services, and other technology from third parties that we incorporate into, or integrate with, our network and products. We also rely on software, services, and other technology from third parties in order to operate critical functions of our business, including enterprise resource planning and customer relationship 60 Table of contents management services.
Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet 68 Table of contents our reporting obligations and may result in a restatement of our financial statements for prior periods.
The following factors, many of which are beyond our control, can affect the delivery, performance, and availability of our network and products: • the development, maintenance, and functioning of the infrastructure of the Internet as a whole; • the performance and availability of third-party telecommunications services with the necessary speed, data capacity, and security for providing reliable Internet access and services; • decisions by the owners and operators of the co-location and ISP-partner facilities where our network infrastructure is deployed or by global telecommunications service provider partners who provide us with network bandwidth to terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy, breach their contracts with us, or prioritize the traffic of other parties; • the occurrence of earthquakes, floods, weather events, fires, power loss, system failures, physical or electronic break-ins, acts of war or terrorism (including the ongoing conflicts between Hamas and Israel and between Russia and Ukraine or potential consequence of geopolitical tensions in other areas of the world), human error or interference (including by disgruntled employees, former employees, or contractors), and other catastrophic events; • cyber attacks targeted at us, facilities where our network infrastructure is located, our global telecommunications service provider partners, or the infrastructure of the Internet; • errors, defects, or performance problems in the deployment, maintenance, and expansion of our network and products, including the software we use to operate our network and products and provide our related products to our customers; • our customers’ or partners’ improper deployment or configuration of our customers' access to our network and products; • the maintenance of the APIs in our systems that our partners use to interact with us; • the failure of our redundancy systems, in the event of a service disruption at one of the facilities hosting our network infrastructure, to redistribute load to other components of our network; and • the failure of our disaster recovery and business continuity arrangements.
The following factors, many of which are beyond our control, can affect the delivery, performance, and availability of our network and products: • the development, maintenance, and functioning of the infrastructure of the Internet as a whole; 41 Table of contents • the performance and availability of third-party telecommunications services with the necessary speed, data capacity, and security for providing reliable Internet access and services; • decisions by the owners and operators of the co-location and ISP-partner facilities where our network infrastructure is deployed or by global telecommunications service provider partners who provide us with network bandwidth to terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy, breach their contracts with us, or prioritize the traffic of other parties; • the occurrence of earthquakes, floods, weather events, fires, power loss, system failures, physical or electronic break-ins, acts of war or terrorism (including the ongoing conflicts in the Middle East and Ukraine or potential consequence of geopolitical tensions in other areas of the world), human error or interference (including by disgruntled employees, former employees, or contractors), and other catastrophic events; • cyber attacks targeted at us, facilities where our network infrastructure is located, our global telecommunications service provider partners, or the infrastructure of the Internet; • errors, defects, or performance problems in the deployment, maintenance, and expansion of our network and products, including the software we develop or license from third parties and use to operate our network and products and provide such related products to our customers; • our customers’ or partners’ improper deployment or configuration of our customers' access to our network and products; • the maintenance of the APIs in our systems that our partners use to interact with us; • the failure of our redundancy systems, in the event of a service disruption at one of the facilities hosting our network infrastructure, to redistribute load to other components of our network; and • the failure of our disaster recovery and business continuity arrangements.
If our supply of certain components is disrupted or delayed, there can be no assurance that additional supplies or components can serve as adequate replacements for the existing components or that supplies will be available on terms that are favorable to us, if at all.
If our supply of certain components is disrupted or delayed or becomes more expensive, there can be no assurance that additional supplies or components can serve as adequate replacements for the existing components or that supplies will be available on terms that are favorable to us, if at all.
Many of our potential customers, particularly large enterprises and government entities, face barriers to adopting our offerings because of their prior investment in, and the familiarity of their IT personnel with, on-premises, 45 Table of contents appliance-based solutions or other providers of cloud-based solutions.
Many of our potential customers, particularly large enterprises and government entities, face barriers to adopting our offerings because of their prior investment in, and the familiarity of their IT personnel with, on-premises, appliance-based solutions or other providers of cloud-based solutions.
The costs of obtaining and maintaining certification pursuant to any of these standards are significant, and any failure to obtain and maintain such certifications for our network and products could reduce demand for them, which would harm our business, results of operations, and financial condition.
The costs of obtaining and maintaining certification pursuant to any of these standards are significant, and any failure to obtain and maintain such certifications for our network and products could reduce demand for them, which would harm our business, results of operations, and financial 46 Table of contents condition.
The trading price of our Class A common stock may be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our Class A common stock.
The trading price of our Class A common stock may be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your 61 Table of contents investment in our Class A common stock.
Other internal 51 Table of contents and government investigations, regulatory proceedings, or litigation, including private litigation filed by our stockholders, may also follow as a consequence. Any investigations, actions, or sanctions could materially harm our reputation, business, results of operations, and financial condition.
Other internal and government investigations, regulatory proceedings, or litigation, including private litigation filed by our stockholders, may also follow as a consequence. Any investigations, actions, or sanctions could materially harm our reputation, business, results of operations, and financial condition.
Our competitors or other vendors may refuse to work with us to allow their products to interoperate with our network and products, which could make it difficult for our network and products to function properly in customer internal networks and infrastructures that include these third-party products. 42 Table of contents We may not deliver or maintain interoperability quickly or cost-effectively, or at all.
Our competitors or other vendors may refuse to work with us to allow their products to interoperate with our network and products, which could make it difficult for our network and products to function properly in customer internal networks and infrastructures that include these third-party products. We may not deliver or maintain interoperability quickly or cost-effectively, or at all.
The full extent to which these factors will negatively affect our business and operations, results of operations, financial condition, and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope, severity, and duration of the Hamas-Israel and Russia-Ukraine conflicts, other areas of geopolitical tension around the world, and any economic downturns and the actions taken by governmental authorities and other third parties in response.
The full extent to which these factors will negatively affect our business and operations, results of operations, financial condition, and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope, severity, and duration of the conflicts in the Middle East and Ukraine, other areas of geopolitical tension around the world, and any economic downturns and the actions taken by governmental authorities and other third parties in response.
Our ability to achieve significant growth in revenue in the future also will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of these talented sales personnel in both the United States and 26 Table of contents international markets.
Our ability to achieve significant growth in revenue in the future also will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of these talented sales personnel in both the United States and international markets.
If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our Class A common stock, and, in the case of equity or equity-linked securities, our stockholders may experience dilution.
If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have 36 Table of contents rights, preferences or privileges senior to the rights of our Class A common stock, and, in the case of equity or equity-linked securities, our stockholders may experience dilution.
Our business, results of operations, and financial condition could be materially and adversely affected as a result. 58 Table of contents Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.
Our business, results of operations, and financial condition could be materially and adversely affected as a result. Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.
Risks Related to Our Business and Our Industry We have a history of net losses and may not be able to achieve or sustain profitability in the future. We have incurred net losses in all periods since we began operations and we may not achieve or maintain profitability in the future.
Risks Related to Our Business and Our Industry We have a history of net losses and may not be able to achieve or sustain profitability in the future. 19 Table of contents We have incurred net losses in all periods since we began operations and we may not achieve or maintain profitability in the future.
Such liabilities may create harm to our reputation, inhibit our plans for expansion, or lead to extensive liability either to private parties or government regulators, which could adversely impact our business, results of operations, and financial condition.
Such liabilities may create harm to our reputation, inhibit our plans for expansion, or lead to extensive liability either 52 Table of contents to private parties or government regulators, which could adversely impact our business, results of operations, and financial condition.
The occurrence of any catastrophic event, including an earthquake, volcanic event, fire, flood, tsunami, the effects of climate change, or other weather event, power loss, telecommunications failure, software or hardware malfunction, epidemic or pandemic disease (such as the COVID-19 pandemic), cyber attack, military conflict or war, or terrorist attack, could result in lengthy interruptions in our service.
The occurrence of any catastrophic event, including an earthquake, volcanic event, fire, flood, tsunami, the effects of climate change, or other weather event, power loss, telecommunications failure, software or hardware malfunction, epidemic or pandemic disease, cyber attack, military conflict or war, or terrorist attack, could result in lengthy interruptions in our service.
