Cloudflare Inc

Previous wording

Cloudflare’s mission is to help build a better Internet. We have built a global network that delivers a broad range of services to businesses of all sizes and in all geographies—making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing individual network hardware. Our network serves as a scalable, easy-to-use, unified control plane to deliver security, performance, and reliability across their on-premises, hybrid, cloud, and software-as-a-service (SaaS) applications.

Current wording

Cloudflare’s mission is to help build a better Internet. We have built a global network that delivers a broad range of services to businesses of all sizes and in all geographies—making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing individual network hardware. Our network serves as a scalable, easy-to-use, unified control plane to deliver security, performance, and reliability across their on-premises, hybrid, cloud, and software-as-a-service (SaaS) applications. In addition, the distributed and programmable nature of our network increasingly is resulting in our customers building their applications on top of our network, too — including both traditional applications and those that are enhanced with artificial intelligence (AI).

Previous wording

Our business model benefits from our ability to serve the needs of all customers ranging from individual developers to the largest enterprises, in a cost-effective manner. Our products are easy to deploy and allow for rapid and efficient onboarding of new customers and expansion of our relationships with our existing customers over time. Given the large customer base we have and the immense amount of Internet traffic that we manage, we are able to negotiate mutually beneficial agreements with Internet service providers (ISPs) that allow us to place our equipment directly in their data centers, which drives down our bandwidth and co-location expenses. This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.

Current wording

Our business model benefits from our ability to serve the needs of all customers ranging from individual developers to the largest enterprises, in a cost-effective manner. Our products generally are easy to deploy and allow for rapid and efficient onboarding of new customers and expansion of our relationships with our existing customers over time. Given the large customer base we have and the immense amount of Internet traffic that we manage, we are able to negotiate mutually beneficial agreements with Internet service providers (ISPs) that allow us to place our equipment directly in their data centers, which drives down our bandwidth and co-location expenses. This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.

Previous wording

•Contracted customers. Our contracted customers, which consist of customers that enter into contracts for our Enterprise subscription plan, have contracts that typically range from one to three years and are typically billed on a monthly or annual basis. Our agreements with contracted customers are tailored and priced to meet their varying needs and requirements. Enterprise subscription plan agreements for our contracted customers generally include a base subscription and a smaller portion based on usage or per seat. Agreements with certain of our larger enterprise customers may be structured as a "pool of funds" in which the customer commits to spend at least a specified amount on our products during the subscription period. These “pool of funds” arrangements do not require the customer to subscribe for specific products or spend any specific amounts during any month, quarter or, if applicable, year of the subscription period, but the funds must be utilized during the subscription period as they are non-refundable and non-reimbursable.

Current wording

•Contracted customers. Our contracted customers, which consist of customers that enter into contracts for our Enterprise subscription plan, have contracts that typically range from one to three years and are typically billed on a monthly or annual basis. Our agreements with contracted customers are tailored and priced to meet their varying needs and requirements. Enterprise subscription plan agreements for our contracted customers generally include a base subscription and, in some cases, a portion based on variable usage. Agreements with certain of our larger enterprise customers may be structured as a "pool of funds" in which the customer commits to spend at least a specified amount on our products during the subscription period. These “pool of funds” arrangements do not require the customer to subscribe for specific products or spend any specific amounts during any month, quarter or, if applicable, year of the subscription period, but the funds must be utilized during the subscription period under the terms of these subscription agreements.

