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Edited Transcript of NET.N earnings conference call or presentation 5-Nov-20 10:00pm GMT

·54 min read

Q3 2020 Cloudflare Inc Earnings Call SAN FRANCISCO Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Cloudflare Inc earnings conference call or presentation Thursday, November 5, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jayson Noland Cloudflare, Inc. - Head of IR * Matthew Prince Cloudflare, Inc. - Co-Founder, Chairman & CEO * Thomas Josef Seifert Cloudflare, Inc. - CFO ================================================================================ Conference Call Participants ================================================================================ * Amit Jawaharlaz Daryanani Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst * Brent John Thill Jefferies LLC, Research Division - Equity Analyst * Gray Wilson Powell BTIG, LLC, Research Division - Director & Security and Analytics Software Analyst * James Dennis Breen William Blair & Company L.L.C., Research Division - Communication Services Analyst * James Edward Fish Piper Sandler & Co., Research Division - VP & Senior Research Analyst * Keith Weiss Morgan Stanley, Research Division - Equity Analyst * Matthew George Hedberg RBC Capital Markets, Research Division - Analyst * Philip Alan Winslow Wells Fargo Securities, LLC, Research Division - Senior Analyst * Sterling Auty JPMorgan Chase & Co, Research Division - Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Cloudflare Q3 2020 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Jayson Noland, Head of Investor Relations. Thank you. Please go ahead. -------------------------------------------------------------------------------- Jayson Noland, Cloudflare, Inc. - Head of IR [2] -------------------------------------------------------------------------------- Thank you for joining us to discuss Cloudflare's financial results for the third quarter 2020. With me on the call, we have Matthew Prince, Co-Founder and CEO; Michelle Zatlyn, Co-Founder and COO; and Thomas Seifert, CFO. By now, everyone should have access to our earnings announcement. This announcement as well as our supplemental financial information may be found on our Investor Relations website. As a reminder, we'll be making forward-looking statements during today's discussion, including, but not limited to, the impact of the COVID-19 pandemic on our and our customers, vendors and partners operations and future financial performance; anticipated product launches and the time and market potential of those products; the company's anticipated future revenue, financial performance, operating performance, non-GAAP gross margin, non-GAAP net loss from operations, non-GAAP net loss per share, shares outstanding, non-GAAP operating expenses, free cash flow, non-GAAP effective tax rate, dollar-based net retention rate, free and paying customers and large customers. These statements and other comments are not guarantees of future performance, but rather are subject to risks and uncertainties, some of which are beyond our control, including, but not limited to, the extent and duration of the impact of the COVID-19 pandemic and adverse conditions in the general domestic and global economic markets. Our actual results may differ significantly from those projected or suggested in any forward-looking statements. These forward-looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings with the Securities and Exchange Commission as well as in today's earnings press release. Unless otherwise noted, all numbers we talk about today other than revenue will be on an adjusted non-GAAP basis. All current and prior period financials discussed are reflected under ASC 606. You may find a reconciliation of GAAP to non-GAAP financial measures in our earnings release on our Investor Relations website. For historical periods, a GAAP to non-GAAP reconciliation can be found in the supplemental financial information referenced a few moments ago. We would also like to inform you that we'll be virtually participating in the RBC TIMT Conference on November 18, the Wells Fargo TMT Summit on December 1, the Credit Suisse Annual Technology Conference on December 3, the Morgan Stanley Future of Application Development Conference on December 9 and the Jefferies CyberSecurity Conference on December 10. Now I'd like to turn the call over to Matthew. -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [3] -------------------------------------------------------------------------------- Thank you, Jayson. We had an exceptional quarter. In Q3, we crossed a number of significant milestones. First, we blew through $100 million in quarterly revenue, achieving $114 million, up 54% year-over-year. We crossed 100,000 paying customers, ending the quarter with just shy of 101,000. For large customers, in the quarter, we added nearly 100, 99 precisely, and now has 736, spending more than $100,000 per year with us. These large customers accounted for 47% of our total revenue in Q3, and we anticipate they will make up more than half of our revenue going forward. One goal we had at the beginning of 2020 was to win our first $10 million customer on an annual run rate basis. We're proud that we achieved that this quarter. That customer, a Fortune 500 software company, started with us in 2016 because one of their engineering leaders had used the free version of our service on his personal site. He loved the experience and brought us to work, initially signing a $60,000 per year contract. It's grown quite a bit since then. Today, this customer has tightly integrated our network and customized our products deep into their staff. It's been a terrific partnership, and we expect we will continue to grow alongside them. We've had great success with our go-to-market efforts and especially signing large enterprise customers. About half of our new revenue in the quarter came from new logos and about half from expanding relationships with our existing customers. Even as we continue to sign a record number of large enterprise customers, we remain very happy with the diversity of our customer mix. None of our customers account for more than 5% of revenue, and our top 20 customers remain well under 20% of total revenue. While we're incredibly proud of our financial results and the strength of our business, I wanted to talk about something else we're also really proud of. Our team watched the United States election this week carefully, as I'm sure many of you did as well. While there is still some uncertainty around the ultimate outcome, and there have been and will be stories around who voted and how those votes were counted, one story we worried about a lot going into the election that didn't materialize was the impact of cyberattacks. We played some role in that. In 2016, that wasn't the case. Four years ago at Cloudflare, we watched with deep concern as attackers were able to use various techniques to subvert parts of the election infrastructure and undermine confidence in its results. We decided shortly after it was our duty to provide our technology and expertise to ensure cyberattacks don't disrupt fair elections. We launched the Athenian Project, which provides our enterprise-class service for free to any state or local government elections officials. We also partnered with a non-partisan civil society organization defending digital campaigns to work with the Federal Election Commission, so we can provide our services at no cost to national campaigns without violating campaign contribution law. This year, more than half of U.S. states participated in the Athenian Project. That includes so-called red, blue and purple states. More than half of the battleground space use Cloudflare in order to protect services like voter registration, poll location, tracing reporting and official results. We work both presidential campaigns and many of the federal candidates for Congress. We were able to fend off cyberattacks and find no instances in which they impacted the ability of citizens to learn about candidates or to vote. That's a big step-up from 2016. While democracy can be messy, inherently it depends on a process you can trust. We're proud of the small role we've