Cloudflare, Inc. (NET) Earnings Call Transcript & Summary

We will begin momentarily, please take this time to review the safe harbor statement. And now please welcome Vice President of Strategic Finance, Treasury and Investor Relations at Cloudflare, Phil Winslow.

Hello, everyone. That was a dramatic pause for the safe harbor statement. All right. Well, welcome, everyone. Thank you for joining us today. I know it's been a volatile time in the market. So we really do appreciate you taking some time out of the day to come understand the Cloudflare story a little bit better. And I guess before we get started, really, the -- I want to set the stage for the rest of the afternoon, and there's really an underlying theme that sort of connects all the presentations you're going to hear today, and that word is accelerating. We want you to walk away today with the full understanding of how we are accelerating innovation, accelerating our go-to-market transformation and positioning ourselves to reaccelerate revenue with a keen focus still on maintaining the unit economics of our business. And so we're going to start with a fireside chat with our Co-Founder and CEO, Matthew Prince. You'll then hear from CJ Desai, Rita Kozlov on our product and AI strategies. Mark Anderson will then take the stage for an update on our go-to-market transformation. And after that, you'll hear from Thomas Seifert, who will delve into the financials, followed by open Q&A with the audience, with Matthew, Michelle Zatlyn, Thomas, Mark and CJ. And so with that, please welcome me. Enjoy -- help me welcome Matthew Prince to the stage for a fireside chat. All right. Thank you, Matthew. All right. So we're going to mix it up a little bit this year. And instead of a traditional presentation that you see from Matthew, we're going to do a fireside chat. And when we're preparing for this, Matthew said, "I don't want to see the questions beforehand. But I never get the hard questions on the earnings call. So I want you to be, as Michelle put it, evil Phil. And so...

I wanted to get him devil horns.

Devil horns. And so yes, so the -- so we'll call this alter ego e-Phil. And so -- but we're going to go...

It's like the old banking...

The old version. My inner [indiscernible] no, just kidding. Exactly. But we're going to do a mix, as somebody sent some complement sandwiches. So we're going to mix it up some things that I think people would want you -- just your views on, but also some of those tough questions that I get.

So maybe we'll start with one of those complement sandwiches. The -- so looking back at last year, what are you most proud of when you think about sort of the accomplishments from Cloudflare in 2024 and how those position us for 2025? On the flip side though, when you look back on 2024, what could Cloudflare have done better? Like where didn't we hit your expectations that you had at the beginning of the year? And what are we going to do about that in '25?

So I think the bench that we've built in 2024, adding Mark Anderson to run go-to-market, adding Stephanie Cohen as our Chief Strategy Officer, adding CJ Desai, I mean that's just -- it's been so transformational to our business, those people coming in. And then the people that they've brought in below them, that's what I'm most proud of in 2024. I think 2024 actually was -- what I would say we could have done better. 2024 was sort of a year where actually the kind of innovation engine at Cloudflare, instead of focusing on new products, instead of focusing on getting more things out, we actually focused on kind of cleaning up some of the mess that we had made at the end of 2023. We had an outage at the end of 2023. We had some stability issues. And so I think that, that was a place where it actually felt like we slowed down a little bit in terms of innovation, which is something that's very unusual for us. And it's fun. Next week is our Security Week. We have our Developer Week, which is coming up. And what I am excited for in 2025 is not only having, again, those new executives that have come in and really, I think, help build kind of the bench and help build the leadership team at Cloudflare, but I'm excited to actually getting the innovation engine back up to its full steam again.

Great. So you mentioned the Security Week. So let's focus on Act 1 and Act 2. But from a security perspective, if you think about Thomas' section last year from Investor Day, we said, "Hey, 2/3 of our ACV was either application security, Zero Trust security or network services." Obviously, a pretty significant increase over the previous several years. There's been a lot of talk about platformization. It's like -- you may have heard that term before, but particularly in security. How do you see Cloudflare's competitive position evolving versus, let's say, those leading point product vendors but also versus other competitors that use a similar platform branding?

Yes. I think that we started as a security company. The original idea of Cloudflare was how do you take a firewall and turn it into a service. We had to, in order to do that, build a network. Our goal in the beginning was just to get to sort of performance parity because we were adding a bump in the road and we needed to make sure we didn't slow things down. We did that better than we expected. And so as a result, we, all of a sudden, it was like, well, it's not just more secure, but it's faster. And so from the very beginning, it was always and, it was always this and this, this and this, and you got all of those benefits together. And so I know we've talked about sort of Act 1 at Act 2, Act 3. And just like in a play, those are really temporal. It's when we built the various aspects. But the real power of Cloudflare and we say this over and over again, and I think it's actually one of the things that is the most underappreciated about the business. Every single server that is out -- that makes up our network is able to perform every single function at Cloudflare. And so as a result, if we get a server into an ISP, then that means that all of a sudden, in that location, we have the full range of Cloudflare's products. But the flip side of that is as a customer uses one individual product at Cloudflare, the cost is all on that first product as we add additional incremental products since we're already processing the bits. The amount of incremental cost to us and the amount of sort of challenge to the customer at the end of the day, it doesn't get any more expensive, it doesn't get any harder to use that. And so I think that's what a true platform is. It's one of the reasons why I think we have been reticent to do anything in the big M&A space. We really do believe if we innovate and build on our own platform -- and even the small acquisitions that we've done, almost every single one of them, the company is actually building on Cloudflare already. So the integration was -- the technical integration was much, much simpler. And so I think that that's -- it's not just security. Everything that we do, security, performance, reliability, the developer platform, all of that stuff fits together because, again, every single server at Cloudflare can do our entire product suite.

Got it. Now let's jump all the way to Act 3, and I think we're going to circle back to Act 1 and 2. But I was sort of the original Workers fanboy on Wall Street. This goes back to that original blog post in 2017. I'm like, that's that thing that I've been looking for. And so you convinced me, but you'd say, "Hey, serverless computing just as a whole across just the whole cloud computing market, it's still relatively limited." And so two questions here. What do you think has been the biggest bottleneck to just broader enterprise adoption of serverless platforms? And what's going to change sort of adoption, just serverless in general, but also Workers specifically?

I think if you look at the evolution. I remember when I was in college, if you wanted to run a different application, you had to build -- you had to buy a different, literally, physical server. And then someone like VMware comes along, you can take one server and make it into many and get higher utilization from that. But the same application that you still run on a server, you could just kind of pick up and move to that VM that was running on servers that were there. When the sort of first generation of hyperscalers came out, what they were doing is they were just taking either that VM or eventually containers, and they were saying, "Instead of you having to own the equipment, we'll own it for you, and you lease it from us and you could take that same application." And so there are a lot -- and the vast majority of workloads that run in traditional hyperscalers are these legacy applications that are running in something that would be very similar to what you would have done back in the early '90s. But instead of you owning the box, it's a box that you rent from someone else. And again, I think that is a business, but it's not how people -- if they were able to start from scratch, how they would develop things. But again, a lot of people don't want to start from scratch. I mean as you -- there's a lot of legacy applications that are out there that are running on AWS or Google or various things. What's been powerful about the approach that we took is that we did start with a blank piece of paper. And we said, "If you were a developer how would you want to develop applications going forward?" And we didn't build. Honestly, we had no idea that this was going to be something that would be useful or interesting outside the walls of Cloudflare. Kenton and John, Kenton is on our engineering team and John's our CTO. I mean, we sketched out the idea for Workers because we were hitting bottlenecks for our own team being able to provide it. The little Mexican restaurant across from our office in San Francisco, and I wish I'd saved it, but on a paper place mat, stained with salsa, we sketched out here's how Workers was going to work. And we built it for ourselves. We've built it for our own team. And we built it with this idea of, if you could build something that just would scale infinitely, that would allow you to very carefully sandbox new code so that it didn't impact other things that we're running, what would that look like? And the power of that is a lot of why Cloudflare is able to develop as fast as we can. It's why we're able to release as many products as we can. It's why we're able to catch, even in new markets we enter, the incumbent providers incredibly quickly and oftentimes overtake them in terms of performance and reliability and certainly on the cost structure of what we're doing. And as we told this story to customers because customers are like, "How do you guys develop so fast?" They said -- we would tell them the story of Workers, and they'd say, "We want that, too." And so what you're seeing is when you get to start with a blank piece of paper, Workers was the right way to do it. And it's a totally different model than the traditional, let's go rent kind of a sliver of a server somewhere. And so I think what's been interesting is whether it was sort of crypto companies 5 years ago and sort of resurging again now, whether it's AI companies today, the killer apps for Workers are the new apps that are out there. And so the amazing thing about that is that if you fast forward, that becomes the underlying platform for a lot of the things that are going to be disruptive innovation that are coming out. The challenge is that we can't just go to United Airlines and say, "Go pick up your Oracle database and instead of running it on your equipment, run it on our equipment." So I think that it is slower kind of as it gets started, but it is much more durable over the long term. But you don't get that -- kind of these giant lift-and-shift deals that you have with other things because people have to either rewrite their applications or rewrite parts of their applications or, and again, the case is when there's new innovation, they have to start with a blank piece of paper. But when they do, and it's why, if you look at the AI universe today, vast majority of those companies are using Cloudflare. We're the most common cloud platform that's out there. And I think that's because if you're building for the future, if you're building a new thing for the future, of course, you're going to start with a better developer platform.

Yes. In fact, the number is 1,900 AI companies that we can target or see right now are on Cloudflare. And so let's talk about competitive moats now in cloud computing. And when I think back to sort of the centralized hyperscale cloud, AWS established its -- a competitive [ moat, ] when there was sort of a critical mass of data stored in S3 and where upon sort of just data gravity took over. And then Satya Nadella, just in an interview last month, said, "Hey, the speed of light is the speed of light. And so we've got to serve the whole world on having an inference fleet everywhere in the world." Okay...

It felt like Satya was interviewing for my job.

I know, I was going to say, I was like, I've heard that before, the speed of light, from somewhere. But -- like there's no more [indiscernible] at the speed of light. But let's say, the shift to inference continues that we've been seeing, and inference and agentic workflows need to become more distributed. What's Cloudflare's competitive moat for AI inference and agents?