Previous wording

•Pay-as-you-go customers. For our pay-as-you-go customers, we offer the ability to purchase our products through our website. We make our pay-as-you-go product solutions available in several configurations. For customers securing and accelerating their Internet properties using our website and application services, we offer Pro and Business subscription plans through our website per registered domain, and it is common for customers to purchase subscriptions to cover multiple Internet properties (e.g., domains, websites, application programming interfaces (APIs), and mobile applications). Pay-as-you-go customers can subscribe to more than one solution and purchase add-on products and network functionality we offer to meet their more advanced needs. For pay-as-you-go or contracted customers who need a scalable Zero Trust security solution to secure users and internal resources using our Cloudflare One suite of products, we make these products available on a per seat basis. In addition, for developers building serverless applications, we offer our Cloudflare Workers product to these customers on a usage-based plan that is metered by requests and execution time. Our pay-as-you-go customers typically pay with a credit card on a monthly or annual basis for our Pro and Business subscription plans and on a monthly basis for our other pay-as-you-go plans and add-on products.

Current wording

•Pay-as-you-go customers. For our pay-as-you-go customers, we offer the ability to purchase our products through our website. We make our pay-as-you-go product solutions available in several configurations. For customers securing and accelerating their Internet properties using our website and application services, we offer Pro and Business subscription plans through our website per registered domain, and it is common for customers to purchase subscriptions to cover multiple Internet properties (e.g., domains, websites, application programming interfaces (APIs), and mobile applications). Pay-as-you-go customers can subscribe to more than one solution and purchase add-on products and network functionality we offer to meet their more advanced needs. For pay-as-you-go or contracted customers who need a scalable Zero Trust security solution to secure users and internal resources using our Zero Trust and network services solutions, we make these products available on a per seat basis. In addition, for developers building serverless applications, we offer our Cloudflare Developer Platform products to these customers on a usage-based plan that is metered by requests and execution time. Our pay-as-you-go customers typically pay with a credit card on a monthly or annual basis for our Pro and Business subscription plans and on a monthly basis for our other pay-as-you-go plans and add-on products.

Previous wording

•Investments in our network for growth. We believe that the size, sophistication, and distributed nature of our network provide us with a significant competitive advantage. We intend to continue to make substantial investments in network infrastructure to support the growth of our business. As we invest in our network, we believe the service that we can provide our customers and the insight and knowledge that we can gain will continue to grow.

Current wording

•Investments in our network for growth. We believe that the size, sophistication, and distributed nature of our global network provide us with a significant competitive advantage. We intend to continue to make substantial investments in our global network infrastructure to support the growth of our business, including the addition of servers with storage capabilities to support our storage and database products and servers with graphics processing units (GPUs) to support our AI-related developer platform products. As we invest in our network, we believe the service that we can provide our customers and the insight and knowledge that we can gain will continue to grow.

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 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.

Current wording

◦International reach. Our global network, with a presence in more than 330 cities and over 125 countries worldwide, has helped to foster our strong international growth. International markets represented 51% and 48% of our revenue in the three months ended March 31, 2025 and 2024, 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 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.

Current wording

We are closely monitoring macroeconomic developments and global events, such as the tariffs described above and 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 uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, threats of tariffs and other impediments to cross-border trade, 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 from prior periods

Previous wording

To the extent challenging macroeconomic conditions persist, we may experience additional adverse effects on our business, financial condition, or results of operations in future periods. These effects could include, among others, reduction or increased delays in purchasing decisions by existing and potential new paying customers, additional lengthening of the sales cycle for some of our existing and potential new paying customers, potential customer requests for concessions (including in terms of payment amounts and/or timing and earlier or additional termination rights), potential losses of paying customers as a result of economic distress or bankruptcy (particularly among our small and medium paying customer base), potential reductions in new non-U.S. customers and expansion of sales to existing non-U.S. paying customers as a result of our products, which are substantially all sold in U.S. dollars, becoming relatively more expensive for such customers due to the higher value of the U.S. dollar relative to other currencies, and increased costs for employee compensation and equipment purchases resulting from continued inflationary cost pressures.

