Summary
Cloudflare opened fiscal 2022 with first-quarter revenue of $212.2 million, up 54% from the prior-year quarter. The company added roughly 14,000 paying customers during the quarter, a record, and ended March 31, 2022 with 154,109 paying customers, up from 119,206 a year earlier. Dollar-based net retention was 127%, an increase of 400 basis points year over year. Customers generating more than $100,000 in annualized revenue totaled 1,537, compared with 945 a year earlier, and the CEO said customers spending over $1 million a year grew 72% year over year.
Gross profit was $165.1 million, up from $106.0 million, and gross margin was 77.8%, up from 76.8%. The GAAP loss from operations widened to $40.0 million from $31.3 million, but operating margin improved to -18.9% from -22.6% because revenue grew faster than the loss. Net loss was $41.4 million, wider than the $40.0 million loss in the prior-year quarter. Diluted loss per share was $0.13, flat with a year earlier. Non-GAAP results looked different: income from operations was $4.9 million, or 2.3% of revenue, compared with a non-GAAP loss from operations of $7.5 million, or 5.4% of revenue. Non-GAAP net income was $3.5 million, or $0.01 per diluted share, against a non-GAAP net loss of $9.3 million, or $0.03 per share.
Costs kept climbing. Headcount rose 68% in customer support and technical operations, 47% in research and development, 56% in general and administrative, and 32% in sales and marketing. Interest expense decreased by $8.7 million after the adoption of ASU 2020-06, which removed amortization of the debt discount from interest expense.
Cash generation reversed. Operating cash flow was negative $35.5 million, down from positive $23.5 million a year earlier. Free cash flow, a non-GAAP measure, was negative $64.4 million, or 30% of revenue, compared with negative $2.2 million, or 2% of revenue. Capital expenditures were $24.5 million, up from $22.3 million. The operating swing came largely from a $30.8 million increase in accounts receivable and a $25.4 million decrease in accrued expenses and other current liabilities, partly offset by a $16.0 million increase in deferred revenue. Deferred revenue, current portion, was $131.7 million, up 98.2% year over year, and remaining performance obligations were $688.4 million, up 56.9%. Cash, cash equivalents, and available-for-sale securities totaled $1,725.2 million as of March 31, 2022.
Guidance points to more growth. For the second quarter of fiscal 2022, management expects revenue of $226.5 million to $227.5 million, a non-GAAP loss from operations of $2.0 million to $1.0 million, and non-GAAP net loss per share of $0.01 to $0.00. For the full fiscal year 2022, the company guided to non-GAAP income from operations of $10.0 million to $14.0 million and non-GAAP net income per share of $0.03 to $0.04.
The risks are familiar but real. Cloudflare carried an accumulated deficit of $687.9 million as of March 31, 2022 and expects to keep posting operating losses, with operating cash flow that may swing between positive and negative. Management flagged supply chain constraints for servers and other network hardware, which have delayed provisioning of co-location facilities and pushed hardware prices higher. The company also listed its history of net losses, limited operating history, the strain of managing rapid growth, and the chance that customers ask for payment concessions or exit contracts early. International markets produced 47% of revenue in the quarter, compared with 48% a year earlier, leaving results exposed to regional economic conditions and currency moves.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $212.2M | $193.6M | +9.6% | $138.1M | +53.7% |
| Gross profit | $165.1M | $151.1M | +9.3% | $106.0M | +55.8% |
| Gross margin | 77.8% | 78.0% | -0.2 pp | 76.8% | +1.1 pp |
| Research & development | $67.1M | $61.8M | +8.6% | $39.5M | +69.6% |
| Sales & marketing | $100.1M | $96.2M | +4.0% | $70.0M | +43.0% |
| General & administrative | $38.0M | $34.2M | +11.3% | $27.7M | +37.2% |
| Total operating expenses | $205.1M | $192.2M | +6.8% | $137.2M | +49.5% |
| Operating income (loss) | -$40.0M | -$41.1M | +2.5% | -$31.3M | -28.1% |
| Operating margin | -18.9% | -21.2% | +2.4 pp | -22.6% | +3.8 pp |
| Net income (loss) | -$41.4M | -$77.5M | +46.6% | -$40.0M | -3.5% |
| Net margin | -19.5% | -40.0% | +20.5 pp | -28.9% | +9.4 pp |
| Diluted EPS | -$0.13 | -$0.25 | +$0.12 | — | — |
| Net retention rate | 127.0% | 123.0% | +4.0 pp | 123.0% | +4.0 pp |
Risks
The filing states the sales cycle for new larger Enterprise customers has lengthened significantly beyond one quarter in recent quarters, and MD&A notes growth depends on adding large customers. Longer evaluations and negotiations could delay revenue recognition and increase quarter-to-quarter variability.