We are the most connected network in the world. And that connectivity is what will drive the real advantages over time. That connectivity, yes, gives you better performance, but it gives you a better cost structure. It gives you better ability to do actual compliance as these -- as different governments around the world put different rules in place. And that connectivity is very, very, very difficult to replicate. Again, we've done a bunch of things in order to get into every far corner of the universe. It's not clear that you can take, again, a traditional hyperscaler model and actually distribute it that way. Because again, while what Satya said makes sense in terms of -- it isn't the way that you build a traditional VM or container-based system. What's powerful about Cloudflare is that we can -- because we -- because again, every server runs every single thing, including every one of our customers' pieces of code, then that allows us -- or is capable of running any of those. That allows us to actually move code to wherever it makes the most sense in our system. If you're building the containers, if you're building to VMs, you can't do that. It's too heavy weight to be moving things around that way. So you actually -- I think Satya is right that, that's what you need. You need that hyperconnectivity. But I don't think that you're going to be able to see the hyperscalers actually deliver that because architecturally, they'd have to rebuild fundamentally what they're doing. Whereas we built an app, we built the network and then we built a developer platform that took advantage of the benefits of that network. And again, it didn't -- we didn't build it to say, "Oh, how can we go win a bunch of business running Oracle databases?" We said, "How can we build stuff that makes sense for us." But that turns out, as more and more people are realizing, to be the type of platform that you need to build what the future is demanding.

Yes. I use the line often by the promoter of the Grateful Dead. To paraphrase him, he's like, "Other people might do what we do, but nobody does what we do the way we do it."

Yes.

And so okay, next question...

Is this an evil Phil question?

It is. This is evil Phil. Okay. So back to evil Phil now. So Microsoft reported to have $13 billion in annualized AI revenue and that was primarily inference and post-training workloads as well as their Copilot revenue. And they also said in fiscal '25 that they were on track to spend $80 billion to build out AI-enabled data centers. And so let's say Cloudflare gets to $5 billion and beyond in revenue. And we've also experienced outsized growth in the developer platform because of AI inference and agents. Is network CapEx still in the low double digits as a percentage of revenue? Or as one investor put it to Thomas and me, is that all Cloudflare is going to need when Microsoft and AWS are literally buying hundreds of thousands of GPUs each year?

So again, it comes back to fundamentally what you're selling. If you're Microsoft, what you're doing is you are saying, "I'm going to rent you a sliver of a computer and then it's up to you, dear customer, to figure out how to get the most utilization out of that." And I spend a lot of time talking to customers. And if you talk to them and you say, "Okay, what's your actual utilization that you're getting from the CPUs, the GPUs that you rent?" In CPU land, it's around 20%. In GPU land, for most customers, it's sub-10% in terms of that utilization. So from the very beginning -- and getting 100% utilization is almost impossible, but 80% utilization is very, very, very possible. And so from the very beginning, when we spend $1 of CapEx because it's our responsibility in order to get that utilization up as opposed to the customers, we can actually get more work done for every dollar of CapEx we spend. That's advantage number one. Advantage number two is that the very nature of how Cloudflare works is because every server runs everything and we can move workloads to wherever there's capacity, there is always available capacity, which is out there. And so again, it's just a trade-off of performance might suffer slightly. But again, it's fine. There's plenty of capacity, which is there, which means that what we have been able to do across the business from the very beginning was spread load out across the network, see where there's demand, get paid for that demand and then invest behind the demand as opposed to investing in front of the demand. If your business is selling a server, you got to buy the server in order to sell it, right? And so absolutely, you've got to invest ahead of kind of what your anticipated demand is. And if tomorrow, the next DeepSeek or whatever comes along and makes all of a sudden AI cost 1/10 as much, you could get trapped with a whole bunch of CapEx spend that all of a sudden isn't actually going to be developed. I don't think that's what's going to happen. I do think that as we make AI more efficient, there's just going to be more ways that we use it, and it will soak up that demand. But in our case, we're not selling a server. We are selling getting work done. And that means that we can sell that getting work done. We can just deploy it across our network and then we can invest behind it. And so CapEx as a percentage of revenue, I think, is going to hold really steady over time. I mean, again, it might move up or down quarter-to-quarter. But over time, I still feel -- even with this new opportunity, I still feel really comfortable with what our long-term model is for CapEx as a percentage of revenue. Does that mean the CapEx will go up? Yes. But so will revenue. And I think that those things will hold in place. And again, that's over and over and over again, the thing which differentiates Cloudflare is we're able to invest behind the demand as opposed to having to invest in front of the demand. And that's because the business that we have is fundamentally different than we have to buy something, keep it in inventory and then sell it out.

Got it. All right. Let's shift gears but stay on the AI topic a little bit. In your founder's letter that Michelle and you wrote in September and then again on the Q4 call in your comments, you said that the current business model of the web, the quote was, "is eroding," because of AI. And you're not just CEO of Cloudflare and Co-Founder, but you and your wife also own a content creator. It's like -- and the Park City Record newspaper. And so this for both of your hats that you wear. Can you walk us through, first, how the Internet business model is breaking, like you said. Two, dig into what you meant by post-search web. And then third, help everyone understand Cloudflare's position -- potential role in helping figure out that business model.

So here's the challenge. We have really good data on how people and businesses interact online. And if you go back 10 years, for every visitor that Google would send you, they would crawl 2 pages. So the ratio was 2 crawls to 1 visitor. And again, if you think of the value as a content creator, there are lots of ways that you can drive value. Just a couple of them -- some of them are monetary, so you can sell subscriptions, you can put ads up and again, get paid for that. You can also just drive value out of just the ego of I am a huge fan of John Candy and so I have documented everything about John Candy, and I'm not personally, but you could imagine this. And so somebody creates John Candy, like definitive blog. And again, they may not monetize it in any way, but they look at their traffic numbers and they're like, wow, it's really amazing. Millions of people are coming to read my content, and they get sort of an ego value out of that. So that's 10 years ago, 2:1, the ratio is 2 crawls to every visitor. What is it today at Google? The answer is 6:1. And why has it changed? Because 10 years ago, if you search like how old was John Candy when he died? It would give you 10 links. One of them might be to the John Candy official blog, fan club. You click on that, you read the article, and it's -- somewhere in there it says that today -- Google pop up with an answer box that says, John Candy was however old he was when he passed away. And you don't click on the link. And so today, it's 6 crawls for every visitor they send. The rate of crawling at Google has stayed exactly the same over that period of time. What's changed is the user experience, which is there. And if you talk to publishers, if you talk to anyone in the creative space, and you say, "How much harder has your job gotten over the last 10 years in terms of driving value from whatever you create?" And I've had a bunch of these meetings over the last 18 months. And almost universally, they're like, it's about 3x harder than it used to be. And that lines up. And so as we all know, publishing is struggling today, original content creation is struggling today at a 6:1 ratio. But that's the good news. If you look at OpenAI, it's 250:1. If you look at Anthropic, it's 6,000:1. So if publishing is struggling at 6:1, I think it's dead at 250:1, and it's forgotten about at 6,000:1. And the problem with that is we all suffer, right? There isn't original content, which is being created because again, however you want to value that is gone away. And so over the last 2 years, a bunch of our customers are publishers, and they have said, "Historically, we've thought of the enemy as being the Chinese hacker or whatever, and that's why we use Cloudflare to protect it. But increasingly, we're concerned that there are these AI companies who are taking our data and not giving us anything back in return." And I think that that's just an existential problem for the Internet. And if you talk to -- like if you talk to Sam at OpenAI, if you talk to the leading AI companies, I mean OpenAI has been -- has said from the beginning, we should pay for content. But Sam doesn't want to look like a sucker because he doesn't want to have to pay when nobody else out there is paying. And so someone needs to help publishers actually control effectively the supply. And so my kind of utopian vision in the future, I don't know that we'll get here, but human should get content for free, and robots should have to pay a lot for it, right? Or should at least share in the upside of whatever these AI companies are doing. And so we announced last September that we were going to, first of all, give any content creators the tools to be able to understand who is taking their content. Second, we were going to create the ability for them to say, you're allowed to have it because I've done a deal with you, but you're not, and give that control back. And then third, I think over time, there needs to be a rate card where publishers can just say, for the new AI company that comes out, if you want to take my content, here's how much you pay for every time you scrape it, here's how much you give me every time your content is used in a result and deliver that back in a way. That has to be the future of what is going on because, again, we're not in a world where you run a search, and you get back 10 blue links anymore. You're now going to run a search, and you get an answer back. But the fuel that powers those AI engines is original content. If original content goes away, the AI engines go away. And so I do think that we've got to figure out a way in order to make sure that original content creators are able to get value in this new AI-driven web. And I think we're -- Cloudflare's in a really unique position because so many of the AI companies use us, so many of the original content creators use us. And if we can help bring them together in a way which is actually sustainable, I think that's important for the future of the Internet.

Got it. All right. Last question in two parts, good Phil, evil Phil. So you've talked about playing the long game, just as a general theme at Cloudflare. But Cloudflare is also about to celebrate its 15th birthday this September. So what do you think about Cloudflare on its 20th birthday? What are you most excited about in terms of potential of a company? And then conversely, though, evil Phil, what keeps you up at night?

I think that -- so let's start with what keeps me up at night because I think that, that then feeds the answer to the second. The Internet is under attack, and it has been for a while now. The analogy that I've used sometimes is that the first 40 years of the Internet up until 2016 was a little bit like Episode IV of Star Wars, which is a terrible movie if you actually go back and watch it. I mean the plot is incredibly naive, like random farm kid discovers this miraculous power, which is essentially governed by this group of weirdos. And then basically through thinking nice thoughts and closing his eyes, he's able to destroy the most powerful kind of weapon and sort of object of control in the universe and then everybody celebrates. I mean really naive and simple movie at some level. And yet, that's the first 40 years of the Internet, except replace the Force with the Internet, replace Jedi with developers and network administrators, replace the Death Star with what were the traditional kind of sources of power throughout human history, which is government, religion, education, family and media. And the Internet disrupted, blew all five of those things up in major ways. And again, we can debate whether that was good or bad and there's the pros and cons. But that's the story of the first 40 years of the Internet. 2016, things changed. And while Episode IV is a terrible movie, Episode V, the Empire Strikes Back, is actually a really great movie. And that's what we're living in right now, like the AT-ATs have landed on Hoth, and we're Luke kind of hiding in the -- I don't know that weird ice cave thing. And I think it's going to be a real challenge. And what's been hard is regardless of what you think of them, I've always thought of kind of Cloudflare as like the younger plucky brother with 5 big brothers. And those 5 big brothers are like Google, Meta, Amazon, Microsoft, Apple. And we could kind of pick fights and then they'd help us kind of finish them. And one of the most depressing calls that I was on the last little bit was there was a legal ruling that was kind of just bad for the Internet. And we and Google and a bunch of others were kind of involved and we called Google up, and we were like, "Hey, let's go -- like we know how to take this on. Let's go fight this fight. Come on, big brother." And they said, "You're right, but we're tired. And by the way, we're an AI company now. And so we're not up for another fight to preserve the Internet." And we're hearing something similar from all 5 of those companies these days. And what I worry about is that if they're not the ones fighting for this thing, this amazing thing that has given a lot of us a career, let us build Cloudflare, I'm not sure who is. And so I think a lot of that's going to fall on us. And I think a lot of the work that we do behind the scenes to really fight for the Internet is critical because I think a lot of the historic defenders of the Internet just aren't up for that fight anymore for lots of different reasons. And so that's what keeps me up at night. And so when you see what Russia is trying to do to recreate sort of the controls that China has, Iran is doing the same thing, Turkey is doing the same thing, India is doing some things that are very, very similar, Brazil is doing some things very similar. Someone's got to push back on that and say there's actually a real value in an open, connected Internet, which is there. That's what worries me. What I think is super exciting, selfishly, is like, I think, over time, the Internet still wins. And I think the people who are defending it today, while it feels like a very lonely job are going to be in an incredible place to kind of win the future. And time and time again, we're seeing from our customers, we're seeing from policymakers, regulators that they really do respect how principled we've been around this area, and they respect the opportunity that we have. And so I think that not only -- if you talk to employees at Cloudflare, yes, they're super excited that we're on a path to more revenue and more customers and those things, but they're also really driven by that mission. And I think the fact that we have been able to build a great business but build a business that actually really matters in the world is something that allows us to get the best talent, it allows us to have the success that we've had, and that's what I'm the most excited about over the next 5 years.