Current wording

To the extent challenging macroeconomic conditions persist, we may experience additional adverse effects on our business, financial condition, or results of operations in future periods. These effects could include, among others, reduction or increased delays in purchasing decisions by existing and potential new paying customers, additional lengthening of the sales cycle for some of our existing and potential new paying customers, potential customer requests for concessions (including in terms of payment amounts and/or timing and earlier or additional termination rights), potential losses of paying customers as a result of economic distress or bankruptcy (particularly among our small and medium paying customer base), potential reductions in new non-U.S. customers and expansion of sales to existing non-U.S. paying customers as a result of our products, which are substantially all sold in U.S. dollars, becoming relatively more expensive for such customers due to the higher value of the U.S. dollar relative to certain other currencies, and increased costs for employee compensation and equipment purchases resulting from continued inflationary cost pressures.

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 221,540 and 182,027 as of September 30, 2024 and September 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 250,819 and 197,138 as of March 31, 2025 and March 31, 2024, 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 3,265 and 2,558 as of September 30, 2024 and September 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 3,527 and 2,878 as of March 31, 2025 and March 31, 2024, 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 September 30, 2024 and September 30, 2023 were 110% and 116%, 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 were 111% and 115% for the three months ended March 31, 2025 and March 31, 2024, respectively.

Previous wording

The typical subscription and support term for our contracted customers is one year and subscription and support term lengths range from one to three years. Most of our contracts with contracted customers are non-cancelable over the contractual term. Customers may have the right to terminate their contracts for cause if we fail to perform in accordance with the contractual terms. For our pay-as-you-go customers, subscription and support term contracts are typically monthly.

Current wording

The subscription and support term contracts for our contracted customers typically range from one to three years. Most of our contracts with contracted customers are non-cancelable over the contractual term. Customers may have the right to terminate their contracts for cause if we fail to perform in accordance with the contractual terms. For our pay-as-you-go customers, subscription and support term contracts are typically monthly.

Previous wording

Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue. Our gross profit and gross margin have and are expected to continue to fluctuate from period to period due to the timing of acquisition of new customers and our renewals with existing customers, expenses related to operating in co-location facilities and network and bandwidth costs to operate and expand our global network, and amortization of costs associated with capitalized internal-use software. We expect our gross profit to increase in absolute dollars and our gross margin to remain consistent over the long term, although our gross margin could fluctuate from period to period depending on the interplay of all of these factors.

Current wording

Gross profit is revenue less cost of revenue and gross margin is gross profit as a percentage of revenue. Our gross profit and gross margin have and are expected to continue to fluctuate from period to period due to the timing of acquisition of new customers, our renewals with existing customers and expenses that are directly related to providing our service to our paying customers. We expect our gross profit to increase in absolute dollars and our gross margin to remain consistent over the long term, although our gross margin could fluctuate from period to period depending on the interplay of all of these factors.

Previous wording

Sales and marketing expenses consist primarily of employee-related costs, including salaries, a one-time compensation charge, benefits, and stock-based compensation expense, sales commissions that are recognized as expenses over the period of benefit, marketing programs, certificate authority services costs for free customers, travel-related expenses, bandwidth and co-location costs for free customers, and allocated overhead costs. Sales commissions earned by our sales force and the associated payroll taxes that are direct and incremental to the acquisition of channel partner and direct customer contracts are deferred and amortized over an estimated period of benefit of three years for the initial acquisition of a contract and over the contractual term of the renewals for renewal contracts. We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness, including marketing efforts to continue to drive our pay-as-you-go business model. As a result, we expect our sales and marketing expenses to increase in absolute dollars for the foreseeable future. However, we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, although our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Current wording

Sales and marketing expenses consist primarily of employee-related costs, including salaries, a one-time cash compensation charge incurred during the three months ended March 31, 2024, benefits and stock-based compensation expense, sales commissions that are recognized as expenses over the period of benefit, marketing programs, certificate authority services costs for free customers, travel-related expenses, bandwidth and co-location costs for free customers, and allocated overhead costs. Sales commissions earned by our sales force and the associated payroll taxes that are direct and incremental to the acquisition of channel partner and direct customer contracts are deferred and amortized over an estimated period of benefit of three years for the initial acquisition of a contract and over the contractual term of the renewals for renewal contracts. We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness, including marketing efforts to continue to drive our pay-as-you-go business model. As a result, we expect our sales and marketing expenses to increase in absolute dollars for the foreseeable future. However, we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, although our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Previous wording

Interest expense consists primarily of contractual interest expense and amortization of the debt issuance costs on our 0.75% Convertible Senior Notes due 2025 (the 2025 Notes) and 0% Convertible Senior Notes due 2026 (the 2026 Notes, and together with the 2025 Notes, the Notes).