For example, we received substantial proceeds from the issuance and sale of our Class A common stock in our initial public offering (IPO) and in the issuances and sales of our 0.75% Convertible Senior Notes due 2025 (the 2025 Notes) and 0% Convertible Senior Notes due 2026 (the 2026 Notes, and together with the 2025 Notes, the Notes).
For example, we received substantial proceeds from the issuance and sale of our Class A common stock in our initial public offering and in the issuances and sales of our 0.75% Convertible Senior Notes due 2025 (the 2025 Notes) and 0% Convertible Senior Notes due 2026 (the 2026 Notes).
We may not have the ability to raise the funds necessary for cash settlement upon conversion of the 2026 Notes or to repurchase the 2026 Notes for cash upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion of the 2026 Notes or to repurchase the 2026 Notes .
We may not have the ability to raise the funds necessary for cash settlement upon conversion of the 2026 Notes or to repurchase the 2026 Notes for cash upon a fundamental change, and our future debt may 66 Table of contents contain limitations on our ability to pay cash upon conversion of the 2026 Notes or to repurchase the 2026 Notes .
We may also experience security breaches and other incidents that may remain undetected for an extended period and, therefore, may have a greater impact on our products and the networks and systems used in our business, the proprietary and other confidential data contained on our network or otherwise stored or processed in our operations, and ultimately our business.
We may also experience security breaches and other incidents that may remain undetected for an extended period and, therefore, may have a greater impact 38 Table of contents on our products and the networks and systems used in our business, the proprietary and other confidential data contained on our network or otherwise stored or processed in our operations, and ultimately our business.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe conduct security assessments of third-party providers who may have access to sensitive information before engagement and maintain ongoing monitoring of their compliance with our cybersecurity standards. The monitoring includes periodic reviews conducted by our security team. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third parties.
Biggest changeWe are aware of the risks associated with engaging third-party service providers, so we have implemented processes to oversee and manage these risks. We conduct security assessments of third-party providers who may have access to sensitive information before engagement and maintain ongoing monitoring of their compliance with our cybersecurity standards. The monitoring includes periodic reviews conducted by our security team.
As of the date of the filing of this Annual Report on Form 10-K, we do not believe these risks from cybersecurity threats, including the results of prior cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, but there can be no guarantee that we will not experience such a security breach or incident in the future.
As of the date of the filing of this Annual Report on Form 10-K, we do not believe these risks from cybersecurity threats, including the results of prior cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, but there can be no guarantee that we will not experience such a security breach 70 Table of contents or incident in the future.
Governance Our Board of Directors, including through its audit committee, oversees our enterprise risk management processes, including our cybersecurity risk exposure and the steps management has taken to monitor, control, and address such exposure.
This approach is designed to mitigate risks related to data breaches or other security incidents originating from third parties. Governance Our Board of Directors, including through its audit committee, oversees our enterprise risk management processes, including our cybersecurity risk exposure and the steps management has taken to monitor, control, and address such exposure.
We also engage with external cybersecurity assessors and consultants in evaluating and testing our risk management systems.
We also engage with external cybersecurity assessors and consultants in evaluating and testing our risk management systems. These processes are integrated into our overall risk management systems and processes to promote a company-wide culture of cybersecurity risk management.
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These processes are integrated into our overall risk management systems and processes to promote a company-wide culture of cybersecurity risk management. 69 Table of contents We are aware of the risks associated with engaging third-party service providers, so we have implemented processes to oversee and manage these risks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters is located in San Francisco, California, where we lease approximately 112,000 square feet. Of the total leased space in San Francisco, approximately 67,000 square feet is concentrated in our adjoining buildings located at 101 Townsend Street and 111 Townsend Street pursuant to lease agreements expiring in October 2027.
Biggest changeItem 2. Properties Our corporate headquarters is located in San Francisco, California, where we lease approximately 112,000 square feet. Of the total leased space in San Francisco, approximately 67,000 square feet is concentrated in our adjoining buildings located at 101 Townsend Street and 111 Townsend Street pursuant to lease agreements expiring in 71 Table of contents October 2027.
We believe that our facilities are suitable to meet our current needs. We intend to expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. 70 Table of contents
We believe that our facilities are suitable to meet our current needs. We intend to expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 4. Mine Safety Disclosures Not applicable. 71 Table of contents PART II
Biggest changeItem 4. Mine Safety Disclosures Not applicable. 72 Table of contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following graph compares (i) the cumulative total stockholder return on our Class A common stock from September 13, 2019 (the date our Class A common stock commenced trading on the NYSE) through December 31, 2023 with (ii) the cumulative total return of the Standard & Poor's 500 Index and Standard & Poor's Information Technology Index over the same period, assuming the investment of $100 in our Class A common stock and in each index on September 13, 2019 and the reinvestment of dividends.
Biggest changeThe following graph compares (i) the cumulative total stockholder return on our Class A common stock from December 31, 2019 through December 31, 2024 with (ii) the cumulative total return of the Standard & Poor's 500 Index and Standard & Poor's Information Technology Index over the same period, assuming the investment of $100 in our Class A common stock and the reinvestment of dividends.
Issuer Purchases of Equity Securities None. Item 6. [Reserved] 73 Table of contents
Issuer Purchases of Equity Securities None. Item 6. [Reserved] 74 Table of contents
Holders of Record As of February 7, 2024, we had 59 holders of record of our Class A common stock and 109 holders of record of our Class B common stock.
Holders of Record As of February 6, 2025, we had 51 holders of record of our Class A common stock and 93 holders of record of our Class B common stock.
The comparisons are based on historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. 72 Table of contents Company/Index Base Period 9/13/2019 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Cloudflare $ 100.00 $ 94.78 $ 422.17 $ 730.56 $ 251.17 $ 462.56 S&P 500 Index 100.00 107.43 124.89 158.48 127.67 158.60 S&P 500 Information Technology Index 100.00 113.36 161.21 214.98 152.83 239.02 Unregistered Sales of Equity Securities None.
The comparisons are based on historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. 73 Table of contents Company/Index Base Period 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Cloudflare $ 100.00 $ 445.43 $ 770.81 $ 265.01 $ 488.04 $ 631.18 S&P 500 Index 100.00 116.26 147.52 118.84 147.64 182.05 S&P 500 Information Technology Index 100.00 142.21 189.64 134.82 210.85 286.10 Unregistered Sales of Equity Securities None.
