Cloudflare Inc

Previous wording

◦International reach. Our global network, with a presence in more than 330 cities and over 120 countries worldwide, has helped to foster our strong international growth. International markets represented 49% and 47% of our revenue in the three months ended June 30, 2024 and 2023, respectively, and we intend to continue to invest in our international growth as a strategy to expand our customer base around the world.

Current wording

◦International reach. Our global network, with a presence in more than 330 cities and over 120 countries worldwide, has helped to foster our strong international growth. International markets represented 50% and 48% of our revenue in the three months ended September 30, 2024 and 2023, respectively, and we intend to continue to invest in our international growth as a strategy to expand our customer base around the world.

Previous wording

We are closely monitoring macroeconomic developments and global events, such as the Hamas-Israel and the Russia-Ukraine conflicts and the potential worsening or expansion of those conflicts and other areas of geopolitical tension around the world, and other geopolitical events such as elections and other governmental changes, and, in each case, how they may adversely impact our and our customers’ businesses. Weak economic conditions or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs, trade agreements or governmental fiscal, monetary and tax policies, among others, also could adversely impact our and our customers’ business, financial condition and operating results. In addition, general tightening in the credit market, lower levels of liquidity, increases in rates of default and bankruptcy, and significant volatility in equity and fixed-income markets could all negatively impact our customers’ purchasing decisions. Potentially as a result of these various macroeconomic impacts on our customers, we periodically have experienced lengthening of the average sales cycle for certain types of customers and sales (including sales to new customers and expansion sales to existing customers), slowdowns in our pipeline of potential new customers and in the rate of converting sales pipeline opportunities into new sales, increases in average days sales outstanding, higher levels of churn in our paying customer base (which is when any of our paying customers cease to be a paying customer for any reason, including any pay-as-you-go customer converting to a free subscription plan), and lengthening of the timing of payment from some of our customers, all of which may have contributed to a slowdown in our revenue growth over that period (including with respect to new customers). We believe macroeconomic uncertainty could persist through the remainder of 2024. As a result, we expect that some or all of the negative trends described in this paragraph may emerge or recur during future quarters.

Current wording

We are closely monitoring macroeconomic developments and global events, such as the conflicts in the Middle East and Ukraine and the potential worsening or expansion of those conflicts and other areas of geopolitical tension around the world, and other geopolitical events such as elections and other governmental changes, and, in each case, how they may adversely impact our and our customers’ businesses. Weak economic conditions or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs, trade agreements or governmental fiscal, monetary and tax policies, among others, also could adversely impact our and our customers’ business, financial condition and operating results. In addition, general tightening in the credit market, lower levels of liquidity, increases in rates of default and bankruptcy, and significant volatility in equity and fixed-income markets could all negatively impact our customers’ purchasing decisions. Potentially as a result of these various macroeconomic impacts on our customers, we periodically have experienced lengthening of the average sales cycle for certain types of customers and sales (including sales to new customers and expansion sales to existing customers), slowdowns in our pipeline of potential new customers and in the rate of converting sales pipeline opportunities into new sales, increases in average days sales outstanding, higher levels of churn in our paying customer base (which is when any of our paying customers cease to be a paying customer for any reason, including any pay-as-you-go customer converting to a free subscription plan), and lengthening of the timing of payment from some of our customers, all of which may have contributed to a slowdown in our revenue growth over that period (including with respect to new customers). We believe macroeconomic uncertainty could persist through the remainder of 2024. As a result, we expect that some or all of the negative trends described in this paragraph may emerge or recur during future quarters.

Previous wording

Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin

Current wording

Non-GAAP Income from Operations and Non-GAAP Operating Margin

Previous wording

We define non-GAAP income (loss) from operations and non-GAAP operating margin as U.S. GAAP loss from operations and U.S. GAAP operating margin, respectively, excluding stock-based compensation expense and its related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. We exclude employer payroll tax expenses related to stock-based compensation, which is a cash expense, from certain of our non-GAAP financial measures, because such expenses are dependent upon the price of our Class A common stock and other factors that are beyond our control and do not correlate to the operation of our business. We exclude amortization of acquired intangible assets, which is a non-cash expense, related to business combinations from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. We exclude acquisition-related and other expenses from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. Acquisition-related and other expenses can be cash or non-cash expenses incurred in connection with the acquisition, and include third-party transaction costs and compensation expense for key acquired personnel. We also excluded the one-time cash compensation charge incurred during the three months ended March 31, 2024 from certain of our non-GAAP financial measures because it was not attributable to services provided and did not correlate to the ongoing operation of our business.