All right. Thank you, Matthew. That's the end of our fireside chat. We'll be back up here at the end of the day for open Q&A for from the audience.

Thank you, Phil.

Thank very much. So I'm very excited to introduce our next presenter. This is a man I've known for many, many years, really marveled at his has a track record of really delivering innovation at scale. And the key word there is at scale. I couldn't be more excited to have him inside here at Cloudflare to do that once again. So CJ Desai.

Hello, everyone, and good afternoon. And I'm delighted to be here, seeing some familiar faces. So thank you for coming. The question that I get asked the most is why Cloudflare? So among many choices that I had, which Matthew has shared in the earnings call, fundamentally, it boils down to: I am absolutely a believer in platform strategy. So platform strategy, being a platform company and making sure that the platform is a single platform with a single architecture on which you can build multiple products is definitely super attractive with the experience I had in products and engineering at multiple companies, starting actually with Oracle, was always about the platform and building applications. We built financial applications when I was at Oracle. So here, this one programmable network, which is very composable, which I'll go into the details, was definitely super attractive because what it fundamentally does is that you have a massive TAM, right? Network is getting disrupted. Most customers that I have spoken to, after joining Cloudflare, have one or the other network modernization project going on. And in that we have a role to play, we have ability to execute, and we can absolutely win as customers are modernizing network, but it's a massive TAM. Second, I think Matthew touched on it, super innovative company. Releases -- in my past job, our releases were every 3 months or so. Here, when I speak to the engineering team, product teams, we can do daily releases, we can do weekly releases, and the code just gets deployed on the global network. So super innovative culture, very customer-driven. We get the feedback, and we figure out how to solve the problem. And innovation is the hallmark of this company. So that's the number two. And I think on the potential, which I will touch on, when I look at the industries, when I look at the geographies, when I look at public sector versus commercial, there are a lot of places where Cloudflare has absolute right to play and being the fundamental network infrastructure for those companies. So those are the 3 main reasons. And I would say, at the end of the day, the mission that Matthew just touched on to help build a better Internet is something that is appealing to me. I was at the University of Illinois when the browser was created, which transformed the World Wide web with HTML standards and others and accelerated the Internet adoption from just people who were focused on research and academics to the population around the world. Now one programmable network and one composable network. So let's just go into the details, and I know some of the things got touched on in the earlier session. But having every Cloudflare service that can run on every server and that can go to every single data center or -- that we run, which is close to 325-plus cities, that is phenomenal. If you think about it, having -- very few architectures in the world that are like that, that, hey, you create a service that can run on every server that is out there, so every single basically data center, and we do not run in public cloud, is created by Cloudflare and operated by Cloudflare and globally deployed. I mean that's just amazing. So when you think about it, if we decide to create a product feature or if we decide to create a new product, which is a service because we are Software as a Service, and that gets deployed in minutes, seconds, depending on the type of feature and so on globally, right? So you all have seen a version this slide, but having 325-plus global locations, so it's 335, and the big change, including the progress that the team has made in the first quarter of this year is that more than half now also have GPU capacity to run the AI workloads, right? I mean that's phenomenal. 190-plus cities can run GPU as in AI inference. 50 millisecond is something that we always talk about that from every eyeball you can have a very, very fast performance and the capacity of the network approaching now close to 350 [ tips ] per second. So that's, at a high level, from my standpoint, Cloudflare network is the product, Cloudflare network is the platform. And then yes, you build multiple software layers on top of it. But this is the competitive advantage and given it has been architected this way is very, very meaningful to our customers. When I think about 2025, we are adding capacity in India for a variety of reasons. We are also doubling our compute capacity, so CPU, 1.5x across multiple regions and adding 3 new sites. So we are preparing the network at the fundamental level to plan for our $5 billion-plus revenue growth over years so that the network is resilient because all of our customers, whether they are free, self-service or enterprise, completely rely on this global network. Now how is this network built? And if you are -- when I speak to customers, I boil it down to a few simple things. So number one, security. Of course, security is the forefront. That's our beginning of the company, and we need to provide security, whether it's for external users of our customers or employees or contractors. So that's number one. Number two, I would say is that connectivity, Matthew touched on it, this connectivity at a global level, while providing local controls is pretty phenomenal and the flexibility of this network, right, where the developer tools where you can build specific application on Cloudflare platform like how we build it internally also gives this power to our customers. And the reason this is effective is, one, cost. Total cost of ownership reduces when our customers go from 1 product to 2 products to 3 products to multiple products or services they run. We provide centralized policy management. So you are not going through various dashboards, various tools, various reporting, all your security policies are in a single place depending on the type of users, and we try to provide customer experience really, really well from a user experience perspective. I was talking to a Fortune 50 company and the CTO really wanted to understand the portfolio of Cloudflare. And while we were going through it, he said, "CJ, just one thing I wanted to know, I am a user of Cloudflare for my home network." And was very proud to show me what he had built internally on his home network and said, "We are going to open doors for you here in the enterprise because I'm a big fan of the product." So having our users, which are self-service or free customers has allowed us to create really configurable platform that can be managed by individuals or by enterprises. Now the focus on innovation, when I think about it, you see the journey in highly innovative, so many products. I think the final list is 60-plus products that we can sell to our customers. We provide that both via self-service as well as from the enterprise contract perspective. And the innovation just continues next week, as Matthew shared, is the Security Week where we are going to outline additional innovations, whether it's for AI and a few other things that you should watch out for, but really proud of this innovative culture where new products with a few engineers because the platform fundamentals, whether it's user experience, whether it's the programmability of the network, is provided in the platform, which allows the incremental cost of innovation much lower versus a point solution. So super innovative company Cloudflare is, and the team has done an incredible job across our Acts to continue to push the innovation to our customers. Now one of the things you'll say, okay, you have the incremental cost to create a new product or a new feature because the Cloudflare platform provides so many fundamental capabilities. So unit economics are better from an R&D perspective. Then why the spaces that we go after, whether it's on our Act 2 with Cloudflare One, or there are areas within our Act 1 as well on application security. What you will see from Cloudflare is that we will start small, we'll start fast, and then we will build deep functionality within our Acts, right? Because our platform allows us to do that. So what you'll see is if you look at our [ 2 by 2, ] initially, we may become a niche player then we may move to the -- shift to the right and then to the top. So the analyst firms that we work with recognize that and as you know, that customers look at these reports, and we say, okay, now we are playing in area X, say, phishing protection or so, on e-mail phishing production and so on. And then we will systematically improve over time by adding very, very methodical feature prioritization and ensuring that, that product's -- product becomes best-in-class with a wide adoption. And if I have to simplify Cloudflare platform, I would say 3 areas that we are very focused on. The area number one, which is our Act 1, providing connectivity and security to external users, right? And that in itself, there is still a lot of TAM to be had. There is still a lot of traditional competitors who play in that space, and we can continue to grow that business. And that fundamentally, that market in itself is also growing. Then you come to Act 2, providing security for employees and contractors, which is called Cloudflare One. And here, we started a few years ago. Thomas will share some of the numbers from last year, but this is a big market. This is a big market, the penetration from other players is still not very high in the enterprise or in public sector. So that's the second piece, it's providing security and connectivity for internal users and contractors. And number three, that Matthew touched on early on, which is the developers and what can we do for them as they build new applications, whether they are AI applications or applications that take advantage of our connectivity and this global network. So when you look at these 3 Acts, right, and there are lots of details below it, just in existing Cloudflare customer base if we had sold all the products, that in itself is a $7 billion TAM, right? Because the land and expand motion with whether we start with Act 1 or whether we start with Act 2 or sometimes we start with Act 3 allows us then to get the permission from the customer and their trust to expand our portfolio, which is very, very wide. So that's what is super exciting when I think about it, is that day before yesterday, I spoke to a Fortune 10 customer who is not a Cloudflare customer, and I said, "Okay, here is the portfolio. Here are the things we have in area 1 or area 2 as in Act 1, Act 2." And the customer said, "CJ, we did not know that your portfolio has become this wide for the enterprise. And there are these 3 or 5 vendors, as in point solution vendors, that we are using today which we could potentially replace with Cloudflare. So let's get started on 1 or 2 of those use cases." So that's what this incredible opportunity, whether it's financial services, health care companies or retail companies, Cloudflare has. Now when you think about the landscape and when you speak to these enterprise customers or even a mid-market customers, it's a fairly complex world out there. The world, around 2008 or '09 when the whole public cloud migration started, right, with AWS on the leading edge. This is the second half of the first decade of this century. That's when some public cloud movement started, moving some VMs, some workloads and so on. Then you look at the second decade between 2010 to 2020, and you had other -- Azure, GCP and other got mainstream from a cloud perspective, including some in Asia. When you think about an enterprise customer who is very focused on digitization, who is very focused on figuring out where they can leverage public cloud for whatever reason. I heard from customers that, hey, we have a philosophy that 75% of our workloads should run in public cloud, okay? There are some customers that I speak to, which fundamentally say, we don't want to be dependent on just one public cloud. So we currently are using 3 for different type of workloads besides our on-prem footprint. So multi-cloud is a very acute phenomena that customers deal with today and its 2025, that they are dealing with this massive landscape from on-prem and public cloud perspective. Now you add Software as a Service, multiple Software as a Service that our enterprise customers use. And then you think about the threat landscape. Then you think about the network architecture. And what you find, if they are able to draw a diagram like this, there is aging hardware, there is so much complexity in managing this network, and the demand digitization is pushing on these customers that they have to modernize their network. And while they modernize their network, as the user demand grows, they also have to make sure that it is secure, right? And that creates fundamentally opportunity for Cloudflare. So from a Cloudflare perspective, if we have to simplify this, right, you have external users, you have employees, you have contractors, you potentially have part-time workers, and you want a connected network that is secure at the end of the day, highly available, that customers can rely to run their network infrastructure. So from our perspective, this is a North Star that we can go to these large enterprise customers, our enterprise customers and say, "Here is Cloudflare. Here is what it does. And you can replace multiple point solutions by using this so that -- lowering the cost or TCO, better experience for your end users while you remain secure," right? That's how I look at it. Now as some of you know or most of you know, we have customers globally. And one of the things that really impressed me a few weeks ago when I was in Asia that we also have substantial brand names within our Asia Pacific region customers that is doing really, really well, that they rely on Cloudflare. One of the large crypto customers told me that CJ, we use one hyperscaler for our compute and storage. And then we use Cloudflare for network and security. And the thing he said is that you are the digital front door for all of our 100 million monthly active users. And we rely on you for security. We do not rely on you for -- rely on hyperscaler for us. I mean that's a very big statement coming from a company in Asia Pacific that is doing really, really well. So between the public sector and Fortune 500 and others, and of course, digital natives and AI natives, the customer base is very, very wide. Now when I talked about the potential, the thing that I was trying to really understand within my first few weeks here was the penetration of Cloudflare, and I see this as a massive opportunity, is fairly low compared to the TAM, right? And that's why Mark Anderson was hired to build amazing enterprise go-to-market team, and I'm delighted to be working with Mark He's the best. But when I think about this, you look at this opportunity and then you can add retail or you can add public sector, you add global public sector, and you will see that is a huge headroom for our Act 1, Act 2 and Act 3 products for Cloudflare. I mean this is similar to when I joined the last employer I was with, which was not penetrated as much. And then over time, we really, really focused on these type of customers and got a much higher market share. So this is a massive opportunity from my perspective. Now, organization needs, they vary. Sometimes when I meet these large enterprise customers, they say, "CJ, security for external users, we want to replace some of the legacy incumbents and that's where we want to use Cloudflare." Sometimes when I meet the customers, they'll say, "Hey, the first-generation vendor when it comes to our employees and contractors and making sure they have secure access, we may want to replace that with Cloudflare." And sometimes certain AI-native companies will say, "Hey, can you tell us more about the developer platform and what we can build?" And sometimes it's a combination of all three. One of the large customers that I spoke to last week basically told me, can we use this thing from your Act 1, this thing from Act 2, and from Act 3, can we build an app that is solving for some of our B2B traffic, which is phenomenal, right? So I personally feel that the portfolio is wide, but also really, really good in terms of what we propose to our customers. Now any modernization project, people will say, we want to go with SaaS architecture. We want to go with cloud architecture. And typically, what you will see is that they may buy a point product and then eventually feel like the project was successful and it got some returns. But Cloudflare positioning with the platform and the products we have that once you have first product in, and as Matthew said, that might have a higher barrier to entry, but once you're in and you deploy it and you configure it, then to have the incremental products, whether it's to replace your existing DDoS mitigation solution or whether it's something related to application firewall or API Shield, whatever the case might be, you'll start seeing the benefits because you have a Center of Excellence related to Cloudflare. And then you can just say, let me turn this on, let me turn this on, and continue to use the products while I take -- get rid of some of the traditional legacy solution. I've been spending a lot of time really understanding customers use Cloudflare for what and why, right? Canva is a great company. You see a lot of them on billboards, even in Manhattan, and they are also on the forefront of AI. If you go to their website and if you're a creator, it will say, "Hey, we'll help you create a very easy text campaign or some images or some video using AI." And they also, similar to Cloudflare, have free customers, self-service business customers and, of course, enterprise customers. They are using us across all 3 Acts, right? And that company is a big company, right? It's a digital native, but it is a big company that is taking on in a very competitive market and doing really, really well. But if you think about them, they're using us across 3 Acts. When I think about this brand, as in Porsche, and they initially started in 2022 with 3,000 websites that are dealer-facing for sales and service and converting them to use Cloudflare for security. And then because of European Union regulation and some data localization requirement, they used our Worker platform to create apps specifically for that region, right? So this is the real advantage of Cloudflare that while we have a global network, we will still comply with data regulation and other things, if necessary and demanded by a great customer like this. Now Matthew talked about the mission. All the employees of Cloudflare, when you ask them, because I have asked them when I joined. I said, "Hey, why are you at Cloudflare? What keeps you here." And everybody is aligned to help build better Internet. So they will say that okay, CJ, I'm excited because -- one of the engineers in Germany, I spoke to yesterday said I'm excited because we help sometimes with governance on the Internet. Sometimes we make sure that as you see here, that advocating for network neutrality. And you can see some of the bullet points here, but Cloudflare does really, really care about making sure that we are helping build better Internet because Internet is the foundation for every business. Network is the foundation for every business. And we want to make sure that it's open, it's connected, it's secure, and it's available. And that is a fundamental thing that we stand for, and it's a very purpose-driven company. Now 2025, one of the questions I get asked, okay, CJ, you have been here. What do you think? Where do we need to go? So I wanted to share just 2 or 3 lessons from my past, okay? The one thing that I learned at ServiceNow was the land and expand motion, what does that mean really for product and engineering? What does that really mean? And you have to really, really focus that customers get value out of whichever product you land with as in first product that they buy, and that is absolutely applicable here as Mark Anderson and the team try to run the motion of land and expand within the go-to market. Number two, a few years at Symantec in the first decade of this century, being there for the customer when they need us if there is a security incident or if there is a network that they want to rely on. Just a couple of days ago, a large customer had an issue with their incumbent. They switched over to Cloudflare. And the way the team help them out while they were under attack is super, super meaningful and creates a massive customer loyalty. And number three, what I learned was how does go-to-market team work really well with engineering as we scale our enterprise motion. We have such a massive TAM in enterprise and large enterprise, including public sector that if the teams really partner well together, and that's why I'm excited to be working with Mark Anderson and the teams, magic really happens. So these three are very applicable when I think about Cloudflare and what my previous experience can help as we scale this company. So what's the plan for 2025? So first of all, it always starts with the network. Network has to be super resilient. And by the way, while it is being resilient, is it really going to be there to scale for $5 billion-plus revenue? And when I say, $5 billion-plus, our free customer base is growing. Our enterprise customer base is growing. Our self-service customer base is growing. So we have to make sure that network stays resilient, and we continue to add the capacity, as I touched on early on, on the network layer. Second, the foundational platform. So one of the biggest asks from the enterprise customers is CJ, we are complex, and we need Cloudflare's help to ensure that the platform really works within our infrastructure. So whether it's identity and access management, role-based access controls and many other things that enterprise customers demand even from an integration perspective, we are investing in it, and we are investing and making progress so that enterprise customers, large enterprise customers feel that we are serving them at the highest levels because most of them tell me, you have a great piece of technology in this area or you have great technology in this area, but we really, really want you to give us very robust enterprise-level controls. And the good news is we know how to do that, and we can give them. And then when I think about the portfolio, making sure that we have the fastest network. We have the most secure network, whether it's for external users or internal users. That is something table stakes, and we'll continue to make progress there. It's a race with no finish line. Number two, on Cloudflare One. When I think about this portfolio and the massive TAM it has, we wanted to focus in certain areas. And one of the areas that we are focused on with these large enterprises or you think about retail locations, bank branches and so on is coffee shop networking. So making it simpler rather than using a variety of point solution for a remote user versus a branch location versus a corporate head office, can you just use Cloudflare? And it will be fast, and it will be secure, right? I mean that's it. That's the simple message that will provide secure access, we'll provide secure web gateway. And whether it's coffee shop networking by aligning fundamentally principles between network and security, you get the best of both worlds when it comes to your employee base, right? So that's how I would classify on our Act 2. And you'll hear from Rita on Act 3, a lot of innovation that is going on, just right now. So last point on customer support. We have a massive customer base. We are expanding our enterprise customer base. So how can we serve them even better than we are today. So we are going to focus on providing a great customer experience for all of our customers. And that's the work both Mark Anderson's team and my team are doing jointly to do that. So my final remark is where I started, I joined this special company because it has platform architecture, massive TAM and potential in the enterprise and public sector. And that really excites me, very innovative company, and just by focusing on certain foundations while staying innovative across Act 1, Act 2 and Act 3, I will do my small part in building a great iconic company for the future to come. Thank you very much. And I'm going to invite Rita to talk about our AI strategy.