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The graph uses the closing market price on September 13, 2019 of $18.00 per share as the initial value of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe have a full valuation allowance on our U.S. federal, U.S. state, and U.K. deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. 82 Table of contents Results of Operations The following tables set forth our consolidated results of operations for the periods presented in dollars and as a percentage of our revenue for those periods: Year Ended December 31, 2023 2022 2021 (in thousands) Revenue $ 1,296,745 $ 975,241 $ 656,426 Cost of revenue (1) 307,005 232,610 147,134 Gross profit 989,740 742,631 509,292 Operating expenses: Sales and marketing (1) 599,117 465,762 328,065 Research and development (1) 358,143 298,303 189,408 General and administrative (1) 217,965 179,769 119,503 Total operating expenses 1,175,225 943,834 636,976 Loss from operations (185,485) (201,203) (127,684) Non-operating income (expense): Interest income 68,167 14,877 1,970 Interest expense (5,872) (4,984) (49,234) Loss on extinguishment of debt (50,300) — (72,234) Other income (expense), net (4,372) 577 (794) Total non-operating income (expense), net 7,623 10,470 (120,292) Loss before income taxes (177,862) (190,733) (247,976) Provision for income taxes 6,087 2,648 12,333 Net loss $ (183,949) $ (193,381) $ (260,309) _______________ (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue $ 7,967 $ 6,251 $ 2,583 Sales and marketing 73,682 50,317 27,277 Research and development 132,417 103,276 44,196 General and administrative 59,923 42,933 16,081 Total stock-based compensation expense $ 273,989 $ 202,777 $ 90,137 83 Table of contents Year Ended December 31, 2023 2022 2021 Percentage of Revenue Data: Revenue 100 % 100 % 100 % Cost of revenue 24 24 22 Gross margin 76 76 78 Operating expenses: Sales and marketing 46 48 50 Research and development 27 31 29 General and administrative 17 18 18 Total operating expenses 90 97 97 Loss from operations (14) (21) (19) Non-operating income (expense): Interest income 5 2 — Interest expense — (1) (8) Loss on extinguishment of debt (4) — (11) Other income (expense), net — — — Total non-operating income (expense), net 1 1 (19) Loss before income taxes (13) (20) (38) Provision for income taxes 1 — 2 Net loss (14) % (20) % (40) % Comparison of the Years Ended December 31, 2023 and 2022 Revenue Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Revenue $ 1,296,745 $ 975,241 $ 321,504 33 % Revenue increased by $321.5 million, or 33%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Biggest changeWe have a full valuation allowance on our U.S. federal, U.S. state, and U.K. deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. 84 Table of contents Results of Operations The following tables set forth our consolidated results of operations for the periods presented in dollars and as a percentage of our revenue for those periods: Year Ended December 31, 2024 2023 2022 (in thousands) Revenue $ 1,669,626 $ 1,296,745 $ 975,241 Cost of revenue 378,702 307,005 232,610 Gross profit 1,290,924 989,740 742,631 Operating expenses: Sales and marketing 745,791 599,117 465,762 Research and development 421,374 358,143 298,303 General and administrative 278,520 217,965 179,769 Total operating expenses 1,445,685 1,175,225 943,834 Loss from operations (154,761) (185,485) (201,203) Non-operating income (expense): Interest income 87,426 68,167 14,877 Interest expense (5,196) (5,872) (4,984) Loss on extinguishment of debt — (50,300) — Other income (expense), net 1,660 (4,372) 577 Total non-operating income, net 83,890 7,623 10,470 Loss before income taxes (70,871) (177,862) (190,733) Provision for income taxes 7,929 6,087 2,648 Net loss $ (78,800) $ (183,949) $ (193,381) 85 Table of contents Year Ended December 31, 2024 2023 2022 Percentage of Revenue Data: Revenue 100 % 100 % 100 % Cost of revenue 23 24 24 Gross margin 77 76 76 Operating expenses: Sales and marketing 44 46 48 Research and development 25 27 31 General and administrative 17 17 18 Total operating expenses 86 90 97 Loss from operations (9) (14) (21) Non-operating income (expense): Interest income 5 5 2 Interest expense — — (1) Loss on extinguishment of debt — (4) — Other income (expense), net — — — Total non-operating income, net 5 1 1 Loss before income taxes (4) (13) (20) Provision for income taxes 1 1 — Net loss (5) % (14) % (20) % Comparison of the Years Ended December 31, 2024 and 2023 Revenue Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Revenue $ 1,669,626 $ 1,296,745 $ 372,881 29 % Revenue increased by $372.9 million, or 29%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
GAAP financial measures, and not to rely on any single financial measure to evaluate our business. Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin We define non-GAAP income (loss) from operations and non-GAAP operating margin as U.S. GAAP income (loss) from operations and U.S.
GAAP financial measures, and not to rely on any single financial measure to evaluate our business. Non-GAAP Income from Operations and Non-GAAP Operating Margin We define non-GAAP income from operations and non-GAAP operating margin as U.S. GAAP loss from operations and U.S.
GAAP operating margin, respectively, excluding stock-based compensation expense and its related employer payroll taxes, amortization of acquired intangible assets, and acquisition-related and other expenses. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance.
GAAP operating margin, respectively, excluding stock-based compensation expense and its related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance.
Investing Activities Net cash used in investing activities during the year ended December 31, 2023 of $186.2 million resulted primarily from the purchases of available-for-sale securities of $1,877.5 million, capital expenditures of $114.4 million, capitalization of internal-use software development costs of $20.5 million, and cash paid for asset acquisitions of $6.1 million.
Net cash used in investing activities during the year ended December 31, 2023 of $186.2 million resulted primarily from the purchases of available-for-sale securities of $1,877.5 million, capital expenditures of $114.4 million, capitalization of internal-use software development costs of $20.5 million, and cash paid for asset acquisitions of $6.1 million.
However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash provided by (used in) operating activities.
However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash provided by operating activities.
Cost of revenue also includes employee-related costs, including salaries, bonuses, benefits, and stock-based compensation for employees whose primary responsibilities relate to supporting our paying customers. Other costs included in cost of revenue include credit card fees related to processing customer transactions and allocated overhead costs.
Cost of revenue also includes employee-related costs, including salaries, benefits, and stock-based compensation for employees whose primary responsibilities relate to supporting our paying customers. Other costs included in cost of revenue include credit card fees related to processing customer transactions and allocated overhead costs.
We believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or not available) to be used for strategic initiatives.
We believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated by our operating activities that is available (or not available) to be used for strategic initiatives.
As our customers expand and increase the use of our global network and products driven by additional applications and connected devices, we expect that our cost of revenue will increase due to higher network and bandwidth costs and expenses related to operating in additional co-location facilities.
As our customers expand and increase the use of our global network and products driven by additional applications and connected devices, we expect that our cost of revenue will continue to increase due to higher network and bandwidth costs and expenses related to operating in additional co-location facilities.
That in turn provides us with greater knowledge and insight into the challenges that Internet users face every day. • Investments in our network for growth. We believe that the size, sophistication, and distributed nature of our network provide us with a significant competitive advantage.
That in turn provides us with greater knowledge and insight into the challenges that Internet users face every day. • Investments in our network for growth. We believe that the size, sophistication, and distributed nature of our global network provide us with a significant competitive advantage.
Loss on extinguishment of debt also consists of loss recognized from open market transactions to repurchase approximately $123.0 million in aggregate principal amount of the 2025 Notes for an aggregate of $172.7 million in cash (including accrued interest) (the 2025 Notes Repurchases).
Loss on Extinguishment of Debt Loss on extinguishment of debt consists of loss recognized from open market transactions to repurchase approximately $123.0 million in aggregate principal amount of the 2025 Notes for an aggregate of $172.7 million in cash (including accrued interest) (the 2025 Notes Repurchases).
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K, and such disclosure can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which information is incorporated herein by reference.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 are not included in this Form 10-K, and such disclosure can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which information is incorporated herein by reference.
As of December 31, 2023, our material cash requirements include contractual obligations from the 2026 Notes, purchase commitments and lease obligations. Refer to Notes 6, 7, and 8 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding these material cash requirements.
As of December 31, 2024, our material cash requirements include contractual obligations from the 2026 Notes, purchase commitments and lease obligations. Refer to Notes 6, 7, and 8 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding these material cash requirements.
Such estimates include, but are not limited to, allowance for doubtful accounts, deferred contract acquisitions costs, the period of benefit generated from the deferred contract acquisition costs, the capitalization and estimated useful life of internal-use software, valuation of acquired intangible assets, the assessment of recoverability of intangible assets and their estimated useful lives, useful lives of property and equipment, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation and recognition of stock-based compensation awards, uncertain tax positions, and the recognition and measurement of current and deferred income tax assets and liabilities.
Such estimates include, but are not limited to, allowance for doubtful accounts, deferred contract acquisitions costs, the period of benefit generated from the deferred contract acquisition costs, the capitalization and estimated useful life of internal-use software, valuation of acquired intangible assets, the assessment of recoverability of intangible assets and their estimated useful lives, useful lives of property and equipment, the determination of the incremental borrowing rate used for operating lease 91 Table of contents liabilities, the valuation and recognition of stock-based compensation awards, uncertain tax positions, and the recognition and measurement of current and deferred income tax assets and liabilities.
Our actual results could vary as a result of, and our near- and long-term future capital requirements will depend on, many factors, including our growth rate, subscription renewal activity, the timing and extent of 87 Table of contents spending to support our infrastructure and research and development efforts, the expansion of sales and marketing activities, the timing of new introductions of products or features, the continuing market adoption of our global network and products, and the impact of macroeconomic conditions to our and our customers', vendors', and partners' businesses.
Our actual results could vary as a result of, and our near- and long-term future capital requirements will depend on, many factors, including our growth rate, subscription renewal activity, the timing and extent of spending to support our infrastructure and research and development efforts, the expansion of sales and marketing activities, the timing of new introductions of products or features, the continuing market adoption of our global network and products, and the impact of macroeconomic conditions to our and our customers', vendors', and partners' businesses.
Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Off-Balance Sheet Arrangements As of December 31, 2024, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Our Annualized Revenue metric also includes any usage charges by a customer during a period, which represents a small portion of our total revenue and may not be recurring. As a result, Annualized Revenue may be higher than actual revenue over the 79 Table of contents course of the year.
Our Annualized Revenue 81 Table of contents metric also includes any usage charges by a customer during a period, which represents a small portion of our total revenue and may not be recurring. As a result, Annualized Revenue may be higher than actual revenue over the course of the year.
In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures 77 Table of contents differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.
In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently 79 Table of contents or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.
The net cash outflow from changes in operating assets and liabilities was primarily the result of a $113.4 million increase in accounts receivable, net, which increased due to our growing customer base and timing of collections from our customers, a $101.5 million increase in deferred contract acquisition costs due to increased sales commissions from the addition of new customers, a $40.0 million increase in payments for operating lease liabilities, a $22.1 million increase in prepaid expenses and other current assets related to operating activities, which were partially offset by a $134.5 million increase in deferred revenue, a $25.8 million increase in accrued expenses and other current liabilities related to operating activities, and a $11.8 million increase in accounts payable related to operating activities.
The net cash outflow from changes in operating assets and liabilities was primarily the result of a $113.4 million increase in accounts receivable, net, which increased due to our growing customer base and timing of collections from our customers, a $101.5 million increase in deferred contract acquisition costs due to increased sales commissions from the addition of new customers, a $40.0 million increase in payments for operating lease liabilities, a $22.1 million increase in prepaid expenses and other current assets related to operating activities, which were partially offset by a $134.5 million increase in deferred revenue, a $21.8 million increase in accrued compensation, an $11.8 million increase in accounts payable related to operating activities, and a $4.0 million increase in accrued expenses and other current liabilities related to operating activities.
Opportunities, Challenges, and Risks 75 Table of contents We believe that the growth of our business and our future success are dependent upon many factors, including growing our paying customer base, particularly large customers, expanding our relationships with existing paying customers, developing and successfully launching new products and features, expanding into additional market segments, expanding our base of free customers, and developing and maintaining favorable peering and co-location relationships.
Opportunities, Challenges, and Risks We believe that the growth of our business and our future success are dependent upon many factors, including growing our paying customer base, particularly large customers, expanding our relationships with existing paying customers, developing and successfully launching new products and features, expanding into additional market segments, expanding our base of free customers, and developing and maintaining favorable peering and co-location relationships.
We believe macroeconomic uncertainty could persist through 2024. As a result, we expect that some or all of the negative trends described in this paragraph may emerge or recur during future quarters. To the extent challenging macroeconomic conditions persist, we may experience additional adverse effects on our business, financial condition, or results of operations in future periods.
We believe macroeconomic uncertainty could persist during 2025. As a result, we expect that some or all of the negative trends described in this paragraph may emerge or recur during future quarters. To the extent challenging macroeconomic conditions persist, we may experience additional adverse effects on our business, financial condition, or results of operations in future periods.
Recent Accounting Pronouncements Refer to Note 2 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding recently adopted accounting pronouncements.
Recent Accounting Pronouncements Refer to Note 2 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding recently adopted accounting pronouncements.
Our pay-as-you-go customers typically pay with a credit card on a monthly or annual basis for our Pro and Business subscription plans and on a monthly basis for our other pay-as-you-go plans and add-on products. 74 Table of contents Key elements of our business model include: • Significant investment in ongoing product development. We invest significantly in research and development.
Our pay-as-you-go customers typically pay with a credit card on a monthly or annual basis for our Pro and Business subscription plans and on a monthly basis for our other pay-as-you-go plans and add-on products. Key elements of our business model include: • Significant investment in ongoing product development. We invest significantly in research and development.
International markets represented 48%, 47% and 48% of our revenue in the years ended December 31, 2023, 2022, and 2021, respectively, and we intend to continue to invest in our international growth as a strategy to expand our customer base around the world. • Free customer base . Free customers are an important part of our business.
International markets represented 49%, 48%, and 47% of our revenue in the years ended December 31, 2024, 2023, and 2022, respectively, and we intend to continue to invest in our international growth as a strategy to expand our customer base around the world. • Free customer base . Free customers are an important part of our business.
For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments.
For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is 80 Table of contents that they do not reflect our future contractual commitments.
Financing Activities Net cash used in financing activities of $192.2 million during the year ended December 31, 2023 was primarily due to $207.6 million of repayments of the 2025 Notes, $10.5 million of payments of indemnity holdback, and $8.0 million payment of tax withholding on Restricted Stock Unit (RSU) settlements, which were partially offset by $19.1 million proceeds from the issuance of Class A common stock pursuant to the 2019 Employee Stock Purchase Plan (ESPP) and $14.9 million of proceeds from the exercise of vested and unvested stock options.
Net cash used in financing activities of $192.2 million during the year ended December 31, 2023 was primarily due to $207.6 million of repayments of the 2025 Notes, $10.5 million of payments of indemnity holdback, and $8.0 million payment of tax withholding on RSU settlements, which were partially offset by $19.1 million proceeds from the issuance of Class A common stock pursuant to the ESPP and $14.9 million of proceeds from the exercise of vested and unvested stock options.
Our dollar-based net retention rates for the three months ended December 31, 2023, 2022, and 2021 were 115%, 122%, and 125%, respectively. Components of Our Results of Operations Revenue We generate revenue primarily from sales to our customers of subscriptions to access our network and products, together with related support services.
Our dollar-based net retention rates for the three months ended December 31, 2024, 2023, and 2022 were 111%, 115%, and 122%, respectively. Components of Our Results of Operations Revenue We generate revenue primarily from sales to our customers of subscriptions to access our network and products, together with related support services.
However, we expect to continue to benefit from economies of scale as our customers increase the use of our global network and products. We intend to continue to invest additional resources in our global network and products and our customer support organizations as we grow our business.
However, we expect to continue to benefit from economies of scale as our customers increase the use of our global network and products. We intend to continue to invest additional resources in our global network and products and our customer support 82 Table of contents organizations as we grow our business.
We are not aware of any specific event or circumstance that would require an update to our estimates or assumptions or a revision of the carrying value of assets or liabilities as of February 21, 2024, the date of issuance of this Annual Report on Form 10-K.
We are not aware of any specific event or circumstance that would require an update to our estimates or assumptions or a revision of the carrying value of assets or liabilities as of February 20, 2025, the date of issuance of this Annual Report on Form 10-K.
These free customers expose us to diverse traffic, threats, and problems, often allowing us to see potential security, performance, and reliability issues at the earliest stage. This knowledge allows us to improve our products and deliver more effective solutions to our paying customers.
These free customers expose us to diverse traffic, threats, and problems, often allowing us to see potential security, 76 Table of contents performance, and reliability issues at the earliest stage. This knowledge allows us to improve our products and deliver more effective solutions to our paying customers.
Interest Expense 81 Table of contents Interest expense consists primarily of contractual interest expense and amortization of the debt issuance costs on our 0.75% Convertible Senior Notes due 2025 (the 2025 Notes) and 0% Convertible Senior Notes due 2026 (the 2026 Notes, and together with the 2025 Notes, the Notes).
Interest Expense Interest expense consists primarily of contractual interest expense and amortization of the debt issuance costs on our 0.75% Convertible Senior Notes due 2025 (the 2025 Notes) and 0% Convertible Senior Notes due 2026 (the 2026 Notes, and together with the 2025 Notes, the Notes).
The level and timing of investment in these areas could affect our cost of revenue in the future. Gross Profit and Gross Margin 80 Table of contents Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue.
The level and timing of investment in these areas could affect our cost of revenue in the future. Gross Profit and Gross Margin Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
An entity is defined as a company, a government institution, a non-profit organization, or a distinct business unit of a large company. An active contract is defined as a customer relationship for which we have provided services during the quarter. The number of paying customers was 189,791, 162,086, and 140,096 as of December 31, 2023, 2022, and 2021, respectively.
An entity is defined as a company, a government institution, a non-profit organization, or a distinct business unit of a large company. An active contract is defined as a customer relationship for which we have provided services during the quarter. The number of paying customers was 237,714, 189,791, and 162,086 as of December 31, 2024, 2023, and 2022, respectively.