Current wording

We define non-GAAP income from operations and non-GAAP operating margin as U.S. GAAP loss from operations and U.S. GAAP operating margin, respectively, excluding stock-based compensation expense and its related employer payroll taxes, amortization of acquired intangible assets, acquisition-related and other expenses. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. We exclude employer payroll tax expenses related to stock-based compensation, which is a cash expense, from certain of our non-GAAP financial measures, because such expenses are dependent upon the price of our Class A common stock and other factors that are beyond our control and do not correlate to the operation of our business. We exclude amortization of acquired intangible assets, which is a non-cash expense, related to business combinations from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. We exclude acquisition-related and other expenses from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business. Acquisition-related and other expenses can be cash or non-cash expenses incurred in connection with the acquisition, and include third-party transaction costs and compensation expense for key acquired personnel. We also excluded the one-time cash compensation charge incurred during the three months ended March 31, 2024 from certain of our non-GAAP financial measures because it was not attributable to services provided and did not correlate to the ongoing operation of our business.

Previous wording

We believe our ability to grow the number of paying customers on our network provides a key indicator of growth of our business and our future business opportunities. We define a paying customer at the end of the quarter as a person or entity who has generated revenue and has an active contract with us or one of our partners during such quarter, excluding (i) customers that were not acquired through ordinary sales channels, (ii) customers using only our registrar product, and (iii) customers using our consumer applications, such as 1.1.1.1 and WARP, which agreements and customers together represent an insignificant amount of our revenue. An entity is defined as a company, a government institution, a non-profit organization, or a distinct business unit of a large company. An active contract is defined as a customer relationship for which we have provided services during the quarter. The number of paying customers was 210,166 and 174,129 as of June 30, 2024 and June 30, 2023, respectively.

Current wording

We believe our ability to grow the number of paying customers on our network provides a key indicator of growth of our business and our future business opportunities. We define a paying customer at the end of the quarter as a person or entity who has generated revenue and has an active contract with us or one of our partners during such quarter, excluding (i) customers that were not acquired through ordinary sales channels, (ii) customers using only our registrar product, and (iii) customers using our consumer applications, such as 1.1.1.1 and WARP, which agreements and customers together represent an insignificant amount of our revenue. An entity is defined as a company, a government institution, a non-profit organization, or a distinct business unit of a large company. An active contract is defined as a customer relationship for which we have provided services during the quarter. The number of paying customers was 221,540 and 182,027 as of September 30, 2024 and September 30, 2023, respectively.

Previous wording

While we continue to grow customers across all sizes, over time, our large customers have contributed an increasing share of our revenue. We view the number of customers with Annualized Revenue greater than $100,000 as indicative of our penetration within large enterprise accounts. To measure Annualized Revenue at the end of a quarter, we take the sum of revenue for each customer in the quarter and multiply that amount by four. For example, if we signed a new customer that generated $1,800 of revenue in a quarter, that customer would account for $7,200 of Annualized Revenue for that year. Our Annualized Revenue calculation excludes (i) agreements that were not entered into through ordinary sales channels, (ii) revenue generated from customers using only our registrar product, and (iii) customers using our consumer applications, such as 1.1.1.1 and WARP, which agreements and customers together represent an insignificant amount of our revenue. Our Annualized Revenue metric also includes any usage charges by a customer during a period, which represents a small portion of our total revenue and may not be recurring. As a result, Annualized Revenue may be higher than actual revenue over the course of the year. The number of paying customers with Annualized Revenue greater than $100,000 was 3,046 and 2,352 as of June 30, 2024 and June 30, 2023, respectively.