Current wording

Interest expense consists primarily of contractual interest expense and amortization of the debt issuance costs on our 0% Convertible Senior Notes due 2026 (the 2026 Notes).

Previous wording

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

Current wording

Comparison of Three Months Ended March 31, 2025 and 2024

Previous 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.

Current wording

Revenue increased by $100.5 million, or 27%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in revenue was primarily due to the addition of new paying customers, as our number of paying customers increased by 27% as of March 31, 2025 compared to the prior period ended March 31, 2024, as well as the expansion within our existing paying customers, which was reflected by our dollar-based net retention rate of 111% for the three months ended March 31, 2025.

Previous 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.

Current wording

Cost of revenue increased by $30.5 million, or 36%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in the cost of revenue was primarily due to an increase of $10.4 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, an increase of $10.1 million of third-party technology services costs, and an increase of $9.2 million in depreciation expense due to increase in server acquisitions and deployments.

Previous 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.

Current wording

Sales and marketing expenses increased by $19.9 million, or 10%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was primarily driven by $8.1 million in increased employee-related costs due to an 18% increase in headcount in our sales and marketing organization, including an increase of $7.2 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $3.6 million in travel related expenses and an increase of $2.5 million in expenses for marketing programs due to acquisitions, investments in brand awareness advertising, third-party industry events, and digital performance marketing.

Previous 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.

Current wording

Research and development expenses increased by $27.4 million, or 31%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was primarily driven by $25.0 million in increased employee-related costs due to a 26% increase in headcount in our research and development organization, including an increase of $6.9 million in stock-based compensation expense, partially offset by increased capitalized internal-use software development costs of $1.4 million.

Previous 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.

Current wording

General and administrative expenses increased by $21.3 million, or 32%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was primarily driven by $16.6 million in increased employee-related costs due to a 16% increase in headcount in our general and administrative organization, including an increase of $12.2 million in stock-based compensation expense. This increase was partially offset by $1.9 million of decreased allocated overhead costs.

Previous 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.

Current wording

Interest expense did not significantly fluctuate during the three months ended March 31, 2025, as compared to the three months ended March 31, 2024.

Previous 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.

Current wording

Other income (expense), net did not significantly fluctuate during the three months ended March 31, 2025, as compared to the three months ended March 31, 2024.

Previous 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.

Current wording

The net change in income taxes for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 is $0.6 million. The income tax expense of $1.7 million and $2.3 million for the three months ended March 31, 2025 and March 31, 2024, respectively, was primarily related to withholding taxes in the United States and income tax expense from profitable foreign jurisdictions.

