Summary
Cloudflare's fiscal 2024 first quarter showed no letup in demand. Revenue for the three months ended March 31, 2024 was $378.6 million, up 30.5% from $290.2 million in the prior-year quarter. Gross profit rose to $293.6 million from $219.7 million. Gross margin reached 77.5%, up 1.8 percentage points from 75.7%. Non-GAAP gross margin was 79.5%, compared with 77.8% a year earlier. The press release credited a record number of net-new customers spending more than $100,000, $500,000, and $1 million with Cloudflare on an annualized basis.
Profitability is still the sore spot. GAAP loss from operations was $54.6 million, wider than the $47.3 million loss a year earlier. Net loss was $35.5 million, narrower than the $38.1 million loss in the prior-year quarter. Diluted loss per share was $0.10, versus $0.12.
The non-GAAP view is far brighter. Non-GAAP income from operations was $42.4 million, or 11.2% of revenue, compared with $19.4 million a year earlier. Non-GAAP net income was $58.2 million, or $0.16 per diluted share, versus $27.2 million, or $0.08. The gap between the two sets of numbers comes mostly from stock-based compensation and related payroll taxes, amortization of acquired intangible assets, and a $15.0 million one-time compensation charge booked in sales and marketing. Management also pointed to a double-digit year-over-year improvement in sales productivity again this quarter.
Cash generation improved sharply. Operating cash flow was $73.6 million, up from $36.4 million a year earlier. Capital expenditures were $32.1 million, up from $17.5 million. Free cash flow, a non-GAAP measure that subtracts purchases of property and equipment and capitalized internal-use software, was $35.6 million, or 9% of revenue, compared with $13.9 million, or 5%, in the prior-year quarter.
Backlog and customer counts support the growth story. Remaining performance obligations were $1.34 billion, up 40.0% from $958.9 million. Current deferred revenue was $356.2 million, up 49.2%. Paying customers reached 197,138, an increase of 17% year over year. Customers with more than $100,000 in annualized revenue came to 2,878. The dollar-based net retention rate was 115%, compared with 117% a year earlier. Expansion inside the existing base is cooling even as new logos arrive.
Guidance for the second quarter of fiscal 2024 points to non-GAAP income from operations of $35.0 million to $36.0 million and non-GAAP net income per share of $0.14 on roughly 360 million shares. For the full fiscal year 2024, management guided to non-GAAP income from operations of $160.0 million to $164.0 million and non-GAAP net income per share of $0.60 to $0.61 on about 361 million shares. Revenue guidance was also offered for both periods.
Several risks hang over the outlook. Cloudflare carries a long history of net losses and expects to keep incurring them. Management said macroeconomic uncertainty could persist through the remainder of 2024, with the potential for longer sales cycles, slower conversion of pipeline into new sales, higher churn, and customer requests for concessions. The 10-Q also discloses a change in the estimated useful life of servers from four years to five years, which lowered depreciation expense by $6.2 million in the quarter and is expected to reduce depreciation expense by approximately $20 million for the full fiscal year 2024. That accounting change flatters reported costs, so the margin gains deserve scrutiny.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $378.6M | $362.5M | +4.4% | $290.2M | +30.5% |
| Gross profit | $293.6M | $279.2M | +5.1% | $219.7M | +33.6% |
| Gross margin | 77.5% | 77.0% | +0.5 pp | 75.7% | +1.8 pp |
| Research & development | $87.7M | $96.4M | -9.0% | $81.5M | +7.6% |
| Sales & marketing | $194.1M | $165.2M | +17.5% | $137.0M | +41.7% |
| General & administrative | $66.3M | $60.4M | +9.8% | $48.5M | +36.8% |
| Total operating expenses | $348.1M | $322.0M | +8.1% | $267.0M | +30.4% |
| Operating income (loss) | -$54.5M | -$42.8M | -27.4% | -$47.3M | -15.4% |
| Operating margin | -14.4% | -11.8% | -2.6 pp | -16.3% | +1.9 pp |
| Net income (loss) | -$35.5M | -$27.9M | -27.6% | -$38.1M | +6.7% |
| Net margin | -9.4% | -7.7% | -1.7 pp | -13.1% | +3.7 pp |
| Diluted EPS | -$0.10 | -$0.08 | -$0.02 | -$0.12 | +$0.02 |
| Net retention rate | 115.0% | 115.0% | ±0.0 pp | — | — |
Risks
MD&A states macroeconomic uncertainty could persist through the remainder of 2024 and that the company periodically has experienced lengthening average sales cycles, slowdowns in pipeline conversion, higher paying-customer churn, and longer payment timing, which may have contributed to a slowdown in revenue growth. These trends could recur and pressure future revenue growth.
The filing says the average sales cycle for new and existing large customers has periodically lengthened since the first half of 2022 and could continue if macroeconomic conditions deteriorate. This creates timing risk for revenue recognition and greater quarter-to-quarter variability as the mix shifts toward large customers.
The filing reports dollar-based net retention rate was 115% for the three months ended March 31, 2024, and 117% for the three months ended March 31, 2023. It also warns that pay-as-you-go customers can terminate or downgrade at will and that the company periodically has experienced higher churn in its paying customer base.
Sales and marketing expenses increased 42% for the three months ended March 31, 2024, driven in part by a $15.0 million one-time compensation charge and an 8% headcount increase in the sales and marketing organization. The risk factors also note recent senior revenue leadership changes, including the departure of the former President of Revenue and the hiring of a new President of Revenue in February 2024.
The filing expects competition to increase as new products and technologies, including those leveraging artificial intelligence and machine learning, are introduced. Larger competitors such as public cloud providers and global telecommunications partners could bundle or underprice competing security, performance, and reliability solutions.
The filing says the vast majority of customers do not pay and a substantial majority of free customers historically have not converted to paying customers, while the company still bears incremental expenses for their free use of the network. If expected benefits do not materialize, these costs could outweigh the benefits.
As of March 31, 2024, $1,293.8 million aggregate principal amount of the 2026 Notes remained outstanding. The filing warns the company may not have sufficient cash flow to service or repurchase the notes upon a fundamental change or conversion, and counterparty risk exists on the capped call transactions.
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)
Summary, forecast, risks and KPIs are extracted from Cloudflare, Inc.'s SEC filings for Q1 FY2024 (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 Oct 2, 2026.