Current wording

While we continue to grow customers across all sizes, over time, our large customers have contributed an increasing share of our revenue. We view the number of customers with Annualized Revenue greater than $100,000 as indicative of our penetration within large enterprise accounts. To measure Annualized Revenue at the end of a quarter, we take the sum of revenue for each customer in the quarter and multiply that amount by four. For example, if we signed a new customer that generated $1,800 of revenue in a quarter, that customer would account for $7,200 of Annualized Revenue for that year. Our Annualized Revenue calculation excludes (i) agreements that were not entered into through ordinary sales channels, (ii) revenue generated from customers using only our registrar product, and (iii) customers using our consumer applications, such as 1.1.1.1 and WARP, which agreements and customers together represent an insignificant amount of our revenue. Our Annualized Revenue metric also includes any usage charges by a customer during a period, which represents a small portion of our total revenue and may not be recurring. As a result, Annualized Revenue may be higher than actual revenue over the course of the year. The number of paying customers with Annualized Revenue greater than $100,000 was 3,265 and 2,558 as of September 30, 2024 and September 30, 2023, respectively.

Previous wording

Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue generated from our existing paying customers. We believe that we will achieve these objectives by continuing to focus on customer loyalty and adding additional products and functionality to our network. Our dollar-based net retention rate is a key way we measure our performance in these areas. Dollar-based net retention measures our ability to retain and expand recurring revenue from existing customers. To calculate dollar-based net retention for a quarter, we compare the Annualized Revenue from paying customers four quarters prior to the Annualized Revenue from the same set of customers in the most recent quarter. Our dollar-based net retention includes expansion and is net of contraction and attrition, but excludes Annualized Revenue from new customers in the current period. Our dollar-based net retention excludes the benefit of free customers that upgrade to a paid subscription between the prior and current periods, even though this is an important source of incremental growth. We believe this provides a more meaningful representation of our ability to add incremental business from existing paying customers as they renew and expand their contracts. Our dollar-based net retention rates for the three months ended June 30, 2024 and June 30, 2023 were 112% and 115%, respectively.

Current wording

Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue generated from our existing paying customers. We believe that we will achieve these objectives by continuing to focus on customer loyalty and adding additional products and functionality to our network. Our dollar-based net retention rate is a key way we measure our performance in these areas. Dollar-based net retention measures our ability to retain and expand recurring revenue from existing customers. To calculate dollar-based net retention for a quarter, we compare the Annualized Revenue from paying customers four quarters prior to the Annualized Revenue from the same set of customers in the most recent quarter. Our dollar-based net retention includes expansion and is net of contraction and attrition, but excludes Annualized Revenue from new customers in the current period. Our dollar-based net retention excludes the benefit of free customers that upgrade to a paid subscription between the prior and current periods, even though this is an important source of incremental growth. We believe this provides a more meaningful representation of our ability to add incremental business from existing paying customers as they renew and expand their contracts. Our dollar-based net retention rates for the three months ended September 30, 2024 and September 30, 2023 were 110% and 116%, respectively.

Previous wording

Loss on extinguishment of debt consists of loss recognized from open market transactions to repurchase approximately$123.0 million in aggregate principal amount of the 2025 Notes for an aggregate of$172.7 millionin cash (including accrued interest) (the 2025 Notes Repurchases). Refer to Note 7 to the condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further detail.

Current wording

Loss on extinguishment of debt consists of loss recognized from open market transactions to repurchase approximately $123.0 million in aggregate principal amount of the 2025 Notes for an aggregate of $172.7 million in cash (including accrued interest) (the 2025 Notes Repurchases). Refer to Note 7 to the condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further detail.

Previous wording

Comparison of Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Revenue increased by $92.5 million and $180.9 million, or 30% and 30%, respectively, for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023. The increase in revenue was primarily due to the addition of new paying customers, as our number of paying customers increased by 21% as of June 30, 2024 compared to the prior period ended June 30, 2023, as well as the expansion within our existing paying customers, which was reflected by our dollar-based net retention rate of 112% for the three months ended June 30, 2024.

Current wording

Revenue increased by $94.5 million and $275.4 million, or 28% and 29%, respectively, for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023. The increase in revenue was primarily due to the addition of new paying customers, as our number of paying customers increased by 22% as of September 30, 2024 compared to the prior period ended September 30, 2023, as well as the expansion within our existing paying customers, which was reflected by our dollar-based net retention rate of 110% for the three months ended September 30, 2024.