Thank you, CJ. Hello, everyone. My name is Rita Kozlov. I'm the VP of Product for Cloudflare's developer platform. It's the year 2025. So obviously, we're going to talk about AI, and I promise I will mention the hot word right now, agents, as well. But before we get into all of that, I'd like to start with Cloudflare's vision for developers, which I think is really inspiring. Cloudflare's vision for developers, in a nutshell, is to make it possible for every single developer out there to bring their ideas to life and to make that as easy as possible from the moment that they write their first line of code to deploying it to the first user and the millions of users to come after that. But here's the thing. Making something easy is actually in and of itself really hard. And to do this, when we started on the developer platform 8 years ago, we had to take a really big, really bold and even nonconsensus bet. And that was to build our architecture for the platform on top of something called isolates. Now Matthew talked about this before, all code running on the server up until this point had been running on a virtual machine or a container. And the problem with that model is that it makes it fundamentally impossible to abstract away infrastructure in a way that really allows developers not to worry about it. We know this actually because Cloudflare's entire first Act, when you think about it, has been about bridging that gap between the way that the centralized cloud running VMs and containers works, and the way that users actually interact with the Internet. Now with isolates. Isolates compared to VMs or containers are really, really lightweight, which means that they can spin up really, really quickly and reliably, and they give you that platform that you need in order to be able to run fast. When we made this decision, we knew that we were making a trade-off that it would be harder to lift and shift existing applications onto Cloudflare's platform. But when you're making a bet, you want to bet on the future and not on the past. And so we wanted to build the best platform for building greenfield applications. And what's really incredible is that today, if you're a developer, Cloudflare offers you an entire full stack platform of offerings, everything from compute to storage to AI and media, literally all of the different pieces that you need in order to build an application. And every single line of code that you write gets instantly deployed to REGENT [indiscernible] which means that you never have to think about scaling it. It's just fast, it's performant, it's reliable, all of these things from the very beginning. Now a few clever developers clued on to Cloudflare being their secret weapon for running ahead of everyone really, really early on. And for those developers, well, I have a little bit of bad news. And it's that, well, the secret is out. This platform is not so secret anymore. Today, there are over 3 million developers that are building on Cloudflare. And we're continuing to see that number grow and accelerate. And part of this is due to this large paradigm shift that we're seeing with AI. We started to talk about the shift a year ago and how it represented something as big as the cloud, mobile and social before it. And that statement is truer today than it actually was a year ago. Now I realize that I'm talking to a finance audience, and you all get held accountable to your predictions all the time. So I thought I would give you a chance to hold me accountable to some of my predictions from a year ago. So a year ago, we talked about how 44% of developers, no surprise, were already using AI to help them write code. And analysts were predicting that by the year 2030, about 50% of knowledge workers would be using AI to help them augment their day-to-day tasks. And I remember seeing this figure and thinking, well, they're being a bit conservative. And guess what, they were. Today, not in 5 years, but already, we've surpassed that figure with 75% and not 50% of knowledge workers already using AI. And the number of developers, well, that's almost doubled as well from 44% to 76%. But there was another actually more interesting prediction that we made. And it was that workloads in AI were going to shift from training to inference. And guess what? We're starting to see that play out in real time as well. We're seeing that with OpenAI reporting that their new o1 model is now spending more and more time in inference than in pre and post training. We're seeing a similar thing with DeepSeek, who is optimizing training so much that they're starting to spend again more of their time in inference. But this was all a year ago, this is all a recap. So let's talk about what's coming next. And while we're still in the early innings of that migration from training to inference, the next shift that's going to happen is going to be around inference being focused rather than on augmentation to inference being focused on automation. And when you hear the word agent, that's exactly what people are talking about. So I know that there's a lot of jargon that's flying around right now, and I think people are using the word agent very loosely. So I wanted to share my framework for thinking about the different types of AI. The first type of AI is predictive AI. It's been around for a long time. It's often referred to as machine learning. Cloudflare has been using predictive AI since the very, very beginning of the company. And a really canonical example here is taking something like all past Internet traffic and looking at it in order to be able to predict whether a new piece of traffic is a DDoS attack or someone just having a Black Friday sale. Now generative AI is the new type of AI that's come in over the past couple of years. And as the name would suggest, it allows you to generate something that didn't quite exist before, that can be a piece of code, some text, an image, a video. But generative AI has largely been focused on making us more efficient through augmentation. So rather than having to manually, artisanally handcraft and e-mail, I can now ask AI to assist me with that. Now Agentic AI is focused not on just the augmentation piece but the full end-to-end automation of a task. So let's run through an example. I think everyone here is familiar with a UI that looks something like this. Maybe you've asked it for some help with a task recently. If I'm a junior salesperson and I need to follow up with a customer, I might ask it to help me write an e-mail so I can follow up more quickly. With automation or with an agent, AI cannot just help me write the e-mail, but it can help me automate the entire end-to-end flow of what you might ask a junior salesperson to do. So if I went to a conference last week and I met a whole bunch of people, I can ask an agent to generate me a list of all of the people that I talked to then to write me that e-mail, but it's not going to stop there. It will let me review that e-mail if I want to, but then it will actually send it on my behalf. And when a customer follows up, it can either notify me or even write back to the customer. So how do agents work? Agents are really made up of 3 core pieces. So there's the AI piece that's the thinking of the operation. There's the workflows piece that's going to be the executive arm that helps the AI then go and make sure that those things all happen. And then there are the APIs or the tools that actually go and make those actions. But now let's take a look at this through a developer's perspective. What would it take for someone to build an agent? So first, you need a way to get user input. And more and more, we're seeing agents that are communicating over voice. So for that, you would need something that talks over WebRTC, which is the Internet voice protocol. And then you need to convert that from speech to text in order to execute those next steps. You might also use a chat UI, that's a very common pattern. You need somewhere to host it. From there, you need somewhat of a gateway layer so you can cache responses. If a query comes in that you've seen before, you want to be able to respond fast as opposed to doing the whole thing all over again. You want to be able to observe the AI, make sure that it gets better over time as opposed to worse. Then you need access to the actual large language model, the LLM that's going to generate all the content, that's going to come up with a plan, that's going to constantly be doing the reassessing of it. And the LLM needs then access to an orchestration layer, kind of like the workflow. And for the orchestration layer, you need a unique combination of compute that can actually do the task, but you also need some storage in order to keep track of all of the tasks that have been completed and make sure you're executing on the next one. You also need access to a whole bunch of different tools. So that can be a browser. If I go back to the example of a salesperson sending an e-mail, if that e-mail needs to be personalized, you might want to go to your customers' website, make sure you're including relevant information from there. You need an API for sending the actual e-mail. You need maybe to connect to an internal service to pull up any open support cases to make sure that you're addressing them in the e-mail. And then you need a vector database to hold all of the domain knowledge that's related to your own industry. Finally, sometimes AI is going to need to ask a human for help. This is commonly known as a human in the loop architecture. Now when we talk about building out all of the primitives and all of the pieces that developers need to build a full stack application, agents are a perfect example of that type of application. And today, Cloudflare provides all of the different pieces that you need in one place in order to build an agent. We offer everything from real time, which was previously known as our Calls product to take in that voice input. We have Pages that can help you with the UI. We have our AI Gateway that can help you with caching responses and with constantly evaluating and observing your AI. We have Workers AI for hosting the models themselves, whether that's the LLM or the voice to speech -- the voice to text piece. We have all of these different tools for your agent to be able to connect to, whether it's a browser, an API, an internal service behind Zero Trust or vector database. And we have actually the perfect pieces for that orchestration layer. So if in the past, you've seen us talk about a primitive that might have seemed a bit more obscure like Durable Objects, it is actually such a good building block for exactly an agent because it takes those 2 things, compute and storage, and puts them together into 1 piece. Now I'm not going to take credit for having invented agents. But funnily enough, we did consider agents as a name for our Durable Objects product, that would have been very prescient. But we did inadvertently build the best platform for building agents. And it's not just about having all of these different pieces. You might be thinking, well, don't cloud providers have hundreds of different services. Surely, you could spin something like this up on one of them, right? So what makes Cloudflare unique? Why is Cloudflare the best platform for building agents? This comes down to 3 key reasons. The first is the cost and scalability that are always going to be intertwined with each other. The second is performance. And the third is developer experience. So let's get into it. I'll start with the cost and scalability piece. And within that, I was talking before about how agents are made up of AI, workflows and APIs. So let's start with that AI piece. Now Matthew was talking before about how GPU utilization tends to be really low for companies. It can float at around 30% -- for 30% of organizations, it's around 15%. So why is it so low? Well, if you were to run a workload on a hyperscaler, the very first thing that you need to do is pre-provision all the resources you're going to need. Now for training, this is very easy because you have all of the variables ahead of time. You know how large a data set you're looking at, you know how large a model you're going to train and you're fully in control of the start and the stop buttons. Inference, on the other hand, is incredibly unpredictable. This is because inference relies on human behavior. And that's going to rely on what time it is in the day and what people are doing. Many of our customers are also launching inference products for the very first time. They have no frame of reference to look at for how product is going to do. So what they have to do is hope for the best and provision their capacity right around that top line. So regardless of how they do, that's just how much capacity they need to have in order for the best-case scenario. But what ends up happening in reality is that, again, that traffic is going to continue up and down. And with any other cloud provider, you are paying for that 70% of resources to, in reality, be sitting there completely idle. With Cloudflare, we took a serverless approach to inference, which means that we can spin up those resources as you need and scale up and that we're only going to charge you based on the usage that you end up having. So all of this blue area is what the cost savings look like for our customers. And we're not doing this just because we're being nice, although this is a nice benefit for our customers, but it also helps us get better utilization out of our resources because it means that when one customer is having that trough in traffic, we're able to schedule another workload on those exact same machines. Now this is just the AI piece. Now let's talk about the workflows piece. I was talking before about how the orchestration layer needs to connect to all of these different pieces outside of it. And all of these are, again, outside of your control frequently. It can be an LLM that's going to take several seconds to think. It can be a human that could take minutes, hours, days to respond. On any hyperscaler out there, you're paying for that entire duration of the request. This is known as wall clock time because if you were to look at the clock on the wall, from the moment that an operation starts to the moment that it ends, you're paying for that entirety of time. Now I talked in the beginning about the big bet that we took with isolates, and this is where it really pays off because containers are so lightweight that we're able to spin them down when we're waiting on something else to happen and then spin them back up just as quickly. This is something containers can't do. They're just not going to spin up quickly enough. So you have to leave them on the entire time. And we're able to pass those cost savings on to our customers. I'll use an analogy that I think every single person in this room is familiar with, which is, if you've ever been in a cab to JFK and you're sitting in that stop-and-go traffic, there's nothing more unnerving than watching that meter tick up, even though you're not moving. This is what it's like to be paying a hyperscaler for any of these workloads. Now if you can imagine that you would only pay for the bits, you're actually getting closer to your destination, that's what it's like to be building this on Cloudflare. So cost and scalability was the first piece. Now let's talk about performance. And keep in mind that for agents to really take off, performance needs to be really, really fast because our expectation of agents is going to be the same as it is of humans. And this is where Cloudflare is in the perfect Goldilocks zone of being able to service these use cases because we're able to get as close to the user as possible but with the entire power of a GPU or an entire data center behind it as opposed to devices that are always going to be just too small to be able to run the types of workloads you need for an agent. But it's not just the ability to get close to the user. It's about that end-to-end experience of an agent, and this is where we built a really connected and a really smart network that's able to move workloads around based on where it's going to make the most sense for the entire flow to run. And sometimes that does mean that you're going to have the AI piece, the API, all of these things running in the same data center, which is going to lead to the best end-to-end performance. Now the third reason Cloudflare is the best place for building agents. And this is the one that's closest to me because I started my career in software engineering. It's the developer experience. And I've built applications on the hyperscalers. And the thing that's so painful about it is that you spend about 50% of your time on things that, again, are not getting you any closer to your destination. And actually, in this environment, where things are moving so quickly with AI, every single day, there's a new innovation. You just don't have time to waste on all of that, whereas, again, on Cloudflare because you get all of these benefits out of the box, you don't have to spend time on them. That's time back that you get as a developer to actually build the best application possible. By being able to combine AI, compute, storage, our network and then obsessing over the developer experience, we can create experiences that really resonate with developers. In fact, recently, a customer was telling me about how, ever since they moved their development from a hyperscaler to us, they have a new problem where their developers are going so fast that their product managers are having a hard time keeping up with them. That's a world-class problem to have. But it's not just about having the pieces, too. It's about making sure that they all connect and integrate with each other in a really seamless way. And this is what we spend a lot of time thinking about and optimizing developers' workflows. Just a couple of weeks ago, we announced our agents framework that allows developers to spin up an architecture that's quite complex like this, all in a single command. That's what we talk about when we talk about developer experience. So why is Cloudflare the best place for building agents? Well, Sun Microsystems said it better than we could have. They were just a few decades early. But it's because the network is the computer. And for agents, you need a really smart computer, you need a really interconnected computer, you need a really private computer, secure computer, and Cloudflare's network offers all of these different things. And we know that this is resonating for developers because developers, sometimes they tweet about it, but more importantly, when developers are really excited about a technology, what they build is just really incredible. And today, already over 1,300 AI companies are building on top of Cloudflare. And I'll share just a couple of the use cases with you today, but I'm really, really inspired by the innovation that's coming out of developers. So one use case is in finance. It's an agent that helps out with actually due diligence. And it will go and research everything about a company, including the funding that they've raised, the founders, the team size, their budgets, all of that and help you come up with the next decisions to make. There's even a company that's actually in the medical space that's helping build an agent for clinical trials. And it will go and analyze and summarize all of the data that's been collected so far and help doctors with those next steps, just as you would expect of a lab assistant. And these are just the tip of the iceberg. We're seeing so much innovation coming out of developers every single day. But before I go, I wanted to leave you with one final thought. We talked in the beginning about the big bet that Cloudflare took with structuring our platform on top of isolates. And at the time, we got a lot of skepticism. People were thinking, well, it's a pretty big trade-off that you can't build, take applications and lift and shift them. And yes, you can be the best in greenfield. But is that market even large enough? Aren't the incumbents too big? And this reminds me actually of something that happened in another industry where technology completely transformed the landscape. So 15 years ago, you might have asked similar questions about photos. Cameras had existed for over a century, and the players were pretty well established. But then a new technology came along, and we started carrying around a smartphone in our pockets at all times, and this completely changed the trajectory of the industry. All of a sudden, in a matter of a couple of days, the same number of photos was being taken as it would have taken years to take before that. We're in a similar inflection point right now with AI, with AI driving an explosion of new applications that are being built. In fact, over the next 5 years, more code will be written than has been written over the course of the entire history of software. And for those applications to be successful, you need a platform that's going to make it as easy to deploy that code as it is to write that code. And that's exactly what we've built. The greenfield opportunity is bigger than it's ever been with AI and now agents. And I can't imagine a company better positioned to win all of that opportunity than Cloudflare. So an exciting time to be a developer, and I'm really honored to get to work on this every day. So with that, I'll pass it over to Mark.