played in defending the Democratic process. Switching to the other topic that continues to be top of mind for all of us. November will be the ninth month most of the world has been impacted by COVID-19. While it's not in our nature to take victory laps, I wanted to pause to recognize our team and their ability to execute during these difficult times. Early in 2020, we began to see challenges sourcing equipment for our network as the virus hit our Asia-based suppliers. Then, in late March, traffic across our network spiked, as the world shifted to working from home. In 2 weeks, we saw more than 50% growth in traffic, more than we had forecast for 12 months. At the same time, our team had to adjust to working remotely. Product managers and engineers had to figure out how to develop innovative new products without gathering around a physical whiteboard. Our go-to-market teams had to adjust to selling to customers without ever meeting them in person. And we had to learn how to continue to hire and onboard great new members of our team without them ever stepping into an office. It would have been easy for a misstep in any of these areas to cause our business to stall, but our team has executed, and our business has thrived. We've been able to continue to build out our network to meet the unprecedented demand for our services, while staying within our CapEx budget. Even though we charge almost exclusively on a fixed subscription basis, we're able to meet our gross margin target hitting 77% Q3 without surprising our customers with burgeoning bills. And we've exceeded our ambitious revenue goals, actually accelerating growth, while continuing to sign up larger and larger enterprise customers. We were prudent at the beginning of the pandemic reserving for potential customer allowances and bad debt. And we've worked with the subset of our customers who have struggled during the pandemic to ensure they always had a reliable network they can afford, knowing to being accommodating today with biased loyalty over the long term. We've been fortunate that when our customers sort vendors, we've been sorted into the bucket of differentiated, must-have services. As a result, we've not seen pricing pressure, and we've had fewer concessions and less bad debt than we forecast. We've also been able to hire great people. In Q2, we received more than 40,000 applications and extended offers to a mere 0.6%. In Q3, we had over 60,000 and extended offers to only 0.4%. And investor last quarter asked why that was an important statistic for us to mention. Companies are just collections of people, and we believe whatever company is able to attract and retain the best people will win. If we can organically attract so many great candidates means we can save money by not having to hire third-party recruiters. We can source candidates from less expensive geographies in order to achieve operational leverage while still adding headcount to realize our ambitious plan. And we're more likely to have a diverse team with different outlooks who will come up with solutions to problems that no one had dreamed of before. While COVID has created challenges for our team, it has also made our mission of helping build a better Internet, resonate with team members and customers more than ever before. The world has never needed better Internet more than it has over the last 9 months. And our team wakes up excited every day to deliver exactly that for our customers. In the last 4 months, we've been on a care releasing a ton of incredible new products. We announced more than 1 product per day around Cloudflare Workers, our serverless computing platform, during the week of July 26. We celebrated our birthday during the week of September 27, with a series of products that are less about directly generating revenue and more about doing the right thing for the Internet. And more recently, we fleshed out our vision for Cloudflare for Teams with a new architecture called Cloudflare One over the week of October 11, which we dubbed Zero Trust Week. These weeks leverage one of our superpowers, engineering and marketing, and may result in significant spikes in organic inbound interest from potential customers. In fact, during Zero Trust Week, organic inbound lease more than doubled off their already elevated level. Stay tuned, we have one more Cloudflare week before the end of the year focused on privacy and compliance. I wanted to drill into 2 products I know there's a lot of interest in, Cloudflare for Teams and Workers. First Teams. We launched Cloudflare for Teams in January, and it happened to be in exactly the right place at exactly the right time as the world shifted to remote work and needed a scalable, cloud-based VPN and firewall replacement. Seeing how many businesses were struggling with the shift to remote work, we made the call to make Teams free through September 1. We had thousands of companies ranging from small businesses to Fortune 500 corporation take us up on our offer. Over the course of Q3, we began conversations with all of them to transition from the free offer to becoming paying customers. We are happy with how that went. 75% of customers transitioned from free to paid accounts that included some great new logos like JetBlue Travel Products, OneTrust and Delivery Hero. For some customers who are still particularly hard hit by COVID, we've allowed them to continue with the free offering until they can get their feet back under them. Teams is a very high-margin product for us, so this doesn't cost us much. And as I said before, we've always found that doing the right thing by our customers pays back in space over the long term. Because the converted accounts transition came late in the quarter and because Teams' seat based pricing tends to be even more land small and then expand than some of our other products, these new converted customers did not result in material additional revenue in Q3. However, the other benefits of running this program is how much it accelerated our learning curve. We had positioned teams as nearly all our competitors have with an access management product we call Cloudflare Access and an Internet gateway product we called Cloudflare Gateway. What we learned since March is that customers wanted a more holistic solution. If you adopt the Zero Trust networking model, you need an access and gateway component. But you inherently then are exposing more of your infrastructure to the Internet, so you often need products like our web application firewall and DDoS mitigation. We also learned that by leveraging products like Argo Smart Routing and Magic Transit, we can provide a much higher quality of service unmatched by traditional Zero Trust vendors and delivering on the real promise of SD-WAN. These conversations with customers over the last 9 months helped us realize there's an opportunity to package our services with the addition of intrusion detection, next-generation firewall and data loss protection, which we announced during Zero Trust Week into a comprehensive solution that we believe can help define the future of the corporate network. We've dubbed this Cloudflare One, and we believe it's the suite that is unmatched in the market. Turning to Cloudflare Workers, it's incredibly exciting to see how the platform is taking off. In Q3, more than 27,000 developers wrote and deployed their first Cloudflare Workers. That's up from 15,000 a year ago. History proves with new computing platforms, the more developers they have, the more quickly they improved and the more likely they are to win. Looking at GitHub and other sources of data on developer engagement, we believe more developers right deploy real applications and code on Cloudflare Workers every month than every other edge computing platforms combined. So what are they building? One of the most viewed publications during the 2020 elections used Cloudflare Workers to power their elections news platform and ensure it scaled during the unprecedented spike in traffic last Tuesday as well as Wednesday and today. A popular health foods company uses Workers to power their online ordering system. An online marketing firm working with major brands uses Workers to customize content on a per visitor basis. A publicly