Previous wording

Cost of revenue increased by $28.4 million, or 19%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase in the cost of revenue was primarily due to an increase of $10.1 million in employee-related costs, an increase of $8.1 million of third-party technology services costs, and an increase of $7.4 million in expenses related to operating in co-location facilities and network and bandwidth costs for operating our global network for our expanded customer base, as well as increased capacity to support our growth.

Current wording

Cost of revenue increased by $17.9 million, or 23%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase in the cost of revenue was primarily due to an increase of $6.6 million in expenses related to operating in co-location facilities and network and bandwidth costs for operating our global network for our expanded customer base, as well as increased capacity to support our growth, an increase of $4.5 million of third-party technology services costs, and an increase of $2.9 million in employee-related costs. This increase was partially offset by $1.8 million of decreased depreciation expense. The decrease in depreciation expense was mainly driven by the $3.5 million decreasing impact of the change in useful life of servers associated with cost of revenue from 4 years to 5 years, partly offset by an increase related to purchases of equipment located in co-location facilities.

Previous wording

Cost of revenue increased by $13.8 million, or 18%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase in the cost of revenue was primarily due to an increase of $4.9 million in employee-related costs, and an increase of $4.3 million in expenses related to operating in co-location facilities and network and bandwidth costs for operating our global network for our expanded customer base, as well as increased capacity to support our growth.

Current wording

Cost of revenue increased by $46.3 million, or 21%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in the cost of revenue was primarily due to an increase of $14.0 million in expenses related to operating in co-location facilities and network and bandwidth costs for operating our global network for our expanded customer base, as well as increased capacity to support our growth, an increase of $19.0 million of third-party technology services costs and registry expenses, an increase of $13.1 million in employee-related costs, and an increase of $1.8 million in consulting expenses. This increase was partially offset by $7.2 million of decreased depreciation expense. The decrease in depreciation expense was mainly driven by the $11.6 million decreasing impact of the change in useful life of servers associated with cost of revenue from 4 years to 5 years, partly offset by an increase related to purchases of equipment located in co-location facilities.

Previous wording

Gross margin did not significantly fluctuate during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Current wording

Gross margin did not significantly fluctuate during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Previous wording

Sales and marketing expenses increased by $27.8 million, or 19%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by $13.7 million in increased employee-related costs due to a 6% increase in headcount in our sales and marketing organization, including an increase of $4.9 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $8.3 million in expenses for marketing programs due to acquisitions, investments in brand awareness advertising, third-party industry events, and digital performance marketing.

Current wording

Sales and marketing expenses increased by $35.0 million, or 23%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by $20.0 million in increased employee-related costs due to a 11% increase in headcount in our sales and marketing organization, including an increase of $4.3 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $6.5 million in expenses for marketing programs due to acquisitions, investments in brand awareness advertising, third-party industry events, and digital performance marketing, and an increase of $3.0 million in co-location and bandwidth expenses for free customers.

Previous wording

Sales and marketing expenses increased by $84.9 million, or 30%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily driven by $52.0 million in increased employee-related costs due to a $15.0 million one-time compensation charge and a 6% increase in headcount in our sales and marketing organization, including an increase of $11.5 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $13.9 million in expenses for marketing programs due to acquisitions, investments in brand awareness advertising, third-party industry events, and digital performance marketing, an increase of $8.2 million in co-location and bandwidth expenses for free customers, an increase of $4.6 million in travel-related expenses, and an increase of $2.7 million in subscription expenses.

Current wording

Sales and marketing expenses increased by $119.9 million, or 28%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by $72.0 million in increased employee-related costs due to a $15.0 million one-time compensation charge and a 11% increase in headcount in our sales and marketing organization, including an increase of $15.8 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $20.4 million in expenses for marketing programs due to acquisitions, investments in brand awareness advertising, third-party industry events, and digital performance marketing, an increase of $11.2 million in co-location and bandwidth expenses for free customers, an increase of $6.0 million in travel-related expenses, an increase of $4.2 million in consulting expenses, and an increase of $3.6 million in subscription expenses.

Previous wording

Research and development expenses increased by $12.9 million, or 14%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by $10.7 million in increased employee-related costs due to a 24% increase in headcount in our research and development organization.