The number of paying customers with Annualized Revenue greater than $100,000 was 2,756, 2,042, and 1,416 as of December 31, 2023, 2022, and 2021, respectively. Dollar-Based Net Retention Rate Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue generated from our existing paying customers.
The number of paying customers with Annualized Revenue greater than $100,000 was 3,497, 2,756, and 2,042 as of December 31, 2024, 2023, and 2022, respectively. Dollar-Based Net Retention Rate Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue generated from our existing paying customers.
Loss on Extinguishment of Debt Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Loss on extinguishment of debt $ (50,300) $ — $ (50,300) * ______________ * Not meaningful Loss on extinguishment of debt increased by $50.3 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Loss on Extinguishment of Debt Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Loss on extinguishment of debt $ — $ (50,300) $ 50,300 * ______________ * Not meaningful Loss on extinguishment of debt decreased by $50.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Starting in the first half of 2022, potentially as a result of these various macroeconomic impacts on our customers, we periodically have experienced lengthening of the average sales cycle for certain types of customers and sales (including sales to new customers and expansion sales to existing customers), slowdowns in our pipeline of potential new customers and in the rate of converting sales pipeline opportunities into new sales, increase in average days sales outstanding, higher levels of churn in our paying customer base (which is when any of our paying customers cease to be a paying customer for any reason, including any pay-as-you-go customer converting to a free subscription plan), and lengthening of the timing of payment from some of our customers, all of which may have contributed to a slowdown in our revenue growth over that period (including with respect to new customers).
Potentially as a result of these various macroeconomic impacts on our customers, we periodically have experienced lengthening of the average sales cycle for certain types of customers and sales (including sales to new customers and expansion sales to existing customers), slowdowns in our pipeline of potential new customers and in the rate of converting sales pipeline opportunities into new sales, increases in average days sales outstanding, higher levels of churn in our paying customer base (which is when any of our paying customers cease to be a paying customer for any reason, including any pay-as-you-go customer converting to a free subscription plan), and lengthening of the timing of payment from some of our customers, all of which may have contributed to a slowdown in our revenue growth from prior periods (including with respect to new customers).
The increase in revenue was primarily due to the addition of new paying customers, which increased by 17% during the year ended December 31, 2023, as well as expansion within our existing paying customers, which was reflected by our dollar-based net retention rate of 115% for the three months ended December 31, 2023.
The increase in revenue was primarily due to the addition of new paying customers, which increased by 25% during the year ended December 31, 2024, as well as expansion within our existing paying customers, which was reflected by our dollar-based net retention rate of 111% for the three months ended December 31, 2024.
We believe that our existing cash, cash equivalents, and available-for-sale securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
We believe that our existing cash, cash equivalents, available-for-sale securities, and available capacity under the Revolving Credit Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
Non-Operating Income (Expense) Interest Income Interest income consists primarily of interest earned on our cash, cash equivalents, and our investment holdings.
Non-Operating Income (Expense) Interest Income 83 Table of contents Interest income consists primarily of interest earned on our cash, cash equivalents, and our investment holdings.
Our global network, with a presence in more than 310 cities and over 120 countries worldwide, has helped to foster our strong international growth.
Our global network, with a presence in more than 335 cities and over 125 countries worldwide, has helped to foster our strong international growth.
As of December 31, 2023, our investment portfolio consisted of investment grade securities with an average credit rating of AA. We have generated significant operating losses from our operations as reflected in our accumulated deficit of $1,023.8 million as of December 31, 2023.
As of December 31, 2024, our investment portfolio consisted of investment grade securities with an average credit rating of AA. We have generated significant operating losses from our operations as reflected in our accumulated deficit of $1,102.6 million as of December 31, 2024.
The ASU is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of the new standard.
The ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of the new standard.
The increase was driven by the loss on extinguishment of debt we recognized in connection with the 2025 Notes Repurchases. Refer to Note 7 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
The decrease was driven by the loss on extinguishment of debt we recognized in connection with the 2025 Notes Repurchases during the year ended December 31, 2023. Refer to Note 7 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Weak economic conditions or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs, trade agreements or governmental fiscal, monetary and tax policies, among others, could adversely impact our and our customers’ business, financial condition and operating results.
Weak economic conditions or uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, threats of tariffs and other impediments to cross-border trade, trade agreements or governmental fiscal, monetary and tax policies, among others, also could adversely impact our and our customers’ business, financial condition and operating results.
The income tax expense of $2.6 million for the year ended December 31, 2022 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions, offset by the partial release of the U.S. valuation allowance in connection with acquisitions.
The income tax expense of $7.9 million for the year ended December 31, 2024 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions, offset by the partial release of the U.S. and U.K. valuation allowances in connection with acquisitions.
For the period beyond the next 12 months, we believe we will be able to meet our working capital and capital expenditure needs from our existing cash, cash equivalents, and available-for-sale-securities, the cash flows from our operating activities and, if necessary, proceeds from potential equity or debt financings.
For the period beyond the next 12 months, we believe we will be able to meet our working capital and capital expenditure needs from our existing cash, cash equivalents, available-for-sale-securities, available 89 Table of contents borrowings under the Revolving Credit Facility, the cash flows from our operating activities and, if necessary, proceeds from other potential equity or debt financings.
During the three months ended September 30, 2023, we settled conversions of the remaining $35.4 million aggregated principal amount outstanding of the 2025 Notes in a combination of $35.4 million cash and approximately 0.5 million shares of our Class A common stock.
Subsequently, in July 2023, we settled conversions of the remaining $35.4 million aggregated principal amount outstanding of the 2025 Notes in a combination of $35.4 million cash and approximately 0.5 million shares of our Class A common stock.
The following table summarizes the revenue by region based on the billing address of customers who use the Company’s products: Year Ended December 31, 2023 2022 2021 (dollars in thousands) Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage of Revenue United States $ 678,184 52 % $ 515,722 53 % $ 342,578 52 % Europe, Middle East, and Africa 356,569 28 % 258,291 26 % 172,129 26 % Asia Pacific 168,826 13 % 133,353 14 % 96,537 15 % Other 93,166 7 % 67,875 7 % 45,182 7 % Total $ 1,296,745 100 % $ 975,241 100 % $ 656,426 100 % Non-GAAP Financial Measures In addition to our results determined in accordance with generally accepted accounting principles in the United States (U.S.
The following table summarizes the revenue by region based on the billing address of customers who use the Company’s products: Year Ended December 31, 2024 2023 2022 (dollars in thousands) Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage of Revenue United States $ 849,500 51 % $ 678,184 52 % $ 515,722 53 % Europe, Middle East, and Africa 466,499 28 % 356,569 28 % 258,291 26 % Asia Pacific 223,234 13 % 168,826 13 % 133,353 14 % Other 130,393 8 % 93,166 7 % 67,875 7 % Total $ 1,669,626 100 % $ 1,296,745 100 % $ 975,241 100 % Non-GAAP Financial Measures In addition to our results determined in accordance with generally accepted accounting principles in the United States (U.S.
Liquidity and Capital Resources Since our inception, we have financed our operations primarily through net proceeds from the sale of our equity and debt securities, as well as payments received from customers using our global network and products, and we expect to continue to finance our operations using the same sources for the foreseeable future.
Liquidity and Capital Resources Since our inception, we have financed our operations primarily through net proceeds from the sale of our equity and debt securities, as well as cash flow from our operating activities, and we expect to continue to finance our operations using the same sources for the foreseeable future.
Year Ended December 31, 2023 2022 2021 (dollars in thousands) Loss from operations $ (185,485) $ (201,203) $ (127,684) Add: Stock-based compensation expense and related employer payroll taxes 287,500 217,766 117,334 Amortization of acquired intangible assets 20,002 15,169 2,946 Acquisition-related and other expenses — 3,947 380 Non-GAAP income (loss) from operations $ 122,017 $ 35,679 $ (7,024) Operating margin (14) % (21) % (19) % Non-GAAP operating margin (non-GAAP income (loss) from operations as a percentage of revenue) 9 % 4 % (1) % Free Cash Flow and Free Cash Flow Margin Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized internal-use software.