All right. Good afternoon, everybody. Thanks so much for being here. My name is Mark Anderson. I'm the President of Revenue here at Cloudflare, and excited to talk about what's going on in go-to-market. My first 13 months on the job, I've probably done about 250,000 air miles, meeting with customers, prospects, partners all around the world in every geographic theater and our people. And at this point, a lot of these large customer meetings were with C-level executives at traditional enterprise companies. Companies that maybe were a little outside of the realm of who we've sold to in the past at Cloudflare, banks, insurance companies, governments and whatnot. The conversations were remarkably consistent, which was eye-opening to me. We've all felt in this industry since the beginning of the -- sorry, since the end of the financial crisis, IT budgets have gone crazy, right? They've doubled from 2010 to 2011 for IT. Infosec budgets almost tripled in that time. More and more people being hired, more and more apps, more and more infrastructure. It was almost like easy money. When you -- budgets are going up every year, even the most progressive CIOs and CISOs were pretty, let's say, fair about tackling technology debt. The very best of them kind of kicked the can a little farther down the road. However, the customers in the last 2 years that I've talked to are reporting, not everyone, but a lot of them are reporting budgets are flat to down. I think this is a massive forcing function in our industry right now. When budget is going up every year, we all witnessed a low sense of urgency on prosecuting that technology debt. What do I mean by technology debt? It's the sprawl of vendors, infrastructure applications that every large enterprise has tolerated for decades. In fact, most of the big banks that some of you all work for here still have IBM mainframes that they're running critical applications on. So with budgets constraining, companies are being forced to confront that technology debt faster than I've ever seen it in 30 years in tech. I think the pressure is on. And this is going to drive what I think is going to be a massive consolidation faster than ever before to platform players and fewer vendors. I think fewer next to choke as some of my favorite customers like to say. At the same time, Gartner is telling us that companies are looking to get higher revenues from their IT and Infosec investments, especially around generative AI, not just tech companies, but every company. Years ago, companies were afraid of being Airbnb-ed or Amazon-ed in the cloud era. Now I think companies are worrying about their competitor down the road doing a better job with AI and taking better care of their customers, maybe putting them out of business. The problem is, however, 70% of large-scale tech programs fail to meet timeline, budget and scope expectations. This has to change. This technology sprawl across legacy networks and point products highlights the mess that these executives must face. This requires a complex balancing act to address 5 critical and often competing IT priorities, user experience, resiliency, security, agility and cost. Modern users are increasingly expecting seamless and intuitive digital experiences, yet delivering these at scale constrains system resiliency and really drive up cost. At the same time, this growing sophistication of cybersecurity threats demands robust defenses, often constraining operational agility and impacting the overall user experience. Now Cloudflare defined the notion of the connectivity cloud as the way for customers to connect, protect, accelerate and build their businesses so that they can be more agile while retaining control. And as companies move aggressively to a more digital native environment, being able to connect your infrastructure, your SaaS providers, your developers, your employees and customers, it just becomes mega imperative. Cloudflare, from my perspective, is the only cloud-native, organically built network out there in the modern world. Customers everywhere that I talk to, they get this massive differentiation. And when I stepped off the Board 13 months ago, I was super excited at the opportunity here at Cloudflare. And at last year's Investor Day, I stated that I really believe the market is coming to where we are already. And when I talk to customers, I see the light bulbs going off more and more every day. The potential in front of us, as you heard from Matthew, as you heard from Rita and CJ, I think it's massive. And customers are just waking up to the fact that they need Cloudflare now more than ever. So let's talk about what we're doing to capture the significant opportunity that's ahead of us. Stepping back for a moment. Again, while I was on the Board back in 2023, we really -- we knew we needed to start transforming our go-to-market operations. And we knew that the mountain that we were about to climb was kind of -- felt very far away. And we navigated a lot of change and made a lot of progress in 2023 and 2024, but I'm not going to be satisfied until we've built a world-class go-to-market organization. That's how much of my career success has come, it's building these high-performing teams. So in 2025, I'm focused on 4 incremental key actions that are going to help us scale and enhance our go-to-market momentum to take Cloudflare to $5 billion and beyond. Our momentum to bring the right AEs and sales pod team members to customer teams globally is going full steam ahead. And this ensures that we engage with senior executive relationships at the biggest spending prospects and customers, regardless of segment, regardless of vertical, regardless of geo. To drive this momentum and focus on developer products, I brought back the amazing Aly Cabral to Cloudflare, and we've created a dedicated speedboat organization that you're going to hear from Aly directly, talking about our developer go-to-market motions. I'll bring him up specifically to get into the details, but I'll tell you 60 days into his move, we have driven a ton of excitement in the market and seeing a lot of opportunity here. We also made significant progress with our partner-first motion that I started early last year. But first, let me go back to business-to-business go-to-market university. From last year, you remember my equation for momentum is the product of mass times velocity. And in sales, momentum is ACV is the product of sales capacity times productivity. Now during the fourth quarter, we again delivered double-digit year-over-year improvements in sales productivity. This continues the upward trend from the trough that we saw early last year, where productivity levels were consistently achieved in the 2021 and 2022 cohorts. We're focused on continuing to improve this positive trajectory, especially while onboarding many new senior go-to-market resources that have proven track records. They've built relationships and trust with large enterprise, large spenders out there all around the world. And the drive that I'm seeing in the market to consolidate vendors to fewer, more capable platform players combined with the vast lineup of innovation that we have here at Cloudflare, leaves me confident that we can ramp AE productivity up for a very long time. Now going back to these 400-plus meetings that I've had over the past 13 months. Interestingly, many of these CIOs, CISOs and CTOs, they had little to no contact with Cloudflare. I was often the first executive that they met with. Now our success with these large customers was often done at the project level, maybe a WAF deal that we worked on. We worked with the senior manager. Her job was to land this project on time, in scope, on budget. It's not necessarily the strategic level. Well, that's changed a lot, right? Just on the go-to-market team, we brought in stage-appropriate talent to build relationships and earn that really important trust. In 2024 alone, we hired over 250 AEs, but we also managed out about 100 of them, people that just didn't have the right competencies or stage experiences at the next few legs of our journey, really important for us to have the very best team out there. And we expect that the capacity of these ramped AEs will accelerate each quarter in 2025. Second point, Gartner predicts that enterprise IT investment trends will heavily focus on AI, particularly generative AI and Agentic AI with a strong emphasis on data-driven decision-making, cybersecurity, cloud infrastructure modernization and platform engineering to unify and automate operations across many different environments. Now by understanding these digital imperatives, our AEs can deliver solutions or sales play combinations against them. In other words, sell a combination of individual products to provide a unified solution for customers. I'd say this to customers all the time for Cloudflare, the network is the platform. Third, we launched this developer speedboat a few months ago. Instead of hearing from me, I'd like to invite Aly Cabral, who heads up our developer go-to-market speedboat team to walk you through what we're doing here.