Current wording

Research and development expenses increased by $20.3 million, or 22%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by $21.5 million in increased employee-related costs due to a 29% increase in headcount in our research and development organization, including an increase of $5.7 million in stock-based compensation expense.

Previous wording

Research and development expenses increased by $19.1 million, or 11%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily driven by $17.2 million in increased employee-related costs due to a 24% increase in headcount in our research and development organization.

Current wording

Research and development expenses increased by $39.4 million, or 15%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by $38.6 million in increased employee-related costs due to a 29% increase in headcount in our research and development organization, including an increase of $6.0 million in stock-based compensation expense.

Previous wording

General and administrative expenses increased by $16.5 million, or 31%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by $14.7 million in increased employee-related costs due to an 17% increase in headcount in our general and administrative organization, including an increase of $11.5 million in stock-based compensation expense.

Current wording

General and administrative expenses increased by $12.8 million, or 23%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by $11.2 million in increased employee-related costs due to an 19% increase in headcount in our general and administrative organization, including an increase of $5.2 million in stock-based compensation expense.

Previous wording

General and administrative expenses increased by $34.3 million, or 34%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily driven by $26.3 million in increased employee-related costs due to an 17% increase in headcount in our general and administrative organization, including an increase of $18.3 million in stock-based compensation expense, and an increase of $3.8 million in professional fees for third-party accounting, consulting, and legal services.

Current wording

General and administrative expenses increased by $47.2 million, or 30%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by $37.5 million in increased employee-related costs due to an 19% increase in headcount in our general and administrative organization, including an increase of $23.5 million in stock-based compensation expense, and an increase of $3.8 million in professional fees for third-party accounting, consulting, and legal services.

Previous wording

Interest income increased by $5.2 million and $12.9 million, or 31% and 43%, respectively, for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. The increase was primarily driven by an increase in interest rates and investment balance.

Current wording

Interest income increased by $4.5 million and $17.5 million, or 25% and 36%, respectively, for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. The increase was primarily driven by an increase in interest rates and investment balance.

Previous wording

Interest expense did not significantly fluctuate during the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023.

Current wording

Interest expense did not significantly fluctuate during the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023.

Previous wording

Loss on extinguishment of debt decreased by $50.3 million for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023. The decrease was driven by the loss on extinguishment of debt we recognized in connection with the 2025 Notes Repurchases. Refer to Note 7 to the condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further detail.

Current wording

Loss on extinguishment of debt decreased by $50.3 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease was driven by the loss on extinguishment of debt we recognized in connection with the 2025 Notes Repurchases. Refer to Note 7 to the condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further detail.

Previous wording

Other income (expense), net did not significantly fluctuate for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023.

Current wording

Other income (expense), net did not significantly fluctuate for the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023.

Previous wording

The net change in income taxes for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 is $0.6 million. The income tax expense of $3.4 million for the six months ended June 30, 2024 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions, offset by the partial release of the U.S. and U.K. valuation allowances in connection with acquisitions. The income tax expense of $2.8 million for the six months ended June 30, 2023 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions.

Current wording

The net change in income taxes for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 is $1.3 million. The income tax expense of $2.5 million and $1.3 million for the three months ended September 30, 2024 and September 30, 2023, respectively, was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions.

Previous wording

The net change in income taxes for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 is $0.3 million. The income tax expense of $1.1 million for the three months ended June 30, 2024 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions, offset by the partial release of the U.S. and U.K. valuation allowances in connection with acquisitions. The income tax expense of $1.5 million for the three months ended June 30, 2023 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions.

