Cloudflare, Inc. Class A common stock, par value $0.001 per share 2026 Q2 Earnings Call

Phil, please go ahead. Thank you for joining us today to discuss Cloudflare's financial results for the second quarter of 2026.

With me on the call, we have Matthew Prince, Co-Founder and CEO, Michelle Zatlyn, Co-Founder and President, 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 our customers, vendors, and partners, operations, and future financial performance, our anticipated product launches and the timing and market potential of those products, our anticipated future financial and operating performance, and our expectations regarding future macroeconomic conditions. These statements and other comments are not guarantees of future performance and are subject to risks and uncertainty, much of which is beyond our control.

Our actual results may differ significantly from those projected or suggested in any of our 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 SEC, as well as in today's earnings press release. Unless otherwise noted, all financial numbers we talk about today, other than revenue, will be on an adjusted non-GAAP basis. You may find a reconciliation of GAAP to non-GAAP financial measures that are included 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 will be participating in Stifel's Tech Executive Summit on August 24th and Goldman Sachs' Communacopia and Technology Conference on September 9th. With that, I'd like to turn the call over to Matthew.

Thank you, Phil. We had an extremely strong second quarter. We achieved revenue of $696.1 million, up 36% year-over-year. We now have 4,698 customers paying us more than $100,000 per year, a 27% increase year-over-year. We added a record number of these large customers, 986 net additions year-over-year, the most we have ever added over 12 months in our history. Our dollar-based net retention was 120%, up 2% quarter-over-quarter, and up 6% year-over-year. Our gross margin was 73.1%, improving sequentially for the first time in eight quarters. We delivered operating profit of $96.1 million, representing a non-GAAP operating margin of 13.8%, and we generated free cash flow of $56.4 million during the quarter, up 69% year-over-year. The strong momentum we've been seeing for some time in our business continued to build in the second quarter. Some highlights. Sales productivity increased year-over-year for the 10th consecutive quarter.

New customer bookings increased at the fastest rate in more than five years. New pipeline generation continues to accelerate, growing sequentially at its fastest pace in five years. We added more than 80,000 paying customers this quarter, driving 74% year-over-year paying customer growth. For some context, we added as many paying customers this quarter as we had in total when we went public in Q3 of 2019. We had nearly 1,000 large customers year-over-year. We also set a record for year-over-year net additions across every large customer tier, from $100,000 to over $5 million in annualized revenue. We ended the quarter with more than 7.4 million developers on our platform. That's nearly 2 million developers in Q2 alone, surpassing the 1.5 million we added during all of 2025.

It's clear that the agentic future needs a new kind of cloud. Developers are flocking to Cloudflare because our Workers developer platform gives them what they need to build that agentic future. We're the fastest, we're the most secure, and the most cost-effective place to build, deploy, and scale agents and the code they generate. At Cloudflare, what we continue to prove is that when you build a company the right way, you can grow and innovate while executing and profiting. We have the network. We have the platform. We have the culture of innovation. We have the business momentum. We have the disciplined execution. We're in the right moment in time, and we are keeping our foot firmly on the gas. This is the winning formula that we know works.

It's the same one that has propelled Cloudflare into the pole position to lead the next phase of the internet in the age of agentic AI. That's a good segue to discuss some of our wins in the quarter. A leading digital native media company expanded their relationship with Cloudflare, signing a five-year $31.8 million contract for application services and Zero Trust. To combat aggressive scraping and accelerate global performance, this customer chose Cloudflare for our best-in-breed edge capabilities and operational velocity. Despite competitive pressure to consolidate spend with their incumbent hyperscaler, this customer's long-term commitment is a proof point that when performance and security are non-negotiable, enterprises choose Cloudflare's unified platform. A Global 2000 European technology company expanded their relationship with Cloudflare, signing a three-year, $11 million contract for application services and Zero Trust with our developer platform seeded for future AI workloads.

After years of acquisitions resulted in a fragmented IT footprint, this customer chose Cloudflare to eliminate a stack of five incumbent legacy point solutions with up to seven targeted on their long-term roadmap in favor of our single unified platform as the foundation for their entire organization to build on. A large U.S. federal agency expanded their relationship with Cloudflare, signing a five-year, $7.7 million contract for Magic Transit and Network Firewall. After a legacy provider's outage locked over 100,000 users out of a mission-critical system for days, the agency urgently sought greater resilience and real-time control. Cloudflare slashed the customer's global rule change time from a one-week SLA down to just 30 seconds. They've also cut hardware costs by blocking unwanted traffic at the edge and have already shut down an entire data center.

As an existing application security customer already, this agency can now run their network and application security on one unified platform, cementing Cloudflare as the front door for all their internet traffic. A rapidly growing generative AI company signed a one-year, $7.5 million pool of funds contract for our developer platform. This customer's workloads pull an enormous volume of images and video. At that scale, a hyperscaler's egress tax would break the economics and create vendor lock-in, limiting their choice of inference tools and GPUs. Their engineering team evaluated multiple providers and chose Cloudflare as the only one that pairs a zero egress model with the reliability, scale, and comprehensive capabilities of an enterprise-grade platform. By structuring this as a pool of funds deal, the customer can solve their immediate storage needs while retaining the flexibility to expand across our entire developer platform.

A rapidly growing technology company in APAC expanded their relationship with Cloudflare, signing a one-year, $4 million pool of funds contract for our Workers developer platform. This deal accelerates a powerful partnership, building on an $8.7 million application services contract signed just last quarter. In only one year, this customer has standardized on Cloudflare end-to-end, from application security and Zero Trust to now our developer platform, directing every request through a Cloudflare Worker and using KV and Durable Objects as the routing and tenant configuration layer for their entire platform. They chose Cloudflare over their incumbent hyperscaler to avoid added latency, proving the flywheel of our unified offering. Once performance and security run on Cloudflare, our developer platform becomes the natural foundation for the next layer of any company's stack.

A Fortune 100 technology company expanded their relationship with Cloudflare, signing a three-year, $5.2 million contract for our full SASE portfolio. This customer is replacing legacy VPNs and virtual desktops to move their entire global workforce onto a single Zero Trust platform. In a competitive evaluation, Cloudflare beat two first-generation Zero Trust vendors, winning due to our faster network performance and our single pane of glass management that is so easy, the customer expects to run our services with roughly one-third the staff. This is exactly the type of security consolidation we see accelerating. Enterprises retiring fragmented point solutions in favor of Cloudflare's blazing fast, easy-to-use, and unified platform. A Fortune 1000 technology company expanded their relationship with Cloudflare, signing an 18-month, $15.9 million contract for application services and our Workers developer platform.

This customer serves hundreds of thousands of businesses, which requires an architecture that can act as their global front door for security and performance without adding latency. By standardizing on Cloudflare over legacy alternatives, they eliminated multi-product complexity and secured long-term operational predictability as they build an AI-first customer platform. A leading technology company expanded their relationship with Cloudflare, signing a one-year, $6 million pool of funds contract for our Workers developer platform. As this customer scales their new AI agent capabilities, they needed an elastic, secure container infrastructure that could scale with their rapid growth and ship new capabilities in weeks, not quarters. They chose to build on Cloudflare over legacy hyperscalers and point solution competitors because of our built-in threat intelligence that actively prevents compute abuse, rapid pace of innovation, and the ability to deliver FedRAMP compliance.