Thank you, Mark. And if I look familiar to any of you, it's because I was on this stage 2 years ago talking about our product strategy for the developer platform as a VP of Product for that business. Now I'm back to manage the developer go-to-market team for those same products. So taking all of that deep entrenched knowledge on our products and customers from 4 years of running that team, now applying that to our go-to-market strategy. Now look, we built this developer platform under constraints. For Act 1, we had extreme needs around scale, reliability, performance that we could not compromise. Two, our Act 2 business needed to deliver quickly on best-in-class products to meet an evolving security landscape. We needed that developer velocity. These constraints really powered our technology strategy for the Act 3 business. And I'm excited about how that technology strategy is meeting the moment in this market that we're all seeing us in, right? So there's a huge industry shift underneath us, and that industry shift is AI. We really were truly built for this moment. Okay. When I was in Rita's shoes, we had built this exciting technology, but we were in search of a big motivating shift in the way developers were building and what they were building. In other words, we were looking for that killer app. AI is that moment. And our compounding effect of all of our businesses amplifies the opportunity we have in front of us, and nothing is more motivating to me than capturing that opportunity. So how are we going to capitalize on this moment. We shifted our internal teams to respond and adjust to the market movements. To grow our developer business, Mark made the decision that the time is now to build this speedboat around the developer go-to-market function that combines sales, marketing, developer relations, our growth programs and our start-up program, all empowered to maniacally focus on that developer persona. We learn quickly, we adjust quickly. We operate independently while building bridges to the rest of the business. This speedboat bridges the gap between our product-led growth products and our strategic sales team. Often for the developer business, that pipeline, that qualified pipeline lies in early interest and like experimental usage that often can be missed if you're not focused on it maniacally. So our developer go-to-market team will amplify that early interest and that early consumption while seamlessly converting that interest into strategic large conversations. So to expand the strategic focus in this area, we're going to have a list of targeted accounts that we focus on that really, really are designed to be maniacally focused on that workers' opportunity. We'll build deep entrenched partnerships with them by doing unscalable things. like mutual road map development, we'll do specialized hackathons, we'll do focused events together. This is going to allow us to build a developer business that's truly grounded in our customers' needs and allow us to refine a repeatable approach to large and strategic deals. My team owns our developer go-to-market team, our talented go-to-market team, digestible playbooks and snackable talking points. And we're ready to take all of the organic success we've already seen in the field and make that repeatable for our teams so that we can repeat those things again and again and again, we have the data. We have the product, we have the team, and I could not be more excited to be back at Cloudflare to accelerate this growth and the developer platform and take it to new heights. And with that, I'm going to pass it back to Mark.