Previous wording

Since our inception, we have financed our operations primarily through net proceeds from the sale of our equity and debt securities, as well as payments received from customers using our global network and products, and we expect to continue to finance our operations using the same sources for the foreseeable future. In May 2020, we issued $575.0 million aggregate principal amount of the 2025 Notes in a private offering to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act, from which we received total proceeds, net of initial purchaser discounts and commissions and debt issuance costs, of $562.5 million. In August 2021, we issued $1,293.8 million aggregate principal amount of the 2026 Notes in a private offering to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act, from which we received total proceeds, net of initial purchaser discounts and commissions and debt issuance costs of $1,274.0 million. Concurrently with the completion of the offering of the 2026 Notes, we also entered into privately-negotiated exchange agreements with certain holders of the 2025 Notes to exchange approximately $400 million in aggregate principal amount of the 2025 Notes for an aggregate of $400.7 million in cash (including accrued interest) and approximately 7.6 million shares of our Class A common stock. In May 2023, we repurchased approximately $123.0 million in aggregate principal amount of the 2025 Notes for $172.7 million in cash (including accrued interest). Subsequently, in July 2023, we settled conversions of the remaining $35.4 million aggregated principal amount outstanding of the 2025 Notes in a combination of$35.4 million cash and approxima tely 0.5 million shares of our Class A common stock. In May 2024, the Company entered into a credit agreement with a syndicated group of lenders, which provides for a senior secured $400.0 million revolving credit facility (the Revolving Credit Facility), with a sublimit of $30.0 million available for the issuance of letters of credit and $30.0 million available for swingline borrowings. The credit agreement permits the Company to increase the commitments under the Revolving Credit Facility by an aggregate principal amount of up to $150.0 million, subject to the satisfaction of certain conditions. The proceeds of the loans under the Revolving Credit Facility may be used for working capital and general corporate purposes. As of September 30, 2024, no loans were outstanding under the Revolving Credit Facility. Letters of credit issued under the credit agreement were not material as of September 30, 2024.

Current wording

Since our inception, we have financed our operations primarily through net proceeds from the sale of our equity and debt securities, as well as cash flow from our operating activities, and we expect to continue to finance our operations using the same sources for the foreseeable future. In May 2020, we issued $575.0 million aggregate principal amount of the 0.75% Convertible Senior Notes due 2025 (the 2025 Notes), which are no longer outstanding as of March 31, 2025 due to subsequent repurchases and conversions. In August 2021, we issued $1,293.8 million aggregate principal amount of the 0% Convertible Senior Notes due 2026 (the 2026 Notes), from which we received net proceeds of $1,274.0 million. In May 2024, we entered into a credit agreement with a syndicated group of lenders, which provides for a senior secured $400.0 million revolving credit facility (the Revolving Credit Facility), with a sublimit of $30.0 million available for the issuance of letters of credit and $30.0 million available for swingline borrowings. The credit agreement permits us to increase the commitments under the Revolving Credit Facility by an aggregate principal amount of up to $150.0 million, subject to the satisfaction of certain conditions. The proceeds of the loans under the Revolving Credit Facility may be used for working capital and general corporate purposes. As of March 31, 2025, no loans were outstanding under the Revolving Credit Facility. Letters of credit issued under the credit agreement were not material as of March 31, 2025. In connection with the offering of the 2025 Notes, we entered into privately-negotiated capped call option transactions (the 2025 Capped Calls) with certain financial institution counterparties. During the three months ended March 31, 2025, we elected cash settlement for the 2025 Capped Calls, which resulted in recognition of the derivative asset for $308.3 million as of March 31, 2025. We expect the 2025 Capped Calls to settle in May 2025.

Previous 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.

Current wording

As of March 31, 2025, we had cash and cash equivalents of $204.5 million, including $16.8 million held by our foreign subsidiaries. Our cash and cash equivalents consist of cash, highly liquid money market funds, corporate bonds, U.S. treasury securities, and commercial paper. We also had available-for-sale securities of $1,710.4 million consisting of corporate bonds, U.S. treasury securities, U.S. government agency securities, and commercial paper. As of March 31, 2025, 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 $1,141.1 million as of March 31, 2025. 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

In addition to the contractual obligations described above, as of September 30, 2024, we had $3.0 million recognized as total restricted cash on our condensed consolidated balance sheets mainly related to indemnity holdback consideration associated with asset acquisitions and business combinations.

Current wording

In addition to the contractual obligations described above, as of March 31, 2025, we had $6.6 million recognized as total restricted cash on our condensed consolidated balance sheets mainly related to indemnity holdback consideration associated with asset acquisitions and business combinations.

Previous 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.

