Form type: 10-Q
Period end: 2026-03-31
| Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | |
|---|---|---|
| Revenue | 639,755,000 | 479,087,000 |
| Total Revenue | ||
| Cost of revenue | 184,158,000 | 115,576,000 |
| Total COGS | ||
| Gross Profit | ||
| General and administrative | 95,019,000 | 87,658,000 |
| Income tax expense (benefit) | 1,526,000 | 1,695,000 |
| Other income (expense), net | -40,593,000 | -16,488,000 |
| Research and development | 150,972,000 | 115,089,000 |
| Selling and marketing | 271,600,000 | 214,011,000 |
| Total Expenses | ||
| Net Income | - | - |
| Basic earnings per share | - |
| March 31, 2026 | December 31, 2025 | |
|---|---|---|
| Assets | ||
| Accounts receivable | 379,586,000 | 382,488,000 |
| Cash and cash equivalents | 932,226,000 | 943,536,000 |
| Deferred contract costs | 225,481,000 | 219,499,000 |
| Goodwill and intangibles | 233,491,000 | 226,563,000 |
| Intangible assets, net | 38,310,000 | 41,799,000 |
| Operating lease right-of-use assets | 244,167,000 | 237,646,000 |
| Other assets (derived) | 24,162,000 | 23,531,000 |
| Other noncurrent assets | 74,558,000 | 45,764,000 |
| Prepaid expenses and other current assets | 137,075,000 | 128,203,000 |
| Property, plant and equipment | 631,082,000 | 618,691,000 |
| Restricted cash and equivalents | 12,187,000 | 10,821,000 |
| Short-term investments | 3,231,652,000 | 3,157,715,000 |
| Total Assets | ||
| Liabilities | ||
| Accounts payable | 58,843,000 | 84,115,000 |
| Accrued compensation | 103,395,000 | 111,005,000 |
| Debt, current | 1,292,271,000 | 1,291,281,000 |
| Deferred revenue | 755,097,000 | 684,207,000 |
| Deferred revenue, noncurrent | 39,874,000 | 41,088,000 |
| Long-term debt | 1,975,556,000 | 1,974,120,000 |
| Operating lease liabilities, current | 74,603,000 | 70,901,000 |
| Operating lease liabilities, noncurrent | 182,106,000 | 182,025,000 |
| Other liabilities (derived) | 126,462,000 | 109,054,000 |
| Other noncurrent liabilities | 29,062,000 | 29,337,000 |
| Total Liabilities | ||
| Equity | ||
| Stockholders equity | 1,526,708,000 | 1,459,123,000 |
| Total Equity | ||
| Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | |
|---|---|---|
| Operating activities | ||
| Net income | -22,927,000 | -38,454,000 |
| Depreciation and amortization | 57,814,000 | 42,207,000 |
| Stock-based compensation | 114,241,000 | 95,535,000 |
| Changes in operating assets and liabilities, net | 9,202,000 | 46,496,000 |
| Net cash from operating activities | ||
| Investing activities | ||
| Investing activities, net | -158,806,000 | -92,438,000 |
| Net cash from investing activities | - | - |
| Financing activities | ||
| Financing activities, net | -9,468,000 | 3,522,000 |
| Net cash from financing activities | - | |
| Net change in cash | - | |
| Cash at beginning of period | 154,214,000 | |
| Cash at end of period | 211,082,000 | |
| Amount | |
|---|---|
| Balance at beginning of period | 1,459,123,000 |
| Net income | -22,927,000 |
| Other equity movements | 90,512,000 |
| Balance at end of period | 1,526,708,000 |
Cloudflare, Inc. is a public reporting company classified under Services-Prepackaged Software, and the accompanying condensed financial statements have been prepared as of and for the period ended March 31, 2026. The interim condensed financial statements are unaudited and have been prepared from the Company's connected books and records, and the results of operations for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. In the opinion of management, the statements include all adjustments necessary for a fair statement of the Company's financial position and results of operations for the periods presented. The Company's business classification is Services-Prepackaged Software, and its principal products, services, markets, and strategy are described in its prior SEC filings.
Revenue for the period was $639.8 million, an increase of 33.5% from $479.1 million in the prior-year period. Cost of revenue was $184.2 million, up 59.3% from $115.6 million. Deferred revenue was $755.1 million, an increase of 48.6% from $508.1 million, and noncurrent deferred revenue was $39.9 million, up 44.7% from $27.6 million. Deferred contract costs were $225.5 million, compared to $174.5 million in the prior period, an increase of 29.2%. The Company recorded a net loss of $22.9 million for the period, or basic net loss per share of $0.07, based on weighted-average basic shares outstanding of 352,625,000.
As of the balance sheet date, current debt was $1,292,271,000 and long-term debt was $1,975,556,000. Long-term debt increased 53.3% to $1,975.6 million from $1,288.3 million, and the Company had current debt of $1,292.3 million compared to none in the prior period. Total liabilities were $4,637.3 million as of the period end. The Company also has operating leases, with operating lease right-of-use assets of $244.2 million, up 37.1% from $178.1 million, current operating lease liabilities of $74.6 million, up 40.6% from $53.1 million, and noncurrent operating lease liabilities of $182.1 million, up 35.4% from $134.5 million. Principal sources of liquidity are cash and cash equivalents, which increased 355.9% to $932.2 million from $204.5 million, and short-term investments, which increased 88.9% to $3,231.7 million from $1,710.4 million, together with restricted cash and equivalents of $12.2 million, up from $6.6 million.