Year Ended December 31, 2024 2023 2022 (dollars in thousands) Loss from operations $ (154,761) $ (185,485) $ (201,203) Add: Stock-based compensation expense and related employer payroll taxes 356,423 287,500 217,766 Amortization of acquired intangible assets 12,747 20,002 15,169 Acquisition-related and other expenses 702 — 3,947 One-time compensation charge 15,000 — — Non-GAAP income from operations $ 230,111 $ 122,017 $ 35,679 Operating margin (9) % (14) % (21) % Non-GAAP operating margin (non-GAAP income from operations as a percentage of revenue) 14 % 9 % 4 % Free Cash Flow and Free Cash Flow Margin Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used for purchases of property and equipment and capitalized internal-use software.
During the three months ended June 30, 2023, we repurchased approximately $123.0 million in aggregate principal amount of the 2025 Notes for $172.7 million in cash (including accrued interest).
In May 2023, we repurchased approximately $123.0 million in aggregate principal amount of the 2025 Notes for $172.7 million in cash (including accrued interest).
Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of employee-related costs, including salaries, benefits, and stock-based compensation expense, sales commissions that are recognized as expenses over the period of benefit, marketing programs, certificate authority services costs for free customers, travel-related expenses, bandwidth and co-location costs for free customers, and allocated overhead costs.
Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of employee-related costs, including salaries, a one-time cash compensation charge incurred during the three months ended March 31, 2024, benefits, and stock-based compensation expense, sales commissions that are recognized as expenses over the period of benefit, marketing programs, certificate authority services costs for free customers, travel-related expenses, bandwidth and co-location costs for free customers, and allocated overhead costs.
The remainder of the increase was primarily due to an increase of $15.7 million in expenses for marketing programs due to investments in brand awareness advertising, third-party industry events, and digital performance marketing, an increase of $13.0 million in co-location and bandwidth expenses for free customers, an increase of $6.9 million in travel-related expenses, an increase of $3.6 million in allocated overhead costs, an increase of $2.8 million in subscriptions expenses, and an increase of $1.4 million in consulting expenses.
The remainder of the increase was primarily due to an increase of $24.5 million in expenses for marketing programs due to acquisitions, investments in brand awareness advertising, third-party industry events, and digital performance marketing, an increase of $9.7 million in co-location and bandwidth expenses for free customers, an increase of $7.2 million in travel-related expenses, an increase of $5.8 million in consulting expenses, and an increase of $4.1 million in subscription expenses.
The increase was primarily driven by $86.1 million in increased employee-related costs due to a 15% increase in headcount in our sales and marketing organization, including an increase of $26.2 million in stock-based compensation expense.
The increase was primarily driven by $90.9 million in increased employee-related costs due to an 11% increase in headcount in our sales and marketing organization, including an increase of $19.2 million in stock-based compensation expense, and a $15.0 million one-time compensation charge.
Impact of Macroeconomic Developments We are closely monitoring macroeconomic developments and global events, such as the Hamas-Israel and the Russia-Ukraine conflicts and the potential expansion of those conflicts and other areas of geopolitical tension around the world, and how they may adversely impact our and our customers’ businesses.
Impact of Macroeconomic Developments We are closely monitoring macroeconomic developments and global events, such as the conflicts in the Middle East and Ukraine and the potential worsening or expansion of those conflicts and other areas of geopolitical tension around the world, and other geopolitical events such as elections and other governmental changes, and, in each case, how they may adversely impact our and our customers’ businesses.
Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 254,406 $ 123,595 $ 64,648 Net cash used in investing activities $ (186,201) $ (235,696) $ (709,322) Net cash provided by (used in) financing activities $ (192,185) $ 6,347 $ 847,486 Operating Activities Net cash provided by operating activities during the year ended December 31, 2023 was $254.4 million, which resulted from a net loss of $183.9 million, adjusted for non-cash charges of $543.1 million and net cash outflow of $104.7 million from changes in operating assets and liabilities.
Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2024 2023 2022 (in thousands) Net cash provided by operating activities $ 380,429 $ 254,406 $ 123,595 Net cash used in investing activities $ (330,224) $ (186,201) $ (235,696) Net cash provided by (used in) financing activities $ 12,785 $ (192,185) $ 6,347 Operating Activities Net cash provided by operating activities during the year ended December 31, 2024 was $380.4 million, which resulted from a net loss of $78.8 million, adjusted for non-cash charges of $568.2 million and net cash outflow of $108.9 million from changes in operating assets and liabilities.
Usage-based consideration is primarily related to fees charged for our customer’s use of excess bandwidth when accessing our network in a given period and is recognized as revenue in the period in which the usage occurs.
Usage-based consideration is primarily related to fees charged for our customer’s use of excess bandwidth when accessing our network in a given period and is recognized as revenue in the period in which the usage occurs. The subscription and support term contracts for the Company’s contracted customers, typically range from one to three years.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires an entity, on an annual basis, to disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures.
Recently Issued Accounting Pronouncements Not Yet Effective In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires an entity, on an annual basis, to disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid.
The increase in the cost of revenue was primarily due to an increase of $24.2 million in expenses related to operating in co-location facilities and network and bandwidth costs for operating our global 84 Table of contents network for our expanded customer base, as well as increased capacity to support our growth, an increase of $17.4 million in depreciation expense related to purchases of equipment located in co-location facilities, an increase of $14.2 million in third-party technology services costs, registry fees, and payment processing fees, and an increase of $10.1 million in employee-related costs due to a 41% increase in headcount in our customer support and technical operations organizations.
The increase in the cost of revenue was primarily due to an increase of $32.6 million of third-party technology services costs, registry expenses, and payment processing fees, an increase of $23.9 million in expenses related to operating in co-location facilities and network and bandwidth costs for operating our global network for our expanded customer base, as well as increased capacity to support our growth, an increase of $15.4 86 Table of contents million in employee-related costs, and an increase of $2.1 million in purchases of computer equipment and supplies.
The increase was primarily driven by an increase in interest rates. ______________ * Not meaningful Interest Expense Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Interest expense $ (5,872) $ (4,984) $ (888) 18 % Interest expense did not significantly fluctuate during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
The increase was primarily driven by an increase in interest rates and investment balance. Interest Expense Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Interest expense $ (5,196) $ (5,872) $ 676 (12) % Interest expense did not significantly fluctuate during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Year Ended December 31, 2023 2022 2021 (dollars in thousands) Gross profit $ 989,740 $ 742,631 $ 509,292 Gross margin 76 % 76 % 78 % Loss from operations $ (185,485) $ (201,203) $ (127,684) Non-GAAP income (loss) from operations $ 122,017 $ 35,679 $ (7,024) Operating margin (14) % (21) % (19) % Non-GAAP operating margin 9 % 4 % (1) % Net cash provided by operating activities $ 254,406 $ 123,595 $ 64,648 Net cash used in investing activities $ (186,201) $ (235,696) $ (709,322) Net cash provided by (used in) financing activities $ (192,185) $ 6,347 $ 847,486 Free cash flow $ 119,464 $ (39,769) $ (43,090) Net cash provided by operating activities (as a percentage of revenue) 20 % 13 % 10 % Free cash flow margin 9 % (4) % (7) % Paying customers (1) 189,791 162,086 140,096 Paying customers (> $100,000 Annualized Revenue) (1) 2,756 2,042 1,416 (1) Key business metrics are derived on a quarterly basis.
Year Ended December 31, 2024 2023 2022 (dollars in thousands) Gross profit $ 1,290,924 $ 989,740 $ 742,631 Gross margin 77 % 76 % 76 % Loss from operations $ (154,761) $ (185,485) $ (201,203) Non-GAAP income from operations $ 230,111 $ 122,017 $ 35,679 Operating margin (9) % (14) % (21) % Non-GAAP operating margin 14 % 9 % 4 % Net cash provided by operating activities $ 380,429 $ 254,406 $ 123,595 Net cash used in investing activities $ (330,224) $ (186,201) $ (235,696) Net cash provided by (used in) financing activities $ 12,785 $ (192,185) $ 6,347 Free cash flow $ 166,915 $ 119,464 $ (39,769) Net cash provided by operating activities (as a percentage of revenue) 23 % 20 % 13 % Free cash flow margin 10 % 9 % (4) % Paying customers (1) 237,714 189,791 162,086 Paying customers (> $100,000 Annualized Revenue) (1) 3,497 2,756 2,042 (1) Key business metrics are derived on a quarterly basis.