traded electronics testing firm use Workers to bridge their on-premise and cloud-based infrastructure. An innovative start-up is using Workers to power an online crypto scavenger hunt. And one of the largest online learning platforms uses Workers to deliver their customized content during this time of skyrocketing demand. It's great to see more use cases every quarter, but I think we're just scratching the service. Most use cases today have focused on performance. Over time, I expect those use cases will pale in comparison to what is a much bigger opportunity, helping customers manage the challenges of compliance. As governments around the world increasingly insist on data localization and data regency, sending all your users' data back to AWS feeds for processing will become unacceptable. What our largest, most sophisticated, most compliant sensitive customers are looking to Workers for is as a way to manage this increasingly complex regulatory environment. That's why during Cloudflare's Birthday Week, our announcement of Durable Objects may have been one of the most important edge computing developments you may have missed. Durable Objects allows developers to define a data structure and store it safely on our network close to users that need to access it in order to ensure performance and consistency. It also allows developers to define where that data can move across our network and where it cannot, such as this user's data may never leave the EU or this user's data may never leave Brazil. Given Cloudflare's network spans more than 200 cities in more than 100 countries worldwide, Durable Objects provides fine-grained control over where data is stored and processed. That functionality is critical for the increasingly complex compliance challenges that face every global company today. In other words, the future of edge computing will be defined as much by intelligent edge storage as it is by computing. And while others are still working to launch for edge computing platforms, we have products like Durable Object in market that are defining that future today. Before I hand it off to Thomas, I wanted to close by talking about 3 more Fortune 500 large enterprise customers whose business we won in Q3. A Fortune 500 industrial manufacturing company came to us to consolidate multiple vendors and products into a single unified platform. They replace discrete network optimization, load balancing and bought management vendors with Cloudflare in order to, in the CISO's words, have a single pane of glass to understand and control what's happening on their network. They signed a $1.4 million annual contract in Q3. A Fortune 500 food and beverage company came to us following a security audit. They replaced their legacy network optimization service with Cloudflare. They used most of Cloudflare's core services, including Workers. They were looking to save money over their previous vendor and were able to cut their spend in half while still being a very attractive customer for us. They signed $0.5 million annual contract with us in Q3. Finally, a Fortune 500 pharmaceutical company adopted the Cloudflare One architecture to protect their employees and global network. They were able to onboard 47,000 employees and contractors and more than 130 applications on the Cloudflare One. They were particularly impressed with the comprehensive solution as well as with ease of use. They called out how much our solution reduced their internal IT support ticket load. They signed a $1.5 million annual contract in Q3. Sometimes we hit on all cylinders. We had one of those quarters. I wanted to take a second to thank the whole Cloudflare team who are working hard to make Thomas and my job easy. With that, I'll turn it over to Thomas. -------------------------------------------------------------------------------- Thomas Josef Seifert, Cloudflare, Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, Matthew, and thanks again to everyone for joining us. As Matthew mentioned, we delivered another outstanding quarter where we exceeded the high default guidance and with that top line beads carrying through to our strong operating margin and another quarter of positive operating cash flow generation. Total revenue for the third quarter grew 54% year-over-year to $114.2 million. The growth in revenue was driven by new logo acquisitions as well as expansion within our existing customer base. Included in our Q3 revenue is a onetime catch-up of $1.9 million related to a customer renewal. Excluding this nonrecurring revenue, our year-over-year revenue growth would have been 52%. From a geographic perspective, we saw strong performance domestically and internationally with particular strength in the U.S. and EMEA, both increasing 58% year-over-year. The U.S. represented 52% of revenue, while our international business represented 48% of revenue and increased 51% year-over-year. Turning to our customer metrics. We exited the quarter with more than 3.2 million total free and paying customers, representing an increase of 40% year-over-year. In Q3, we achieved an exciting milestone of over 100,000 paying customers, adding roughly 4,800 sequentially. We also had another record quarter of large customer additions, which we define as paying customers with greater than $100,000 in annualized revenue, adding roughly 100 large customers sequentially and 285 large customers year-over-year. We ended the quarter with 736 large customers, representing an increase of 63% year-over-year, with particular strength in North America. We've shown 60% plus year-over-year large customer growth every quarter since the first quarter of 2018 with large customers now approaching almost half of our total revenue. Similar to our disclosure last quarter, roughly half of the 736 large customers have been on the platform for less than 1 year and the other half for more than 1 year. Our third quarter dollar-based net retention was 116%, which increased 100 basis points sequentially and decreased 500 basis points year-over-year. We saw acceleration in top line revenue growth this quarter, driven by both existing customers as well as new customers who have been on the platform for less than a year. Overall expansion from large enterprise customers was again strong this quarter, with 6 of our top 10 deals in terms of new ACV coming from existing accounts. We expect [ENR] to translate to up going forward with Teams as a potential tailwind for expansion opportunities. Third quarter gross margin was 77.3%, representing an increase of 50 basis points sequentially and a decrease of 160 basis points year-over-year, which is in line with the expectations we shared last quarter in our long-term target of 75% to 77%. Turning to operating expenses. We remain focused on building a long-term business with sustainable growth while improving the operating leverage in our business. Third quarter operating expenses as a percentage of revenues decreased 5% sequentially and 22% year-over-year to 81%. We had another strong hiring quarter, increasing our headcount by 42% year-over-year and bringing our total number of employees to 1,697 in the end of the quarter. Sales and marketing expenses were $51.2 million for the quarter, representing an increase of 8% sequentially and 26% year-over-year. Sales and marketing as a percentage of revenue decreased to 45% from 48% last quarter and 55% in the same quarter last year. Research and development expenses were $23.5 million in the quarter, representing an increase of 11% sequentially and 17% year-over-year. R&D as a percentage of revenue remained flat sequentially and decreased 21% from 27% in the same quarter last year. General and administrative expenses were $18 million for the quarter, representing an increase of 3% sequentially and 14% year-over-year. G&A as a percentage of revenue was 16%, representing a decrease of 2% sequentially and 6% year-over-year. Scaling our business efficiently remains a top priority, and we continue to see acceleration in operating leverage in the third quarter with operating margins improving over 2,000 basis points year-over-year and 550 basis points sequentially. Operating loss was $4.5 million compared to $18.1 million in the same period last year. We've