Current wording

The net change in income taxes for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is $1.9 million. The income tax expense of $5.9 million for the nine months ended September 30, 2024 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions, offset by the partial release of the U.S. and U.K. valuation allowances in connection with acquisitions. The income tax expense of $4.0 million for the nine months ended September 30, 2023 was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $157.0 million, including $12.9 million held by our foreign subsidiaries. Our cash and cash equivalents primarily consist of cash and highly liquid money market funds. We also had available-for-sale securities of $1,600.4 million consisting of corporate bonds, U.S. treasury securities, U.S. government agency securities, and commercial paper. As of June 30, 2024, our investment portfolio consisted of investment grade securities with an average credit rating of AA. We have generated significant operating losses from our operations as reflected in our accumulated deficit of $1,074.5 million as of June 30, 2024. We expect to continue to incur operating losses and cash flow that may fluctuate between positive and negative for the foreseeable future due to the investments we intend to make in our business, and as a result we may require additional capital resources to execute on our strategic initiatives to grow our business.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $182.9 million, including $14.9 million held by our foreign subsidiaries. Our cash and cash equivalents primarily consist of cash and highly liquid money market funds and U.S. treasury securities. We also had available-for-sale securities of $1,641.0 million consisting of corporate bonds, U.S. treasury securities, U.S. government agency securities, and commercial paper. As of September 30, 2024, our investment portfolio consisted of investment grade securities with an average credit rating of AA. We have generated significant operating losses from our operations as reflected in our accumulated deficit of $1,089.8 million as of September 30, 2024. We expect to continue to incur operating losses and cash flow that may fluctuate between positive and negative for the foreseeable future due to the investments we intend to make in our business, and as a result we may require additional capital resources to execute on our strategic initiatives to grow our business.

Previous wording

Net cash provided by operating activities during the six months ended June 30, 2024 was $148.4 million, which resulted from a net loss of $50.6 million, adjusted for non-cash charges of $257.3 million and net cash outflow of $58.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $155.7 million for stock-based compensation expense, $59.8 million for depreciation and amortization expense, $37.0 million for amortization of deferred contract acquisition costs, $23.1 million for non-cash operating lease costs, $4.8 million for provision of bad debt, and $2.0 million for amortization of convertible note issuance costs, which were partially offset by $24.0 million for net accretion of discounts. The net cash outflow from changes in operating assets and liabilities were primarily the result of a $48.1 million increase in deferred contract acquisition costs due to the addition of new customers, $25.0 million in payments related to operating lease liabilities, a $24.7 million increase in prepaid expenses and other current assets related to operating activities, a $6.7 million increase in accounts receivable, net, which increased due to lower cash collection from our customers, a $1.9 million increase in other noncurrent assets, and a $1.9 million increase in contract assets, which were partially offset by a $29.7 million increase in deferred revenue and a $16.0 million increase in accounts payable related to operating activities

Current wording

Net cash provided by operating activities during the nine months ended September 30, 2024 was $253.1 million, which resulted from a net loss of $66.0 million, adjusted for non-cash charges of $403.1 million and net cash outflow of $84.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $244.0 million for stock-based compensation expense, $91.5 million for depreciation and amortization expense, $56.7 million for amortization of deferred contract acquisition costs, $35.6 million for non-cash operating lease costs, $7.4 million for provision of bad debt, and $3.0 million for amortization of convertible note issuance costs, which were partially offset by $34.0 million for net accretion of discounts. The net cash outflow from changes in operating assets and liabilities were primarily the result of a $75.9 million increase in deferred contract acquisition costs due to increased headcount of commission eligible employees, $36.0 million in payments related to operating lease liabilities, a $25.3 million increase in prepaid expenses and other current assets, a $12.0 million increase in accounts receivable, net, which increased due to our growing customer base and timing of collections from our customers, and a $2.4 million increase in contract assets, which were partially offset by a $46.9 million increase in deferred revenue, a $11.3 million increase in accrued expenses and other current liabilities, and a $7.8 million increase in accounts payable.

Previous wording

Net cash provided by operating activities during the six months ended June 30, 2023 was $100.9 million, which resulted from a net loss of $132.5 million, adjusted for non-cash charges of $281.5 million and net cash outflow of $48.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $125.8 million for stock-based compensation expense, $65.2 million for depreciation and amortization expense, $50.3 million for loss on extinguishment of debt, $29.0 million for amortization of deferred contract acquisition costs, $21.9 million for non-cash operating lease costs, $6.0 million for provision of bad debt, and $2.5 million for amortization of convertible note issuance costs, which were partially offset by $19.1 million for net accretion of discounts. The net cash outflow from changes in operating assets and liabilities were primarily the result of a $43.3 million increase in deferred contract acquisition costs due to the addition of new customers, a $35.4 million increase in accounts receivable, net, which increased due to our growing customer base and timing of collections from our customers, $18.1 million in payments related to operating lease liabilities, and a $14.0 million increase in prepaid expenses and other current assets related to operating activities, which were partially offset by a $56.5 million increase in deferred revenue, a $6.6 million increase in accounts payable related to operating activities, and a $1.5 million increase in accrued expenses and other current liabilities related to operating activities.