The net cash 88 Table of contents outflow from changes in operating assets and liabilities was primarily the result of a $67.9 million increase in deferred contract acquisition costs due to increased sales commissions from the addition of new customers, a $56.2 million increase in accounts receivable, net, which increased due to our growing customer base and timing of collections from our customers, a $31.7 million decrease in operating lease liabilities, a $9.6 million decrease in accounts payable related to operating activities, a $7.7 million increase in prepaid expenses and other current assets related to operating activities, a $5.4 million decrease in accrued expenses and other current liabilities related to operating activities, and a $2.2 million increase in contract assets, which were partially offset by a $102.2 million increase in deferred revenue.
The net cash outflow from changes in operating assets and liabilities was primarily the result of a $116.8 million increase in deferred contract acquisition costs due to the addition of new customers, a $78.5 million increase in accounts receivable, net, which increased due to our growing customer base and timing of collections from our customers, $55.2 million increase in payments for operating lease liabilities, a $38.2 million increase in prepaid expenses and other current assets, and a $5.5 million increase in contract assets, which were partially offset by a $135.0 million increase in deferred revenue, an $18.7 million increase in accrued compensation, an $18.6 million increase in accounts payable, and a $9.9 million increase in accrued expenses and other current liabilities.
The typical subscription and support term for our contracted customers is one year and subscription and support term lengths range from one to three years. Most of our contracts with contracted customers are non-cancelable over the contractual term. Customers may have the right to terminate their contracts for cause if we fail to perform in accordance with the contractual terms.
Most of our contracts with contracted customers are non-cancelable over the contractual term. Customers may have the right to terminate their contracts for cause if we fail to perform in accordance with the contractual terms. For our pay-as-you-go customers, subscription and support term contracts are typically monthly.
Due in part to the Hamas-Israel and Russia-Ukraine conflicts, and other geopolitical and macroeconomic conditions, there is ongoing uncertainty and significant 89 Table of contents disruption in the global economy and financial markets.
Due in part to the conflicts in the Middle East and Ukraine, and the potential worsening and expansion of such conflicts, and other geopolitical and macroeconomic conditions, there is ongoing uncertainty and significant disruption in the global economy and financial markets.
Pay-as-you-go customers can subscribe to more than one solution and purchase add-on products and network functionality we offer to meet their more advanced needs. For pay-as-you-go or contracted customers who need a scalable Zero Trust security solution to secure users and internal resources using our Cloudflare One suite of products, we make these products available on a per seat basis.
For pay-as-you-go or contracted customers who need a scalable Zero 75 Table of contents Trust security solution to secure users and internal resources using our Zero Trust and network services solutions, we make these products available on a per seat basis.
Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period. 78 Table of contents Year Ended December 31, 2023 2022 2021 (dollars in thousands) Net cash provided by operating activities $ 254,406 $ 123,595 $ 64,648 Less: Purchases of property and equipment (114,396) (143,606) (92,986) Less: Capitalized internal-use software (20,546) (19,758) (14,752) Free cash flow $ 119,464 $ (39,769) $ (43,090) Net cash used in investing activities $ (186,201) $ (235,696) $ (709,322) Net cash provided by (used in) financing activities $ (192,185) $ 6,347 $ 847,486 Net cash provided by operating activities (as a percentage of revenue) 20 % 13 % 10 % Less: Purchases of property and equipment (as a percentage of revenue) (9) % (15) % (14) % Less: Capitalized internal-use software (as a percentage of revenue) (2) % (2) % (2) % Free cash flow margin 9 % (4) % (7) % Key Business Metrics In addition to our results determined in accordance with U.S.
Year Ended December 31, 2024 2023 2022 (dollars in thousands) Net cash provided by operating activities $ 380,429 $ 254,406 $ 123,595 Less: Purchases of property and equipment (185,037) (114,396) (143,606) Less: Capitalized internal-use software (28,477) (20,546) (19,758) Free cash flow $ 166,915 $ 119,464 $ (39,769) Net cash used in investing activities $ (330,224) $ (186,201) $ (235,696) Net cash provided by (used in) financing activities $ 12,785 $ (192,185) $ 6,347 Net cash provided by operating activities (as a percentage of revenue) 23 % 20 % 13 % Less: Purchases of property and equipment (as a percentage of revenue) (11) % (9) % (15) % Less: Capitalized internal-use software (as a percentage of revenue) (2) % (2) % (2) % Free cash flow margin 10 % 9 % (4) % Key Business Metrics In addition to our results determined in accordance with U.S.
Cost of Revenue and Gross Margin Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Cost of revenue $ 307,005 $ 232,610 $ 74,395 32 % Gross margin 76 % 76 % Cost of revenue increased by $74.4 million, or 32%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Cost of Revenue and Gross Margin Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Cost of revenue $ 378,702 $ 307,005 $ 71,697 23 % Gross margin 77 % 76 % Cost of revenue increased by $71.7 million, or 23%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
The increase was primarily driven by $55.1 million in increased employee-related costs due to a 11% increase in headcount in our research and development organization, including an increase of $30.3 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $3.3 million in allocated overhead costs.
The increase was primarily driven by $64.3 million in increased employee-related costs due to a 25% increase in headcount in our research and development organization, including an increase of $15.4 million in stock-based compensation expense, and an increase of $4.5 million in subscription expenses, partially offset by increased capitalized internal-use software development costs of $11.1 million.
Net cash provided by operating activities during the year ended December 31, 2022 was $123.6 million, which resulted from a net loss of $193.4 million, adjusted for non-cash charges of $396.3 million and net cash outflow of $79.3 million from changes in operating assets and liabilities.
Net cash provided by operating activities during the year ended December 31, 2023 was $254.4 million, which resulted from a net loss of $183.9 million, adjusted for non-cash charges of $543.1 million and net cash outflow of 90 Table of contents $104.7 million from changes in operating assets and liabilities.
Operating Expenses Sales and Marketing Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Sales and marketing $ 599,117 $ 465,762 $ 133,355 29 % Sales and marketing expenses increased by $133.4 million, or 29%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Operating Expenses Sales and Marketing Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Sales and marketing $ 745,791 $ 599,117 $ 146,674 24 % Sales and marketing expenses increased by $146.7 million, or 24%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
In addition to the contractual obligations described above, as of December 31, 2023, we had $4.4 million recognized as total restricted cash on our consolidated balance sheets which mainly related to irrevocable standby letters of credit and bank guarantees that are required under lease agreements and indemnity holdback consideration associated with asset acquisitions.
In addition to the contractual obligations described above, as of December 31, 2024, we had $6.5 million recognized as total restricted cash on our consolidated balance sheets mainly related to indemnity holdback consideration associated with asset acquisitions and business combinations.
As such, we are focused on driving an increased number of customers onto our network and products to support our long-term growth. We continue to invest to build our direct sales force, increase brand awareness, leverage and expand channel partners, and improve the sophistication of our sales operations for contracted customers, particularly large customers.
We continue to invest to build our direct sales force, increase brand awareness, leverage and expand channel partners, and improve the sophistication of our sales operations for contracted customers, particularly large customers.
These effects could include, among others, reduction or increased delays in purchasing decisions by existing and potential new paying customers, additional lengthening of the sales cycle for some of our existing and potential new paying customers, potential customer requests for concessions (including in terms of payment amounts and/or timing and earlier or additional termination rights), potential losses of paying customers as a result of economic distress or bankruptcy (particularly among our small and medium paying customer base), potential reductions in new non-U.S. customers and expansion of sales to existing non-U.S. paying customers as a result of our products, which are substantially all sold in U.S. dollars, becoming relatively more expensive for such customers due to the higher value of the U.S. dollar relative to other currencies, and increased costs for employee compensation and equipment purchases resulting from continued inflationary cost pressures.
These effects could include, among others, reduction or increased delays in purchasing decisions by existing and potential new paying customers, additional lengthening of the sales cycle for some of our existing and potential new paying customers, potential customer requests for concessions (including in terms of payment amounts and/or timing and earlier or additional termination rights), potential losses of paying customers as a result of economic distress or bankruptcy (particularly among our small and medium paying customer base), potential reductions in new non-U.S. customers and expansion of sales to existing non-U.S. paying customers as a result of our products, which are substantially all sold in U.S. dollars, becoming relatively more expensive for such customers due to the higher value of the U.S. dollar relative to other currencies, and increased costs for employee compensation and equipment purchases resulting from continued inflationary cost pressures. 77 Table of contents For further discussion of the challenges and risks we confront related to macroeconomic conditions and geopolitical tension around the world, please refer to Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K. 78 Table of contents Financial Measures and Key Business Metrics We review a number of financial and operating metrics, including the following non-GAAP financial measures and key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
The ASU is effective for annual periods beginning after December 15, 2024. We are currently evaluating the impact of the new standard.