Total stockholders' equity was $1,526.7 million as of the period end, an increase of 7.1% from $1,425.9 million in the prior period. [COMPLETE: description of changes in equity components, including common stock activity, additional paid-in capital, and accumulated deficit rollforward.] The Company is involved in legal proceedings arising in the ordinary course of business from time to time, and management does not currently believe any pending matter is material to the financial statements.
| Current | Prior | |
|---|---|---|
| Debt, current | 1,292,271,000 | 1,291,281,000 |
| Long-term debt | 1,975,556,000 | 1,974,120,000 |
| Operating lease liabilities, current | 74,603,000 | 70,901,000 |
| Operating lease liabilities, noncurrent | 182,106,000 | 182,025,000 |
| Total debt | 3,524,536,000 | 3,518,327,000 |
| Current | Prior | |
|---|---|---|
| Property, plant and equipment | 631,082,000 | 618,691,000 |
| Total property and equipment | 631,082,000 | 618,691,000 |
| Current | Prior | |
|---|---|---|
| Stockholders equity | 1,526,708,000 | 1,459,123,000 |
| Total stockholders' equity | 1,526,708,000 | 1,459,123,000 |
Cloudflare, Inc. is a public reporting company classified under Services-Prepackaged Software, and the following discussion should be read together with our condensed consolidated financial statements and related notes. Revenue for the three months ended March 31, 2026 was $639.8 million, an increase of 33.5% from $479.1 million in the comparable prior-year period, driven by [COMPLETE: description of revenue drivers, such as customer additions and expansion within the existing customer base]. Growth in revenue was accompanied by an increase in deferred revenue to $755.1 million from $508.1 million, or 48.6%, and noncurrent deferred revenue to $39.9 million from $27.6 million, or 44.7%. Our competitors provide both on-premises, appliance-based solutions and cloud-based services with functionality similar to our network and products, and we expect competition to increase as other established and emerging companies and start-ups enter the markets for security, performance, and reliability solutions, in particular with respect to cloud-based solutions and technologies that leverage AI.
Cost of revenue increased 59.3% to $184.2 million from $115.6 million, primarily attributable to [COMPLETE: drivers of cost of revenue growth, such as network expansion and infrastructure costs]. Research and development expense increased 31.2% to $151.0 million from $115.1 million, selling and marketing expense increased 26.9% to $271.6 million from $214.0 million, and general and administrative expense increased 8.4% to $95.0 million from $87.7 million, reflecting [COMPLETE: drivers of operating expense growth, such as headcount and personnel-related costs]. Accrued compensation increased 35.2% to $103.4 million from $76.5 million. Other income, net was $40.6 million compared to $16.5 million in the prior-year period, an increase of 146.2%, and income tax expense decreased 10.0% to $1.5 million from $1.7 million. For the three months ended March 31, 2026, we recorded a net loss of $22.9 million, or $(0.07) per basic share, based on weighted-average basic shares outstanding of 352,625,000. We expect to incorporate AI tools and automation to increase productivity and maintain operational efficiency, and our ability to successfully operate our business after our announced workforce reduction will depend in part on our use of AI and other automation tools and the effectiveness and reliability of those tools. We may not realize the expected operating efficiencies, cost savings, or other expected benefits of these changes within the expected timeframe, if at all, and these technologies may be more costly than we currently anticipate, may not perform as expected, or may introduce operational or cybersecurity risks.
As of March 31, 2026, we had cash and cash equivalents of $932.2 million, compared to $204.5 million in the prior-year period, an increase of 355.9%, together with restricted cash and equivalents of $12.2 million and short-term investments of $3,231.7 million, up 88.9% from $1,710.4 million. Our capital structure at period end included current debt of $1,292.3 million, compared to none in the prior-year period, long-term debt of $1,975.6 million, up 53.3% from $1,288.3 million, and stockholders' equity of $1,526.7 million, an increase of 7.1% from $1,425.9 million. Working capital items also reflected accounts receivable of $379.6 million, up 32.6% from $286.3 million, accounts payable of $58.8 million, down 37.3% from $93.8 million, and prepaid expenses and other current assets of $137.1 million, down 66.0% from $402.7 million. We continued to invest in our business, with property, plant and equipment of $631.1 million, up 22.8% from $513.9 million, and deferred contract costs of $225.5 million, up 29.2% from $174.5 million. Based on our current operating plan, management believes that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our operations and capital requirements for at least the next twelve months. Our primary market risk exposure is interest rate risk on cash, cash equivalents, and short-term investments, and we do not have material foreign currency or commodity price exposure. We are involved in legal proceedings arising in the ordinary course of business from time to time, and management does not currently believe any pending matter is material to the financial statements.