All right. It's so great to have you back. She's been shot out of a canon since she got here. And we had our regional APAC, EMEA and Americas sales kickoffs over the last 1.5 months, and I think she was the top presenter there. So I also want to talk a bit about partners. They're playing an increasingly crucial role in Cloudflare's growth strategy. We can build a better Internet by ourselves. We've got to do it with partners, both technology partners and with distribution partners. And these are important routes to market that we're big time investing in, in FY '25. The ecosystem supports all of our customers, regardless of how they want to purchase or consume our innovation. For example, solution providers, focus on resell and potentially wrap services around it. Systems integrators, very much focused on the delivery and ongoing implementation and ongoing management, managed service providers who offer Cloudflare technologies as services and implementation services. Service providers, who embed our offerings into their practice. And then technology partners, where we can offer our customer solutions to enhance their tech stack, offering a better together alternative where the integration is slick and modern. And distributors, people that can provide scale for us that can bring in their group of resellers to go out and represent Cloudflare. We need more feet on the street that have subject matter expertise, but they also have, in many cases, decades of success with customers and do a lot of business with them. Tom Evans, I hired him as our Chief Partner Officer almost a year ago. We've met with over -- well over 100 principles that many of the biggest partners that I had at Palo Alto Networks. And when I joined Palo Alto Networks, at the end of 2011, I went to a lot of my F5 resellers and said, hey, man, we're building a better mousetrap for security. We want to get you on it. And the interest was high, but there was a lot of fear from the mostly American companies -- or American resellers that were afraid of what Cisco might do to them. All the European SIs and resellers were afraid of what Check Point might do to them. When I talk to them about Cloudflare this time, I called every CEO of every partner I've worked with and said, "Hey, man, not only is this a better mousetrap, this is the future." I got 0 resistance and very high level of interest. So wrapping up, I think we have a lot of opportunity ahead here. You've heard from Matthew, CJ, Rita and myself, that we all believe we're the right company at the right time to get customers to the next level. We came here because we love our mission. We love the business that Thomas and Matthew and Michelle and others have built, being able to partner with world-class people like Steph from Goldman Sachs. And my brother from another mother, CJ. On the product side, he is the best product leader I've ever known. I felt that way for a very long time, and he's probably the most polished customer-facing product leader that I've worked with. And I really think that as a team. We can do some incredible things together. So in 2025, the bottom line is we will be world-class in the go-to-market organization. With that, I want to pass it over to our CFO, Thomas.

Thank you, Mark. Well, I'm Thomas Seifert, I'm the CFO welcome here, and hello, everyone. You might remember, last year, I had to hurry out to catch a wedding. And while we have a wedding this year again, we did a better job planning for it. So you have my undivided attention after this after, after speech and Q&A too. It was interesting when all of you came in an astonishing amount of you asked me how are you, Thomas. And I understand by now, this is more than a small talk. I know that is one of your KPIs, figuring out where the sentiment of the CFO is and is he optimistic enough. So. It made me think of yesterday, we were all sitting here going through a little try run. And I was staying in the corner, really proud of the team, how everything came together. And made me think of my first Investor Day, and I looked at my script and it said, pause here, Thomas, pause here, pause here. And I looked at my CEO and he had smile, smile, smile. And I said to my Head of IR, why does he get the smileys? And she said, because you are the CFO. So this year, I think this script would have deserved a couple of smileys. I think we are in a very -- in a year of inflection points, and you see -- saw this already in all the presentations before us where things fall in place and come together and why we are excited about what is ahead of us, why you hear us all talk about an acceleration that we see. And before we go into this and to the meat of my presentation, I like the part where Mark went into some teaching exercise, and I thought we got so many questions on pool of funds. I wanted to spend some minutes on -- why -- what is the rationale behind them of the pool of funds? And why do they impact our financials the way they do? So before we go to the really exciting part, a little bit financial accounting 101. So quick summaries. They are good. The pool of funds are good. They allow us to accelerate adoption of our customers. But like so many good things in life, they come at a price. Consumption-based nature of these contracts can impact, unfortunately, the shape of our financial reporting. And how do they do that? Well, enterprises are increasingly accustomed to purchasing cloud services through flexible consumption methods. And as Mark is successful and his team and as we migrate up the enterprise stack and our customers and our opportunities become bigger, this is how they want to purchase. And as you can see from the graph on the right, we had a significant adoption of pool of fund deals over the last 5 to 6 quarters. And however, with this increased adoption, the noise also increased in our -- compared to a purely ratable model. So I picked 2 cases, I think that will demonstrate this in a in a meaningful way. So this is one example of an existing customer, a very large customer, a very large technology company who had been on our platform for many, many years and had adopted quite nicely. In the first quarter of last year, they adopted a pool of funds contract, a significantly larger commitment on an annual basis. And because of the significant commitment, of course, they are shifting down the pricing curve a little bit. So when they started to transition in the first quarter, revenue dropped because they were on a lower pricing curve. And there's adoption then picked up again, revenue grew. So the customer started using more of our services, revenues accelerated and even, of course, exceeded our pre pool of funds run rates. This was an existing customer that switched from a ratable contract into such a structure. We have other cases, too. This is an example of a really fast-growing AI company, signed on with us early, very small deal, $0.5 million. And after 2 months already figured out that their need on our platform would be significantly bigger, signed a north of $7 million pool of funds sale for a year. And then the service took a while to ramp, and we only recognize revenue when the service runs. That's something we see more and more often. Our deals are becoming bigger and bigger. We are trying more and more traditional enterprises. They're migrating off heavily installed and intertwined incumbents. so from the signature to the start of the service takes a while, has the impact of our revenue. So just two examples. But you can see that pool of fund contracts are effectively ramp deals in terms of revenue recognition. And also, they start lower in the beginning and in the near term compared to the ratable structures that you might be used to. In the end, they lead to a higher revenue growth over time and they lead to accelerated adoption. So we think the negative headwinds that we've been seeing from pool of funds deals will -- you see this already on the right side of the graph, are disappearing. We think by the second half of this year, 2025, the negative impact will have faded away, okay? So, so much to the 101. So let's talk about why we are excited, how things are coming together. And with that said, I want to frame the rest of my conversation here primarily around two things. How we look at growth in the near term and moving forward, what drives the acceleration, what are really the signals we've seen in detail when we were on our last earnings call. And then how does this relate to profitability? How are we going to manage the company moving forward from a profitability perspective. So starting first with growth. I just said in the beginning, this seems to be the year where things are coming together, where technology and platform is accelerating, where an enterprise-ready team to take on the excitement that we see. And as I mentioned on the fourth quarter earnings call, with real visibility into the factors that are driving that acceleration. So I want to take literally every one of these points on this slide and give you a bit more insight in the data that drives our confidence to accelerate and also to invest behind the data we are currently seeing. So as you heard just from Mark, we are super encouraged by the improvement he and his team is making around productivity on the sales side. This continues now for a couple of quarters. But not only is the productivity increasing, we see a significant shift in the attainment of the ramped AEs. So productivity and attainment is coming together. The whole curve has shifted to the right and has improved by over 10 percentage points for AEs that achieved north of 80% of their quota. So first data point, super good progress on productivity, attainment curve is shifting to the right. What we also see is all the efforts that you heard, Mark, CJ, Aly, Rita talked about on the product side is generating momentum, significant momentum from a pipeline variation perspective. Our expanding product portfolio generates the customer value. You heard Mark talk about this. So we literally exited 2024 with a carryforward pipeline that was 40% over the previous year. So higher productivity, higher attainment being fed by a stronger pipeline year-over-year. And as Mark mentioned, not only have we made significant progress from a productivity perspective, but also up-leveling our go-to-market systems, the processes that go along with it, the folks that we put in place. And all this action being in place now, the amount of AEs that are on enterprise and in seats has -- is encouraging us. And this will be now allow us not only to feed revenue growth productivity driven like what we did last year. This year will be the year where we can accelerate hiring and net capacity as capacity is increasing. Remember, Mark's chic formula, this will drive ACV acceleration moving forward. And we continue to accelerate [indiscernible] hiring throughout this year. The factor that I like a lot, and you hear Matt talk about this when he says we stack S-curves on the product side on top of each other. On the customer side, we see something similar happened. We are stacking customer cohorts of larger and larger customers on top of each other. We have and we continue to have incredible success in the small and medium-sized businesses, the companies that we serve coming from our free origin. And we are taking our larger and larger customers on top of that. There are very few companies in the world that serve such a broad continuum. That was one of the bear cases always against us. I think we put this to rest if not, last year, then this year. The amount of $1 million customers that we have, we seem to be an inflection point. The dot is ticking up. We are -- we came to the revenue run rate we have with significantly less $1 million customers than our peers, with only 1% of our total paying customers represented by them. But it's an incredible white space in terms of opportunity in front of us with the work Mark has done with the network Mark brings, with a network CJ brings to us and the team he hired. We think we are on an inflection point in terms of how the curve is going to behave moving forward. And why do we think that? Because we see that accelerated across all of our large customer cohorts, not only number, in terms of numbers of customers, but also in dollar spend on Cloudflare. Our largest and biggest customers are our fastest growing cohorts. And the north of $5 million customer cohort is now up 31x since 2018. And we announced our largest deal ever in the fourth quarter last year. Normally, it takes us about 12 to 15 months to jump to the next large customer cohort. I'm quite convinced that this will be the shortest lifetime of a large customer in our portfolio. So stay tuned. I think even the rate at which we jump to the larger cohorts is accelerating from what we see today in our pipeline. And CJ did a really good job of the lessons he learned at ServiceNow, how important the land and expand is. Our platform is designed with this inherent easy use, right? Once you are in the platform, once you are -- we have here with your first product, every additional product is literally only a mouse click away. And you see that revenue contribution from a number of products used, especially north of 10 is accelerating. So our success in driving the platform adoption is evident by also the consistent increase dollars spent with Cloudflare by customers and how many products they consume from us. This is, I think, the chart that shows how things are coming together. I remember when with some of you, we did the teach-in for the IPO, and we talked about 5 revenue-generating products, Wave 1, mostly small- and medium-sized business at that time, our enterprise share was less than 10%. Now 60 revenue-generating products across 3x feeding off each other in terms of momentum, a massive increase in our TAM, 6x over the last several years. And I think this describes the opportunity. Traffic has been exploding. We've architectured a network and an architecture to take full advantage of it. We have slots in all places, workloads in all platforms that need to talk to each other, all on an umbrella of security and privacy. This gives us this massive TAM. And all of the goodness that Rita explained to us is not even reflected in those numbers. So one of the places where I should have a smiley in my script. So finally, maybe a chart that you all have been waiting for. One of the peer cases was also when you transition from one Act to another, there will be pauses in terms of generated revenue. I think this can -- we can put this to rest now. We see accelerated traction in all the key areas that drive Wave 2 and Act 2 and Act 3, including Workers and SASE. In 2024, ACV bookings for Cloudflare in Developer grew by 43% year-over-year and accelerated growth rates coming compared to '23 and 76% up in Developer also significantly accelerating coming out of '23. So all good news. This is why we think a lot of things come together. That's why we're quite confident when we talk about how an acceleration of product, an enterprise-ready team to take full advantage of it will lead to an acceleration on our top line moving forward. So we -- let's switch now from growth to profitability in the last couple of slides. We've always taken a really disciplined approach and a very data-driven approach on how we scale Cloudflare, balancing what investments we need for future expansion and with the financial and operational efficiency, and the business model helps us because it allows us to follow the data, not only when we talk about GPU capacity, it's CPU capacity, it's how we expand legal entities, it's how we expanded our market and go-to-market footprint, how we ramped our enterprise sales force. So this disciplined approach gives us flexibility to lean in when we see opportunities. And as we entered the year, the data we saw gave us the confidence to do what we talked about to continue to be a reinvestment to accelerate growth. And we are selling growth and productivity. When combined with the pipeline that I just showed you, will allow us -- gives us this confidence. So there's many -- I say many times in the past, we are focused on maximizing long-term value. We made a lot of changes in Cloudflare, including the transformation on Mark's side. It could have been disruptive, it was not. It allowed us still to exit '24 and maintain unit economic margin of more than 40%, while we transformed and while we are reaccelerating R&D and innovation pipeline moving forward. So as you can see on the slide, we performed in all metrics, how we serve, how we deliver our peer group on all KPIs. I remember discussions when we launched Act 2, [ peers ] said, it might be CapEx efficient, but it will drive OpEx. Well, we did not. We continued to ramp down or drive down the efficiencies, lower cost, observe quite significantly. And we will be focused on this moving forward. We are not satisfied. We are never. Michelle will say this. We are just getting started. We will remain focused to become even more efficient, more productive. Every dollar we want to put into Cloudflare needs to deliver more revenue and profits, I'm sure we'll do that. And I think we have a good path on it. The network, the processes are in a way that gives us the levers to influence how we -- our cost to book, our cost to serve and where we probably are still the biggest room for improvement, while we are good compared to our peers, still the biggest room for improvement in getting better on expansion and driving DNR up. So this brings it all together. The -- our North Star has been the Rule of 40 plus. This will continue to stay in -- our North Star. The compelling unit economics that you saw allow us to support the business while we drive efficiencies forward. The gross margin, I think, is a good testament to it. Our range, our target range is 75% to 77%. We have been way better despite all the rearchitecting, all the isolates, the investment in CPUs and new server generations, the amount of GPUs we have put in place. And I think Matthew has done a really, really good job trying to help you understand why we are highly convinced that the metrics will hold up from a CapEx efficiency moving forward. We have made significant progress on the sales and marketing side in terms of leverage despite shifting the footprint to enterprise, despite all the transformation we have done. We are light today compared to our business model in terms of R&D spend. We want bigger development capacity, not necessarily at ramping up dollars only. So we're in the process of setting up legal entities in places that allows us to increase R&D capacity significantly while we live in the spend envelope we have. And on the G&A side, as we said, we are getting really, really close to our target range. So our long-term operating model is holding up nicely. We are very much convinced that 20% plus is very achievable in this setup despite everything that is in front of us. We've been improving our free cash flow margin significantly, and we think 25% as a long-term target is after all a really good target to have. So with that being said, and before I hand back to Phil, I have to put on one more big smile despite the fact that there's a pause in my script. Thank you for listening, and I hand it back to Phil. Thank you.