Growth strategy depends on attracting, expanding, and retaining large customers; paying customers with more than $100,000 annualized revenue rose to 1,537 as of March 31, 2022 from 945 as of March 31, 2021. Larger customers have more leverage, longer sales cycles, and early termination rights, so loss of one could significantly affect a quarter.
Cloudflare faces intense competition from on-premise vendors, point-cloud security, CDN and DNS vendors, and public cloud providers such as AWS, Google Cloud, Microsoft Azure, and Alibaba Cloud. Larger competitors can bundle products, offer zero or negative margins, or control platforms, which could pressure pricing and market share.
The company depends on co-founders and key technical, sales, and management personnel; competition for cybersecurity and cloud engineering talent is intense, and rising inflation or labor shortages may require higher compensation. Headcount grew from 1,931 employees as of March 31, 2021 to 2,751 as of March 31, 2022, straining retention and integration.
Net loss widened to $41.4 million for the three months ended March 31, 2022 from $40.0 million in the prior-year quarter, and operating cash flow decreased to negative $35.5 million from positive $23.5 million. Accumulated deficit was $687.9 million as of March 31, 2022, and continued losses may require additional capital.
The COVID-19 pandemic has caused slowdowns and shortages in supply chains for network hardware, including delays obtaining servers and other hardware and increases in hardware prices. This may make provisioning existing and new co-location facilities more difficult and expensive.
The ongoing COVID-19 pandemic and variants such as Omicron could decrease customer spending, lengthen sales cycles, cause customers to request concessions or termination rights, and negatively impact collections. MD&A says the pandemic impact remains uncertain and could worsen.
In May 2020 the company issued $575.0 million of 2025 Notes and in August 2021 it issued $1,293.8 million of 2026 Notes. Servicing this debt may require significant cash, and conversion or fundamental change repurchase obligations could require cash and dilute stockholders; during Q4 2021 holders converted approximately $16.6 million principal of 2025 Notes, satisfied in Q1 2022 with cash and stock.
Sales to U.S. and foreign government organizations are subject to FedRAMP, FARs, audits, False Claims Act risk, and budget cycles. Failure to obtain or maintain certifications or comply could restrict sales and lead to fines or debarment.
Activities of paying and free customers, such as The Daily Stormer and 8chan, have caused negative publicity and potential customers have declined to subscribe. Actions to ban customers also drew adverse feedback, so customer content can harm brand and demand.
Free customers are the vast majority of users and a substantial majority historically have not converted to paying customers, while the company bears incremental expenses and liabilities for free users. Adverse reputational issues may be disproportionately common among free customers, so costs could outweigh benefits.
Headcount grew from 1,931 to 2,751 employees as of March 31, 2022, and operations expanded globally including a Toronto office opened in 2021. Rapid growth strains management, systems, controls, and corporate culture; failure to manage could harm product quality and compliance.
SaaS KPIs
All quarters →Dollar-Based Net Retention Rate
Free Cash Flow Margin
Paying customers
Non-GAAP Operating Margin
Paying Customers (> $100,000 Annualized Revenue)
Free Cash Flow
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Cloudflare, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Sep 24, 2026.