Our primary exposure to market risk is interest rate risk related to our holdings of cash, cash equivalents, and short-term investments. Our primary market risk exposure is interest rate risk on cash, cash equivalents, and short-term investments. As of March 31, 2026, we held cash and cash equivalents of $932.2 million, compared with $204.5 million at the end of the prior period, and short-term investments of $3,231.7 million, compared with $1,710.4 million at the end of the prior period. We also held restricted cash and equivalents of $12.2 million, compared with $6.6 million at the end of the prior period. Because these balances represent a substantial portion of our assets, changes in market interest rates affect the interest income we earn on our portfolio and the fair value of our investments. For the period, other income, net was $40.6 million, compared with other income, net of $16.5 million in the prior period.
Interest rate movements may also affect our outstanding indebtedness, which consisted of current debt of $1,292.3 million and long-term debt of $1,975.6 million as of the end of the period. [COMPLETE: description of the interest rate terms of outstanding debt and whether such debt bears fixed or variable rates.] [COMPLETE: quantified sensitivity analysis showing the estimated impact of a hypothetical change in interest rates on the investment portfolio and interest income.] We do not enter into investments for trading or speculative purposes, and a hypothetical change in interest rates would not be expected to have a material effect on our ability to meet our operating and capital needs. [COMPLETE: confirmation of investment policy and objectives supporting the foregoing statement.]
We do not have material foreign currency or commodity price exposure. Accordingly, we do not believe that changes in foreign exchange rates or commodity prices would have a material effect on our financial condition or results of operations, although our exposures may change over time as our business evolves. Results for the interim period are not necessarily indicative of the results to be expected for the full fiscal year.
As of March 31, 2026, Cloudflare, Inc. carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, management concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report. [COMPLETE: Management's conclusion language must be reviewed and adopted by management before filing.]
There were no changes in our internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that their objectives are met, and management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud.
Cloudflare, Inc. is from time to time involved in legal proceedings arising in the ordinary course of business. Management does not currently believe that any pending matter is material to the Company's financial statements. The Company evaluates developments in its legal matters on an ongoing basis, and its assessment of these matters may change as new information becomes available.
In addition, while the Company does not receive any revenue from its free customers, it bears incremental expenses and other liabilities and contingent liabilities, including litigation, as a result of its free customers' continuing free use of its network and certain of its products. Adverse political, business, and reputational consequences associated with Internet properties the Company serves that are perceived as hostile, offensive, or inappropriate may also be disproportionately common among its free customers. The outcomes of any such matters are inherently uncertain, and an unfavorable resolution of one or more of these matters could have an adverse effect on the Company's business, financial condition, or results of operations in a particular period.
We have incurred net losses and may not achieve or sustain profitability in the future. For the period ended March 31, 2026, we generated revenue of $639,755,000 and incurred a net loss of $22,927,000. Our operating expenses have continued to grow, with cost of revenue increasing 59.3% to $184,158,000, research and development expenses increasing 31.2% to $150,972,000, and selling and marketing expenses increasing 26.9% to $271,600,000 compared to the prior period. If our revenue growth does not keep pace with these expenses, our losses could increase and our business and financial condition could be harmed.
Our substantial indebtedness and market risk exposures could adversely affect our financial condition. As of the end of the period, we had current debt of $1,292,271,000, compared to no current debt in the prior period, and long-term debt of $1,975,556,000, an increase of 53.3% from the prior period; our total liabilities of $4,637,269,000 substantially exceeded our total stockholders' equity of $1,526,708,000. This level of indebtedness could limit our operational flexibility and require us to dedicate significant resources to servicing our obligations. In addition, our primary market risk exposure is interest rate risk on our cash, cash equivalents, and short-term investments, and our short-term investments of $3,231,652,000, which increased 88.9% from the prior period, could be adversely affected by changes in prevailing interest rates.
Our results of operations may also be adversely affected by changes in the timing and predictability of our sales. Historically, the implementation period to start using, or expanding the use of, our products has been short, with most customers under our pay-as-you-go plans implementing usage of our products within a short period of time and our sales cycle for customers under our Enterprise plan lasted less than one quarter. Since the first half of 2022, however, we have experienced occasional lengthening of our average sales cycle for our new and existing large customers, and the lengthening of our sales cycle to our large customers could reoccur in the future. As our sales force continues to target an increasing number of large customers for new and expanded product sales, these larger enterprises often undertake a more significant evaluation and negotiation processes than we have experienced in the past, which could further lengthen our sales cycle materially. In addition, our sales efforts typically involve educating our prospective large customers about the uses, benefits, and value proposition of our network and products.
We are also involved in legal proceedings arising in the ordinary course of business from time to time, and although management does not currently believe any pending matter is material to the financial statements, an adverse outcome in any such matter could harm our business, results of operations, or financial condition. The occurrence of any of the foregoing risks, individually or in combination, could materially and adversely affect our business, results of operations, and financial condition.
The following disclosure is provided pursuant to Item 408(a) of Regulation S-K regarding Rule 10b5-1 trading arrangements of the Company's directors and officers for the quarterly period ended March 31, 2026. [COMPLETE: Rule 10b5-1 trading arrangement adoptions and terminations from the D&O questionnaires]