Current wording

Net cash provided by operating activities during the three months ended March 31, 2025 was $145.8 million, which resulted from a net loss of $38.5 million, adjusted for non-cash charges of $173.8 million and net cash inflow of $10.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $95.5 million for stock-based compensation expense, $42.2 million for depreciation and amortization expense, $23.1 million for amortization of deferred contract acquisition costs, $14.7 million for non-cash operating lease costs, $3.3 million for provision of bad debt, and $1.0 million for amortization of convertible note issuance costs, which were partially offset by $6.4 million for net accretion of discounts. The net cash inflow from changes in operating assets and liabilities were primarily the result of a $35.8 million increase in deferred revenue, $27.2 million increase in accounts receivable, net, related to operating activities, which increased due to our growing customer base and timing of collections from our customers, a $12.2 million increase in accrued expenses and other current liabilities, and a $5.1 million decrease in other noncurrent assets related to operating activities, which were partially offset by a $27.3 million increase in prepaid expenses and other current assets, a $25.5 million increase in deferred contract acquisition costs due to increased headcount of commission eligible employees, $12.7 million in payments related to operating lease liabilities, and a $4.4 million decrease in accrued compensation related to operating activities.

Previous 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.

Current wording

Net cash provided by operating activities during the three months ended March 31, 2024 was $73.6 million, which resulted from a net loss of $35.5 million, adjusted for non-cash charges of $121.1 million and net cash outflow of $12.0 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $69.7 million for stock-based compensation expense, $30.1 million for depreciation and amortization expense, $18.1 million for amortization of deferred contract acquisition costs, $11.9 million for non-cash operating lease costs, $3.2 million for provision of bad debt, and $1.0 million for amortization of convertible note issuance costs, which were partially offset by $12.7 million for net accretion of discounts. The net cash outflow from changes in operating assets and liabilities were primarily the result of a $23.0 million increase in prepaid expenses and other current assets related to operating activities, a $22.4 million increase in deferred contract acquisition costs due to the addition of new customers, $14.7 million in payments related to operating lease liabilities, and a $1.5 million decrease in accrued compensation, which were partially offset by a $31.9 million decrease in accounts receivable, net, which decreased due to strong cash collection from our customers, a $9.0 million increase in deferred revenue, a $5.3 million increase in accrued expenses and other current liabilities related to operating activities, and a $3.1 million increase in accounts payable related to operating activities.

Previous 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.

Current wording

Net cash used in investing activities during the three months ended March 31, 2025 of $92.4 million resulted primarily from the purchases of available-for-sale securities of $403.7 million, capital expenditures of $85.9 million, capitalization of internal-use software development costs of $7.0 million, and cash paid for asset acquisitions and business combinations, net of cash acquired of $4.9 million, which were partially offset by the maturities of available-for-sale securities of $408.8 million.

Previous 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.

Current wording

Net cash provided by investing activities during the three months ended March 31, 2024 of $97.0 million resulted primarily from the maturities of available-for-sale securities of $433.9 million, which were partially offset by the purchases of available-for-sale securities of $299.0 million, capital expenditures of $32.1 million, and capitalization of internal-use software development costs of $5.9 million.

Previous 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.

Current wording

Net cash provided by financing activities of $3.5 million during the three months ended March 31, 2025 was primarily due to $11.2 million of proceeds from the exercise of vested stock options, which were partially offset by $7.7 million of payments of tax withholding on RSU settlements.

Previous 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.

Current wording

Net cash provided by financing activities during the three months ended March 31, 2024 was not material, and primarily consisted of $4.4 million of proceeds from the exercise of vested stock options, which were partially offset by $4.4 million of payments of tax withholding on RSU settlements.

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 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.

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, valuation of derivative assets, 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, the assessment of 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 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 nine months ended September 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, 2024. There have been no changes to these policies for the three months ended March 31, 2025.

Previous wording

Recently Issued Accounting Pronouncements

Current wording

Recently Issued Accounting Pronouncements Not Yet Effective