been hiring aggressively and expect to continue to invest behind the success we see in top line revenue. Net loss in the quarter was $5.7 million or net loss per share of $0.02. Our effective tax rate for Q3 was negative 22%. Turning to the balance sheet. We ended the third quarter with $1.1 billion in cash, cash equivalents and available-for-sale securities. Free cash flow was negative $17.9 million or 16% of revenue compared to negative $33.6 million or 45% of revenue in the same period last year. Operating cash flow was positive $2 million in the third quarter or 1.7% of revenue, which decreased $2 million sequentially and increased $19.8 million year-over-year. Q3 operating cash flow was helped by an increase in cash profitability, while offset by our annual D&O insurance payment as well as changes in working capital. Our DSOs trended down slightly quarter-over-quarter and remained well within the historical range. Q3 network CapEx was 11% of revenue, and we expect it to trend down as a percent of revenue in the fourth quarter. Before moving to guidance for the fourth quarter and full year, I would like to provide another update on the COVID-related impacts and the associated provisions we shared last quarter. You may recall on our first quarter earnings call, we disclosed that customers highly affected by COVID-related challenges, particularly those in macro sensitive industries such as transportation, hospitality and retail, represented 8% of our business. In Q2 and Q3, this cohort was 7% of total revenue. We are pleased to see these customers facing COVID-related challenges turn to us as Cloudflare pays a critical role for them as they accelerate their digital transformation plans. We also disclosed last quarter that we saw customer concessions come in well below the $2 million headwind we anticipated, trending down during the quarter to historical levels. This trend remained consistent in the third quarter with both concessions and bad debt coming in below expectations. We were pleased to observe another strong quarter of new ACV growth, increasing average customer spend and high sales productivity. In Q3, we observed an acceleration in remaining performance obligations, or RPO, which was $342 million, representing an increase of 25% sequentially and 81% year-over-year. A multiyear partnership agreement of $50 million contributed to the growth in RPO this quarter. So it's not expected to materially contribute to revenue until 2021. Excluding this large partnership agreement, we saw a 73% year-over-year RPO growth. Again, with a great quarter, our results demonstrate the resiliency and differentiation of our business model, which emphasizes customer diversity with no customer representing more than 5% of revenue, strong visibility and predictability with a vast majority of our revenue built upfront on a subscription basis and multiple vectors of growth fueled by the massive scale and efficiency of our global cloud network. Given the momentum we are seeing, durability of our model and our differentiation from competitors, we remain confident in the continued growth of our business. And as such, are pleased to raise guidance for both the quarter and full year. For the fourth quarter, we expect revenue in the range of $117.5 million to $118.5 million, representing an increase of 40% to 41% year-over-year. We expect operating loss in the range of $10 million to $9 million, and we expect net loss per share in the range of $0.04 to $0.03, assuming approximately 304 million common shares outstanding. We expect an effective tax rate of negative 13%. For the full year 2020, we expect revenue in the range of $422.5 million to $423.5 million, representing an increase of 47% to 48% year-over-year. We expect operating loss for the full year in the range of $38 million to $37 million. We expect net loss per share over that period in the range of $0.13 to $0.12, assuming approximately 300 million common shares outstanding we expect an effective tax rate for 2020 of negative 12.4%. We'd also like to inform you that we will be hosting a virtual Investor Day on February 12, 2021, where we look forward to providing a deep dive into our products and our platform. In addition, we will also be providing an update on our financial progress and targets for fiscal 2021. In closing, I again want to thank our employees for delivering these great results and for the continued dedication to our customers and global community. And with that, I'd like to open it up for questions. Operator, please poll for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Phil Winslow with Wells Fargo. -------------------------------------------------------------------------------- Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division - Senior Analyst [2] -------------------------------------------------------------------------------- Congratulations on really just a great quarter, and thank you for all the work that you do in securing our elections. Now a lot of numbers are really impressive this quarter, but large deals and really the contribution of revenue jumped out to us. Now in the past, your team has talked about how 4 products was really often the tipping point customers to lead to higher net expansion rates and lower churn. Can you give us some more color in terms of the drivers of existing, but even newer customers that you mentioned consolidating more functions on the Cloudflare, driving these larger deals? And then just have 1 follow-up to that. -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [3] -------------------------------------------------------------------------------- Yes. Phil, thanks for the question. I think that our traditional products that are kind of the tips of the spear continue to be the case. So we saw a large number of companies that were coming under cyberattack in Q3 that would turn to us. Originally, those have been our DDoS mitigation products, increasingly were putting entire networks behind our -- us using our Magic Transit product, and that has been extremely well received. I think the new addition to that, which is really driving more and more initial interest, is people coming to us for what we call our Cloudflare for Teams product. So that's our access and gateway product. That -- pardon the pun, but that has turned into a gateway for us to get more large customers on board. I think the thing that has surprised us over the course of the last 9 months as we really have been talking with those initial customers and getting feedback is how much Cloudflare's products that existed before the Teams' products really actually dovetail nicely with the rest of the Teams' products. And so we're seeing a lot of times where someone will come to us for, say, Cloudflare Access and Gateway, but then realize that they need a web application firewall, DDoS mitigation. And that's really been a differentiator for us versus a lot of the other Zero Trust vendors that are in the market. -------------------------------------------------------------------------------- Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division - Senior Analyst [4] -------------------------------------------------------------------------------- Great. That actually leads me to my follow-up, I guess, in terms of just more services being available. As you mentioned, Cloudflare launched Cloudflare One in October. Truly a culmination of a couple of years' worth of individual component releases. Can you touch on just the early feedback you're getting from customers or projects? And how in particular you're positioning Cloudflare One versus competitors in the secure access service edge market that maybe have forward proxies, but not reverse proxies or might have security capabilities but not networking and so on? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [5] -------------------------------------------------------------------------------- Yes. I think the -- we've always seen the vision for Cloudflare as building the future of the enterprise network. It's why when we take the ticker symbol, we don't pick CFLR. We picked NET because we think that we are the future of the network. And the individual products are really coming together, and we allow companies to adopt just the portions that make sense for them. But what we realized is that the kaleidoscope of all of our different products and the picture that they form together really is a compelling value proposition. And I think what differentiates us then is, first of all, the ease of use across all of those different products. Secondly, the unified control plane where you're not having to go to a number of different vendors. And finally, that it can be significantly cost effective. And that last piece has been a big driver as CIOs and CTOs are looking to consolidate vendors, looking to simplify their deployment and looking to solve some of the budgeting problems they have. And we're there to help them with those issues. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Your next question comes from Sterling Auty with JPMorgan. -------------------------------------------------------------------------------- Sterling Auty, JPMorgan Chase & Co, Research Division - Senior Analyst [7] -------------------------------------------------------------------------------- Matthew, I guess I would shift the focus over to Workers and ask whether you've seen any change in terms of the percentage of new customers coming in that are taking Workers? And what kind of penetration into the existing base you're starting to see with the platform? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [8] -------------------------------------------------------------------------------- Yes. So we're tracking very carefully the developer engagement of Workers as a whole. And the fact that we had 27,000 developers, that's not people who've created accounts, but that's actually written code and deployed it across our network. So they really have some skin in the game. And that's been a real, real involvement. Across our customers as we sign, the percentage that adopt Workers are holding pretty steady. Around 20% of new customers coming on board on a contracted basis are adopting the Workers platform. As we've talked about before, we think that there is really kind of a short, medium and long-term opportunity for Workers. The short-term opportunity is it makes all of our existing products the most programmable and configurable version in the market. So the most programmable firewall, the most programmable Zero Trust solution, the most programmable load balancer, that's what Workers really delivers. And that's where the bulk of the sort of new customers are coming from. The medium-term solution is that it is the platform that allows our own team to innovate as quickly as we have. So all of Cloudflare for Teams was built using the Workers platform. And we really think that the best development platform, the first best customer of those platforms, is the company that builds them themselves, and that's the rule that we're following. And the long-term opportunity, which, frankly, as I see that more and more sophisticated applications are being written, and we gave a number of examples on the call. But what I'm really excited about is how the sort of large financial institution, health care organization, consumer applications that are existing on a global basis that those companies with really sophisticated compute needs are increasingly seeing workers as a platform they can do something with that they really can't do on any other platform. So we've been really happy with it. Again, I think it's going to be sort of a short, medium and long-term opportunity, but the long-term keeps getting closer and closer every day. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Your next question comes from the line of Brent Thill with Jefferies. -------------------------------------------------------------------------------- Brent John Thill, Jefferies LLC, Research Division - Equity Analyst [10] -------------------------------------------------------------------------------- Matthew, on the $10 million transaction, I'm curious if you could just provide a little more high-level color on what's happening there? How much opportunity is left? And anything else you can give to fill in a great transaction for you guys? And then for Thomas, just a couple of questions on the guide. Good acceleration this quarter, but you're obviously guiding to a de-sell in Q4. I realized you have a tougher comp in Q4 from last year, but anything to keep in mind, given the deceleration Q3 to Q4 in terms of the year-over-year, just to put in perspective? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [11] -------------------------------------------------------------------------------- I'm glad you asked me the easy questions, and, Thomas, the hard questions. So thank you for that. We -- so the $10 million customer has been, as I mentioned, a customer with us since 2016. I think the thing that we see over and over again is that not only organizations but individuals that fall in love with us for our pay as you go and even our free products often will then bring us to work. And that has allowed us to very quickly build a very loyal fan base in almost every IT organization in the world, and it really differentiates us. That customer is using us for a number of our web performance as well as our security products. They tend to be our older products, the products around DDoS mitigation, WARP, and others. They're increasingly looking at adopting other products across their platform, including bot management and maybe even our Cloudflare for Teams products. So I think that we have been able to grow with them. We have become a key part of their network. We are able to continue -- there are a number of different ways we can continue to expand the relationship with that customer. And I think that this is -- while this is the first of our $10 million customers, there are -- we think that with anyone who's a Fortune 500 company, there is an opportunity for us to have a similar level of penetration. -------------------------------------------------------------------------------- Thomas Josef Seifert, Cloudflare, Inc. - CFO [12] -------------------------------------------------------------------------------- Coming back to guidance, I think there are a couple of points to make. First of all, we are pleased that we're able to raise our guidance again, both for the quarter as well as for the year. A couple of things are coming together. The key growth rate for the third quarter was 52%. And we look at Q4 was a really difficult compare, growing 51% year-over-year in the fourth quarter of last year. And we are still in the middle of the COVID crisis with maybe a second wave hitting. So there is also uncertainty in the market on how this is going to affect macro factors. So I think what you see is a prudent guidance that shows confidence in the business model, keeps the tough compare in mind. And let's not forget, this gets us to a growth rate for the year of 47% to 48%. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Your next question comes from James Fish with Piper Sandler. -------------------------------------------------------------------------------- James Edward Fish, Piper Sandler & Co., Research Division - VP & Senior Research Analyst [14] -------------------------------------------------------------------------------- One question we're getting is, as you guys look to move upmarket and really get into some of these like Fortune 500 customers, how do you guys feel about the need for additional sales capacity and more direct reps? We traditionally know Cloudflare for being able to just go direct via the website, for example, or kind of the low-touch model. So I guess, how do you feel about your sales capacity and need for additional support? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [15] -------------------------------------------------------------------------------- Yes. I appreciate the question. So the -- I think that we have a very diversified go-to-market strategy. We are able to sign people up on a -- come in, put in your credit card. But as we've said in previous calls, and it's continued to be the case on this -- in Q3, that is a smaller and smaller percentage of our revenue. And today, it's well under 20% of revenue. I think it has -- as we've written about in our Founder's Letter, in the S-1 and the updated Founder's Letter that we wrote before, being able to serve everyone and being able to build relationships with those individuals and those developers that can sign up for their own account, even though it doesn't account for a substantial portion of our revenue, it has driven a lot of marketing benefits, and it gives us a really strong relationship and a really developer love, which helps us when we're trying to win those large customers. In terms of sales capacity, we have a -- we continue to move upmarket. We support customers. We don't believe that you can do what we do without having a sales team. And so we have -- we started with an inside sales team early on in Cloudflare's history. We now increasingly have a direct sales team with experienced sales leaders that have come from other enterprise companies that have really been able to thrive over time. And I think one of the people who've been very helpful in this is Mark Anderson on our Board, who obviously came from a number of great enterprise sales organization. That's what has allowed us to continue to scale. So we have great sales capacity. We've been hiring. One of the things that's been amazing is that during this time, when a lot of people have pulled back hiring, we've actually stepped on the gas. And the caliber of the team as a whole, and in particular, the caliber of the team that we're being able to attract in our field sales organization, really, I think, is you're going to look back and say, wow, there was an incredible opportunity that they had during this particular time and they took advantage of it. -------------------------------------------------------------------------------- James Edward Fish, Piper Sandler & Co., Research Division - VP & Senior Research Analyst [16] -------------------------------------------------------------------------------- Got it. That's helpful. And then, Matthew, a lot of product announcements over the last few months for things like browser isolation, and we go down the list. But what's next? I mean, where do you see the Cloudflare platform as next cool handling? Could we see something on identity, for example? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [17] -------------------------------------------------------------------------------- I think that our thought on identity has been that we really think partnering is the right place. Companies have largely made their bets on what their identity management companies are going to be. And so we're working with great companies like Okta, Ping Identity, Microsoft, in order to integrate their existing identity solutions. One of the things, though, that we think is powerful and that we're hearing from customers is that they often tend not to have 1 identity provider. They might have their contractors using 1 provider and their internal employees using another. And that could either be just because of the complexity of running a business. It could be because of M&A activity. But what's powerful about the Cloudflare for Teams product, and especially our Access and Gateway products, is that they can really rationalize the complexity of those various identity providers and say, you can mix and match Okta plus Microsoft Access directory, plus what might be a more consumer-facing identity provider for contractors like a LinkedIn or a GitHub and use one control plane provided by Cloudflare in order to deliver that. So I think that that's been -- that's an area, I think it's unlikely that we will go into directly. I think it's an area we're much more likely to partner in. But I think it is a way that we can help simplify the complex setups that a number of people have. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Your next question comes from Matt Hedberg with RBC Capital Markets. -------------------------------------------------------------------------------- Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [19] -------------------------------------------------------------------------------- I'll offer my congrats as well. I wanted to ask about Cloudflare One again. It certainly strikes us as a good opportunity, not only in your enterprise, but also sort of the midsized opportunity of the market. But I guess, in particular, the enterprise is what really interested me. And it was great to hear you call it the pharmaceutical company. When you think about this platform, I was wondering if you can give us more color on how it's priced, be it a bundle, à la carte? And what sort of ROI does the customer like that pharmaceutical company see when they standardize on One? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [20] -------------------------------------------------------------------------------- Yes. So Matt, I appreciate it. We're really excited about Cloudflare One, and I think it is an emerging area for us. So when we published a few weeks ago, what was effectively the schematic for what we think of as the enterprise of the future, it really resonated with the market and a number of people reached out to it. But it was conversations with customers that got us there. We had traditionally thought of kind of Cloudflare for Teams and a lot of our other infrastructure products as being separate. But in retrospect, it's kind of one of those forehead slapping moments where you realize that these things go together like graham cracker and HERSHEY'S Chocolate and the marshmallow, together it creates this incredible thing, which is better than the sum of its parts. It is more. And that's just incredible opportunity for us to build something, which really resonates with customers. Right now, we price the various components of Cloudflare One individually. But one of the things that we think we are investigating is whether we can take what is effectively an architecture and turn it into a SKU. And in that case, what we're investigating, is there a way that we can bundle together a number of Cloudflare's products and sell them on just a per seat basis. And we think that that's really attractive on both ends of the market. On one end -- on the low end of the market, that allows us to get more of our features into start-ups, early-stage companies and really have them have the best possible architecture from early in their history. For larger companies, what we're seeing is that there's an opportunity for us both to help them rationalize a number of different vendors and then hopefully also allow us to grow with them. And so I think it's a space to continue to watch. I don't think we know exactly how that's going to come together. But we do think that it is a real opportunity to both simplify the deployment of our customers and help them have a very significant ROI with their deployments. -------------------------------------------------------------------------------- Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [21] -------------------------------------------------------------------------------- That's great. Makes a lot of sense. And then sort of the other big product, and it's been asked a couple of times. But when we think about Workers, how do you think about the size of that market? I know it's a tough question. But when we think about alternatives there, when it comes to the speed of the Cloudflare network, it is quite unique. How do you think about just ultimately -- I know it's small today, but what is the monetization? What is the TAM opportunity there longer term? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [22] -------------------------------------------------------------------------------- We've really resisted -- when we put together any TAM forecast or anything else, we've resisted. We were just kind of calling how, what that is because I think it's tough to say. I -- and this is -- maybe this is a little bit heretical. But I actually think that the only advantage of Workers is it's a little bit faster. The TAM is actually not that big. And while I understand that there's a lot of excitement around edge computing, and Gartner will throw out a really large number. If you actually talk to developers, their priority is -- making something a little bit faster is sort of the last in their sort of hierarchy of need, whereas they have other things around ease of use, more affordability and reliability. The opportunity that I think is the biggest one, which I mentioned in the prepared remarks, is really around how can we help companies with what is an increasingly regulatory compliance situation. So if you imagine in the future that what the folks at TikTok are living through, what Facebook is increasingly facing in Europe, that comes to every business that is operating on a global basis, where the data for their customers is required to be kept in market and processed in market. Then there really isn't another platform on the market that can provide that solution without cobbling together a bunch of things. And if in the future, you've got 100 different laws in 100 different countries, then you need a network that spans 100 different countries. And I think that that's the real opportunity for Workers. It's early there. But when we look at our largest, most sophisticated customers, that's where they're saying this is a real opportunity. This is where we want you to invest, and that's why our team is investing in that area. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Your next question comes from Keith Weiss with Morgan Stanley. -------------------------------------------------------------------------------- Keith Weiss, Morgan Stanley, Research Division - Equity Analyst [24] -------------------------------------------------------------------------------- Really nice quarter. You guys really blew it out of the water in this quarter. I kind of wanted to ask about that. You talked about really good conversion on the free Teams customers, but that didn't add a lot to revenues because they converted pretty late in the quarter. So 2 questions on that. If it wasn't like the Teams conversion driving all the upside, can you help start with what it was like anything you could point to? And what drove that upside? And then part 2, what are those Teams contracts look like when you are converting? 75% is a huge conversion rate. And are these guys signing on for a longer-term contract? Or is it just a small part of their business today and you expect it to grow over time? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [25] -------------------------------------------------------------------------------- Yes. Keith, so let me take those in order. So from the upside perspective, I think because of the nature of our business, where we're a subscription business, the seeds of a lot of this got planted early in the quarter and late in the last quarter. And we just had a very strong growth across all of our various components of our business. I will say that, as we try to emphasize in the prepared remarks, the large customer segment, those customers that are over $100,000 and also those customers that are over $1 million, we're seeing more adoption from those customers. We're also seeing that we're getting more expansion from those large customers. And sometimes, that expansion is actually coming so fast that is happening within the year. And so it isn't yet reflected in our dollar-based net retention numbers. So I think that, as I said, we hit on all cylinders here. I'm really proud of the team. I think they did an incredible job delivering the quarter that we had, and it really was a team effort. And I don't think it was any one thing, but it was a combination of many different factors working out very well. On the Teams side, I think that those are typically annual contracts. We are, in some cases, signing longer-term contracts, but they are typically annual contracts. We think that since it's a newer product, us having a little bit of flexibility to revisit pricing is -- makes sense and gives customers flexibility as well. And then it's a real -- it depends on various organizations. So some organizations are having very broad adoption across their entire team, someone like a Delivery Hero, that was a substantial adoption across their entire platform. Others are small businesses where they might adopt across the entire platform, but there aren't all that many seats. But because we've made the product so easy to use, we can service that into the market, and we really don't have any competition at that part of the market. And then we sometimes see individual teams. But what we've learned is that oftentimes, when somebody adopts Teams within an individual team that then spreads in an organization very well. And so we think that actually the Teams product has a very -- is a real tailwind for our dollar-based net retention. And that it gives a very natural expansion motion over time for us, which we think is really exciting. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Your next question comes from James Breen with William Blair. -------------------------------------------------------------------------------- James Dennis Breen, William Blair & Company L.L.C., Research Division - Communication Services Analyst [27] -------------------------------------------------------------------------------- Just with respect to the new sales and some of the new customers, any particular products that you seem to be leading the pack in terms of the initial sale? And then of the customers, how broad is their take rate in terms of the products you offer? And I guess just lastly, geographically, any real focus, U.S., international, et cetera? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [28] -------------------------------------------------------------------------------- Sure. So I can start with those, and then Thomas can add a little bit more color. So I think our goal is to continuously be releasing new products, so that the take rate on any given customer, even if they had adopted everything that we had yesterday, is we'll have new stuff for them tomorrow. And I think if you're not following our blog already, just the rate of innovation, the rate that the team has been able to continue to adapt and deliver products is really outstanding. And we're seeing that, that is one of the many component that is driving our continued ability to grow and scale. It's really different on different customers in terms of what the take rate for the products are. But we do naturally see products that fit together fairly well. So the Teams product fit very well with our DDoS and our web application firewall product. We're seeing a lot of interest over the last 2 quarters in our Magic Transit product. That tends to be a great, again, tip of the spear product for us to come in with. But once somebody's entire network is behind us, that then allows us to approach them and talk about Teams and some of the other products as well. So the journey in the Cloudflare can come in many different directions, but we're really happy with, again, our ability to continue to innovate, continue to add to the platform and see the adoption of these new products by our existing customers. -------------------------------------------------------------------------------- Thomas Josef Seifert, Cloudflare, Inc. - CFO [29] -------------------------------------------------------------------------------- Yes. From a new ACV perspective, a particularly strong quarter in North America. From a revenue production perspective, strong in both North America and Europe, up 58% year-over-year. Strong across all verticals. No vertical really that stood out, a very even performance across industrial, health care and other verticals. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Your next question comes from Gray Powell with BTIG. -------------------------------------------------------------------------------- Gray Wilson Powell, BTIG, LLC, Research Division - Director & Security and Analytics Software Analyst [31] -------------------------------------------------------------------------------- Congratulations on the quarter. So I know you guys have had a few questions on Teams and Access. And maybe I'll just throw in one more. How should we think about the typical uplift to an enterprise customer's ARR when they go all in on Cloudflare Access? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [32] -------------------------------------------------------------------------------- Sure. So Access is priced on a per seat basis, and there are various tiers of that pricing. And so the dimensions will be how many employees do they have on their organization and then what tier of that service are they adopting. And so that could be as low as a few dollars per seat. It could be as high as tens of dollars per seat. And it depends on exactly what their deployment is. But we are now seeing 6-plus figure deals that are just in the Cloudflare for Teams -- just for Cloudflare for Teams. And again, it's a -- we think it has a natural expansion on 2 directions both when customers grow and then also when we convince those customers to adopt a higher tier of -- a higher per seat tier. -------------------------------------------------------------------------------- Gray Wilson Powell, BTIG, LLC, Research Division - Director & Security and Analytics Software Analyst [33] -------------------------------------------------------------------------------- Got it. Okay. And then I know you disclosed some numbers earlier this year, but did you have any like updated stats on the total number of customers that had a free version of Teams before Q3? And then I know you said 75% converted in the quarter. So I'm just trying to figure out the raw number of quarters that -- of customers that actually converted. And then can you give us any sense as to like how big those customers are? Are they -- skew more small, mid or large enterprise? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [34] -------------------------------------------------------------------------------- Yes. So it was a couple of thousand customers took us up on the free Teams offer. I don't -- just to be 100% clear, we have also extended a free offer for small organizations and small teams, which we plan to continue indefinitely. And we think that that's a really great gateway to get start-ups and smaller organizations onto the platform. So I think you were asking about the free offer that we made back in March, but there is this other free offer that will continue to extend over the long term. In terms of the people that took us up on the free offer, it really was across the board. We mentioned a handful of what a relatively large organization that are part of this. There were much larger organizations as well that came in through that funnel. I would say the majority would reflect what is sort of a typical distribution of sizes of companies. So we would have a lot of small businesses that are in that mix. But then a handful of Fortune 500 and very large customers as well. -------------------------------------------------------------------------------- Jayson Noland, Cloudflare, Inc. - Head of IR [35] -------------------------------------------------------------------------------- Mariama, can we take questions from one last analyst, please? -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Your last question comes from the line of Amit Daryanani with Evercore. -------------------------------------------------------------------------------- Amit Jawaharlaz Daryanani, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [37] -------------------------------------------------------------------------------- Perfect. I'm glad I was able to squeeze in. I guess, two for me. First one, I know we've talked about Cloudflare One a fair amount, but I was wondering if you could perhaps address the top on 2 fronts. One, the traction you see skews more enterprise or SMB? And do they both like you for the same reasons or different reasons? And then, secondly, in the instances where you're winning, where you're getting deployed, what exactly are you replacing? What are the entities that you're replacing in the infrastructure there? -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [38] -------------------------------------------------------------------------------- Sure. So I think that actually somewhat opposite how we went to market with a lot of other -- Cloudflare's other products. We're actually seeing for Cloudflare One and the products that make up Cloudflare One more interest in the larger enterprise segment first, and then we're trying to pull that down to small businesses. We don't see really any competition in the self-service, pay as you go segment. And so we think that that's an area that we can really help define what the standard is and that, that will be a fertile ground. But if we look at the people that are -- the organizations that are adopting Cloudflare One, if you look at the leads that were generated from that interest in it, it really has been the much larger end of the customer set, both in terms of new logos coming to us as well as the people that we've been able to approach and upsell on as existing customers. In terms of who we replace, I think that fundamentally, the Zero Trust network architecture is a just different way of doing networking. In the past, the way that you would construct a corporate network is you would build a castle, build a moat around that castle and you put all your secrets inside the castle. You make all your employees come to work in the castle. And then anyone that was -- they had to live outside the castle would cross over a drawbridge. Those drawbridges are VPN. The moat is the firewall. The next-generation firewall types of companies, intrusion detection companies, data loss protection companies, typically, they were the folks that sold boxes that define that moat or allowed access to those drawbridges to get across it. As people are adopting a Zero Trust model, they need a different approach to it. And so what we see often is people will -- maybe I'll leave some of that in place, but that they will migrate more and more applications to this new approach. And over time, the budget dollars that, that is -- that new approach is coming from comes from those budget dollars that you would otherwise be buying that VPN, that firewall, that next-generation firewall, the intrusion detection system, the data loss prevention system. With 1 -- that's true of the Teams piece is, one, we extend also making sure that we have sort of a web application firewall component and a DDoS mitigation component as well. And so that could either be boxes that people buy or in some cases, it could be services provided by either the telecom or other companies that are sort of point cloud solutions. Does that -- Amit, does that answer your question? -------------------------------------------------------------------------------- Amit Jawaharlaz Daryanani, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [39] -------------------------------------------------------------------------------- No. That is really helpful. And obviously, I appreciate the change of pace with some great hold music prior to the call. So thanks for that. -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [40] -------------------------------------------------------------------------------- Well, that was a really talented musician guy named [Jonah Cuti], and he was accompanied by [Bibi Stockwell]. [Jonah] is a freshman at the Berklee College of Music. I met him in part because he's a proud Cloudflare shareholder, and we're excited to have him as a shareholder. And we've always really admired Shopify. They've been a great customer of ours for a long time. They have done this with Canadian bands, and so it was great to convince the conference call folks to allow us to do it. So thanks for asking about it. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- There are no further questions at this time. I will now turn the call back over to the presenters. -------------------------------------------------------------------------------- Matthew Prince, Cloudflare, Inc. - Co-Founder, Chairman & CEO [42] -------------------------------------------------------------------------------- Thanks, everyone. And again, I really wanted to thank the Cloudflare team. It's been a really tough last couple of weeks as we've been on pins and needles, making sure that the U.S. election went as smoothly as possible. I'm proud to have played a small part in ensuring that, that was the case and really proud of our entire team for making that happen. So thank you, and we'll see you back here next quarter. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.