The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The ASU is effective for annual periods beginning after December 15, 2024. We are currently evaluating the impact of the new standard.
Research and Development Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Research and development $ 358,143 $ 298,303 $ 59,840 20 % Research and development expenses increased by $59.8 million, or 20%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Research and Development Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Research and development $ 421,374 $ 358,143 $ 63,231 18 % Research and development expenses increased by $63.2 million, or 18%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
General and Administrative Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) General and administrative $ 217,965 $ 179,769 $ 38,196 21 % General and administrative expenses increased by $38.2 million, or 21%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
General and Administrative Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) General and administrative $ 278,520 $ 217,965 $ 60,555 28 % General and administrative expenses increased by $60.6 million, or 28%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Net cash provided by financing activities of $6.3 million during the year ended December 31, 2022 was primarily due to $15.3 million proceeds from the issuance of Class A common stock pursuant to the ESPP and $10.1 million of proceeds from the exercise of vested and unvested stock options, which were partially offset by $16.6 million of repayments of the 2025 Notes, and $2.5 million payment of tax withholding on RSU settlements.
Financing Activities Net cash provided by financing activities of $12.8 million during the year ended December 31, 2024 was primarily due to $19.8 million proceeds from the issuance of Class A common stock pursuant to the 2019 Employee Stock Purchase Plan (ESPP) and $12.9 million of proceeds from the exercise of vested stock options, which were partially offset by $16.8 million payment of tax withholding on Restricted Stock Unit (RSU) settlements, and $2.1 million cash paid for issuance costs on revolving credit facility.
As of December 31, 2023, we had cash and cash equivalents of $86.9 million, including $19.5 million held by our foreign subsidiaries. Our cash and cash equivalents primarily consist of cash and highly liquid money market funds. We also had available-for-sale securities of $1,586.9 million consisting of U.S. treasury securities, commercial paper, and corporate bonds.
Our cash and cash equivalents primarily consist of cash and highly liquid money market funds and U.S. treasury securities. We also had available-for-sale securities of $1,708.2 million consisting of corporate bonds, U.S. treasury securities, U.S. government agency securities, and commercial paper.
Non-Operating Income (Expense) Interest Income Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Interest income $ 68,167 $ 14,877 $ 53,290 * Interest income increased by $53.3 million, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Non-Operating Income (Expense) 87 Table of contents Interest Income Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Interest income $ 87,426 $ 68,167 $ 19,259 28 % Interest income increased by $19.3 million, or 28%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
The increase was primarily driven by $30.3 million in increased employee-related costs due to a 10% increase in headcount in our general and administrative organization, including an increase of $14.9 million in stock-based compensation expense.
The increase was primarily driven by $48.9 million in increased employee-related costs due to a 21% increase in headcount in our general and administrative organization, including an increase of $33.1 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $6.1 million in professional fees for third-party accounting, consulting, and legal services.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+5 added−3 removed6 unchanged
Biggest changeGenerally, the fair market value of the 2026 Notes will increase as interest rates decline and decrease as interest rates rise. In addition, the fair market value of the 2026 Notes fluctuates when the market price of our Class A common stock fluctuates. In May 2020, we issued $575.0 million in aggregate principal amount of the 2025 Notes.
Biggest changeGenerally, the fair market value of the 2026 Notes will increase as interest rates decline and decrease as interest rates rise.
Foreign Currency Risk The functional currency of our foreign subsidiaries is the U.S. dollar and our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates relative to the U.S. dollar. The substantial majority of our revenue is denominated in U.S. dollars.
Foreign Currency Risk The functional currency of our foreign subsidiaries is the U.S. dollar and our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates relative to the U.S. dollar. The majority of our revenue is denominated in U.S. dollars.
Nonetheless, if our costs in connection with the operation of our business were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. 91 Table of contents
Nonetheless, if our costs in connection with the operation of our business were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. 93 Table of contents
A sensitivity analysis performed on our investment portfolio indicated that a hypothetical 1% increase or decrease in interest rates would have resulted in a decrease of $9.8 million or an increase of $9.8 million in the market value of our investments in available-for-sale securities as of December 31, 2023.
A sensitivity analysis performed on our investment portfolio indicated that a hypothetical 1% increase or decrease in interest rates would have resulted in an increase or decrease of $12.1 million in the market value of our investments in available-for-sale securities as of December 31, 2024.
As exchange rates may fluctuate significantly between periods, revenue, and operating expenses, when converted into U.S. dollars, may also experience significant fluctuations between periods. During the years ended December 31, 2023, 2022, and 2021 a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.
As exchange rates may fluctuate significantly between periods, revenue and operating expenses, when converted into U.S. dollars, may also experience significant fluctuations between periods. During the years ended December 31, 2024, 2023, and 2022, a hypothetical 10% strengthening or weakening of the U.S. dollar applicable to our business would not have had a material impact on our consolidated financial statements.
Subsequent to the conversion, none of the 2025 Notes remain outstanding. 90 Table of contents As of December 31, 2023, we had cash and cash equivalents of $86.9 million and available-for-sale securities of $1,586.9 million. The carrying amount of our cash equivalents approximates fair value, due to the short maturities of these instruments.
Letters of credit issued under the credit agreement were not material as of December 31, 2024. As of December 31, 2024, we had cash and cash equivalents of $147.7 million and available-for-sale securities of $1,708.2 million. The carrying amount of our cash equivalents approximates fair value, due to the short maturities of these instruments.
To date, we have not had a formal hedging program with respect to foreign currency, but we may do so in the future if our exposure to foreign currency should become more significant. Inflation Risk We do not believe that inflation has had a material effect on our business, results of operations, or financial condition.
We do not require nor are we required to post collateral of any kind related to our foreign currency derivatives. Inflation Risk We do not believe that inflation has had a material effect on our business, results of operations, or financial condition.
Removed
In August 2021, we entered into privately-negotiated exchange agreements with certain holders of the 2025 Notes to exchange approximately $400 million in aggregate principal amount of the 2025 Notes for an aggregate of $400.7 million in cash (including accrued interest) and approximately 7.6 million shares of our Class A common stock.
Added
In addition, the fair market value of the 2026 Notes fluctuates when the market price of our Class A common stock fluctuates. 92 Table of contents We are exposed to the impact of changes in interest rates in connection with borrowings under the Revolving Credit Facility.
Removed
During the three months ended June 30, 2023, we repurchased approximately $123.0 million in aggregate principal amount of the 2025 Notes for $172.7 million in cash (including accrued interest of $0.5 million).
Added
Borrowings under the Revolving Credit Facility will bear interest, at our option, at either the alternate base rate or an adjusted term SOFR rate (each as determined from time to time in accordance with the credit agreement), plus a margin of between 1.75% and 2.50%.
Removed
During the three months ended September 30, 2023, we paid approximately $35.4 million in cash and delivered approximately 0.5 million shares of our Class A common stock to settle the conversion of approximately $35.4 million aggregate principal amount of the 2025 Notes.
Added
Consequently, our interest expense would fluctuate if we were to borrow any amounts under the Revolving Credit Facility as a result of the floating interest rates applicable to such borrowings and potential changes in the applicable margin resulting from changes to our total net leverage ratio. As of December 31, 2024, no loans were outstanding under the Revolving Credit Facility.
Added
We have a cash flow hedging program in place and enter into derivative transactions to manage certain foreign currency exchange risks that arise in our ordinary business operations. We do not enter into foreign currency exchange contracts for speculative or trading purposes. All contracts have a maturity of 12 months or less.
Added
These derivatives are designated as cash flow hedges under accounting guidance for derivatives and hedging. We enter into master netting agreements with select financial institutions to reduce our credit risk, and we trade with several counterparties to reduce our concentration risk with any single counterparty. We do not have significant exposure to counterparty credit risk at this time.

Other NET 10-K year-over-year comparisons