Current wording

Net cash provided by operating activities during the nine months ended September 30, 2023 was $169.0 million, which resulted from a net loss of $156.1 million, adjusted for non-cash charges of $409.3 million and net cash outflow of $84.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $199.6 million for stock-based compensation expense, $99.6 million for depreciation and amortization expense, $50.3 million for loss on extinguishment of debt, $44.8 million for amortization of deferred contract acquisition costs, $32.9 million for non-cash operating lease costs, $9.5 million for provision of bad debt, and $3.5 million for amortization of convertible note issuance costs, which were partially offset by $31.0 million for net accretion of discounts. The net cash outflow from changes in operating assets and liabilities were primarily the result of a $66.8 million increase in deferred contract acquisition costs due to the addition of new customers, a $60.5 million increase in accounts receivable, net, which increased due to our growing customer base and timing of collections from our customers, $31.1 million in payments related to operating lease liabilities, a $17.1 million increase in prepaid expenses and other current assets related to operating activities, and a $3.4 million increase in contract assets, which were partially offset by a $81.1 million increase in deferred revenue, a $8.4 million increase in accrued expenses and other current liabilities related to operating activities, and a $5.3 million increase in accounts payable related to operating activities.

Previous wording

Net cash used in investing activities during the six months ended June 30, 2024 of $86.8 million resulted primarily from the purchases of available-for-sale securities of $790.7 million, capital expenditures of $61.7 million, cash paid for asset acquisitions and business combinations, net of cash acquired of $14.0 million, and capitalization of internal-use software development costs of $12.8 million, which were partially offset by the maturities of available-for-sale securities of $792.4 million.

Current wording

Net cash used in investing activities during the nine months ended September 30, 2024 of $163.2 million resulted primarily from the purchases of available-for-sale securities of $1,187.3 million, capital expenditures of $111.9 million, capitalization of internal-use software development costs of $22.1 million, and cash paid for asset acquisitions and business combinations, net of cash acquired of $15.0 million, which were partially offset by the maturities of available-for-sale securities of $1,173.0 million.

Previous wording

Net cash provided by investing activities during the six months ended June 30, 2023 of $15.7 million resulted primarily from the maturities of available-for-sale securities of $857.5 million and the sales of available-for-sale securities of $20.2 million, which were partially offset by the purchases of available-for-sale securities of $795.1 million, capital expenditures of $56.3 million, and capitalization of internal-use software development costs of $10.7 million.

Current wording

Net cash used in investing activities during the nine months ended September 30, 2023 of $84.6 million resulted primarily from the purchases of available-for-sale securities of $1,293.0 million, capital expenditures of $83.6 million, and capitalization of internal-use software development costs of $16.6 million, which were partially offset by the maturities of available-for-sale securities of $1,288.4 million and the sales of available-for-sale securities of $20.2 million.

Previous wording

Net cash provided by financing activities of $7.2 million during the six months ended June 30, 2024 was primarily due to $10.5 million proceeds from the issuance of Class A common stock pursuant to the 2019 Employee Stock Purchase Plan (ESPP) and $7.6 million of proceeds from the exercise of vested stock options, which were partially offset by $8.8 million of payments of tax withholding on RSU settlements and $2.1 million cash paid for issuance costs on revolving credit facility.

Current wording

Net cash provided by financing activities of $4.8 million during the nine months ended September 30, 2024 was primarily due to $10.5 million proceeds from the issuance of Class A common stock pursuant to the 2019 Employee Stock Purchase Plan (ESPP) and $9.0 million of proceeds from the exercise of vested stock options, which were partially offset by $12.6 million of payments of tax withholding on RSU settlements and $2.1 million cash paid for issuance costs on revolving credit facility.

Previous wording

Net cash used in financing activities of $167.4 million during the six months ended June 30, 2023 was primarily due to $172.2 million of repayments of convertible senior notes, $9.2 million of payments of indemnity holdback, and $3.4 million of payments of tax withholding on RSU settlements, which were partially offset by $10.5 million of proceeds from the issuance of Class A common stock under the ESPP, and $7.1 million of proceeds from the exercise of vested stock options.

Current wording

Net cash used in financing activities of $202.0 million during the nine months ended September 30, 2023 was primarily due to $207.6 million of repayments of the 2025 Notes, $10.5 million of payments of indemnity holdback, and $5.6 million of payments of tax withholding on RSU settlements, which were partially offset by $11.4 million of proceeds from the exercise of vested stock options and $10.5 million of proceeds from the issuance of Class A common stock under the ESPP.

Previous wording

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Such estimates include, but are not limited to, allowance for doubtful accounts, deferred contract acquisitions costs, the period of benefit generated from the deferred contract acquisition costs, the capitalization and estimated useful life of internal-use software, valuation of acquired intangible assets, the assessment of recoverability of intangible assets and their estimated useful lives, useful lives of property and equipment, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation and recognition of stock-based compensation awards, uncertain tax positions, and the recognition and measurement of current and deferred income tax assets and liabilities. None of these estimates are critical accounting estimates for the preparation of our consolidated financial statements. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. Due in part to the Hamas-Israel and Russia-Ukraine conflicts, and the potential worsening and expansion of such conflicts, and other geopolitical and macroeconomic conditions, there is ongoing uncertainty and significant disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to our estimates or assumptions or a revision of the carrying value of assets or liabilities as of August 1, 2024, the date of issuance of this Quarterly Report on Form 10-Q. These estimates and assumptions may change in the future, however, as new events occur and additional information is obtained. Our actual results could differ from these estimates.

Current wording

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Such estimates include, but are not limited to, allowance for doubtful accounts, deferred contract acquisitions costs, the period of benefit generated from the deferred contract acquisition costs, the capitalization and estimated useful life of internal-use software, valuation of acquired intangible assets, the assessment of recoverability of intangible assets and their estimated useful lives, useful lives of property and equipment, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation and recognition of stock-based compensation awards, uncertain tax positions, and the recognition and measurement of current and deferred income tax assets and liabilities. None of these estimates are critical accounting estimates for the preparation of our consolidated financial statements. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. Due in part to the conflicts in the Middle East and Ukraine, and the potential worsening and expansion of such conflicts, and other geopolitical and macroeconomic conditions, there is ongoing uncertainty and significant disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to our estimates or assumptions or a revision of the carrying value of assets or liabilities as of November 7, 2024, the date of issuance of this Quarterly Report on Form 10-Q. These estimates and assumptions may change in the future, however, as new events occur and additional information is obtained. Our actual results could differ from these estimates.

Previous wording

Our significant accounting policies are discussed in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes to these policies for the six months ended June 30, 2024, except as noted below.

Current wording

Our significant accounting policies are discussed in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes to these policies for the nine months ended September 30, 2024, except as noted below.

Previous wording

In January 2024, we completed an assessment of the useful lives of our servers-network infrastructure, resulting in a change in the estimated useful lives of our servers-network infrastructure from four years to five years. This change in accounting estimate was effective beginning fiscal year 2024. Based on the carrying value of assets in service as of December 31, 2023, the change resulted in a reduction of depreciation expense of $11.9 million for the six months ended June 30, 2024, recorded primarily in cost of revenue. We expect this change in accounting estimate to result in a reduction of depreciation expense of approximately $20 million for the full fiscal year 2024 for assets in service as of December 31, 2023.

Current wording

In January 2024, we completed an assessment of the useful lives of our servers-network infrastructure, resulting in a change in the estimated useful lives of our servers-network infrastructure from four years to five years. This change in accounting estimate was effective beginning fiscal year 2024. Based on the carrying value of assets in service as of December 31, 2023, the change resulted in a reduction of depreciation expense of $16.8 million for the nine months ended September 30, 2024, recorded primarily in cost of revenue. We expect this change in accounting estimate to result in a reduction of depreciation expense of approximately $20 million for the full fiscal year 2024 for assets in service as of December 31, 2023.

Previous wording

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. The ASU is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of the new standard.

Current wording

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. The ASU also requires entities with a single reportable segment to provide all disclosures required by the ASU as well as existing segment disclosures. The ASU does not change how operating segments are identified or, when applicable, aggregated. The ASU is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of the new standard.