All right. All right. Well, that was fantastic. We'll take questions from the audience now if you could raise your hand and then Heather and Alexia will bring over a mic. Why don't we start with Joel. So Joel first.

Joel Fishbein from Truist. Mark, I'm going to pick on you. It's a multipart question since [ Tash ] isn't here, I'll make it complicated. So when you talk -- you talked about vendor consolidation and go-to-market there. Are we past the education phase that Cloudflare is a vendor that can take out the network stack and some of the other DNS -- other layers? Are companies still looking at incumbent vendors to do that as well, number one? And the second thing is, how do you balance between that part of the go-to-market sales and then the greenfield opportunity around AI? And how do you have your sales force going after those two opportunities at the same time?

Yes. Great question, Joel. Thanks. So a couple of things. I think there's 2 pretty massive colliding forcing functions that are facing every IT and InfoSec leader out there. I talked about there's need to consolidate and manage expense. And the second one is what is AI going to do to my business and how will that profoundly change everything. And those are really top of mind for everyone. So are we there yet? No, I don't think we're there yet. I think we're still building out capacity. We've hired a lot of really good people. We've really upticked our enablement activities to make sure we're teaching our people how to sell business outcomes to customers and especially to some of these traditional companies that maybe haven't naturally come to Cloudflare in the past. And I think it's a work in progress. I think we're well underway. I think we're a lot farther ahead today than we were a year ago. But I think this takes time. And I think the -- every customer I've met with, every head in the room nods when I talk about these forcing functions. And oftentimes, they're learning about things that we do that they didn't know. So I think that's another reason why partners are really important to us. It gives us a lot more feet on the street with existing relationships, and this is globally. And so definitely a work in progress, but I'm delighted about where we are today. I mean I've gone fast. I talked about the 250 AEs that I hired. There's a multiple of that of people, especially after the sale that are going to deliver the white glove service that like a Truist would require to migrate from legacy technology to more modern architecture, and that ramp has been substantial. I think on the AI front, that was one of the primary reasons I wanted to build a dedicated, focused speedboat. And the chance that I could get Aly Cabral to come back and run that for us was far too good to pass up. And so like I said, she's been shot out of the cannon since she joined here 60 days ago and really driving up the attention. It was a big part of our training at sales kickoffs over the last 5, 6 weeks. And the inbound interest from the field into her team is off the charts. So I feel really good about where we are.

Andy Nowinski?

Can I say one more thing? Sorry, Joel. But it's interesting in these meetings that I have, especially if I know the customers, I've been doing this for a long time, right? I will like almost virtually poke them and say, who are you going to pick for your partner for this coming wave of AI? Who are you going to pick? You're going to have to pick somebody that looks a lot like Cloudflare. And especially if I know the people well, they'll chuckle and they'll go, yes, you're right.

All right. Andy Nowinski, Wells Fargo. Thanks for hosting it. Great event so far in a great location. The theme of the day was accelerating. A few years ago, you put out a $5 billion target for the end of 2027. Do you have any updated thoughts on that goal? And are there any new contributors to that $5 billion that maybe you didn't think about when you put that out originally?

Yes. We put that out in 2022. A lot of things have changed, '23, '24, IT spending came down. But also Cloudflare changed a lot. We made a lot of changes. So you saw that clearly today. So to be honest, I think the net impact is probably less than we all thought, maybe a year later is probably where we stand. And just to frame this, maybe if you annualize consensus for the fourth quarter of this year and say $5 billion in '28, this would be a CAGR of 28% to 29%. I think where we are today is this is a very reasonable assumption. And I think Mark and CJ and I can put pressure on them, are significantly more ambitious and hopeful that we can get there faster. But I think that CAGR would be a very reasonable assumption at this point in time.

Jonathan?

This question is for CJ Desai. This is Jonathan Ho from William Blair. With 60-plus products, how do you balance between focus and broad coverage by your platform?

So this is -- so first of all, innovation and laying that out sometimes in front of the customer is a very positive thing. And when you say, okay, these are the specific use cases that this particular product can solve the problem, it's always a good thing. However, to make it easier from a go-to-market perspective for Mark and the team, we are working on what is the right way to not only package the products, say, for security for external users or for employees and contractors and so on. So one is having the right packaging and the right pricing is something work that is going on right now where we are making progress so that we simplify both the message that we give to our customers and partners on how they should position Cloudflare and make it easier for a customer to say, at the end of the day, this is security for all your external users as in your end customers or end partners, and these are the product set that does it.

Shaul?

Shaul with TD Cowen. Actually, a question for Matthew. Over the course of the past few years, in some quarters, you have become maybe unofficially the harbinger of economic direction. You recall '22, the crypto, '23, actually '24 seems to be getting a little better. My question to you, what's your current thought? I think also in terms of federal spending, DOGE, et cetera?

So oftentimes, we see what macro trends are because so much of the Internet uses us. And I guess, at some level, the Trump campaign and properties have been customers, but that I don't think gives us a very unique insight into what's going to happen with tariff policy tomorrow, which seems like what is driving the macro right now. So I feel like my crystal ball, which really is some insight today probably into what's going on in the Trump White House, more than anything else is pretty cloudy. So I don't know that I can tell you what's going to happen next because I don't think we have a particularly unique insight into it. What I will say is a couple of things. First, regardless of what happens, we're going to be great. Like we know that we can execute. We know that our products are must-haves. We know that we're able to deliver on that. In particular, with DOGE, there may be some unique advantages that we have. If you look at DOGE in particular, it's -- all of the public-facing bits are built on Cloudflare. A lot of the -- what are largely young kids that are running it have been Cloudflare fans for quite some time. In fact, there was a story in New York Magazine about one of the DOGE members who happens to go by the nick name Big Balls, who it turns out 4 years ago wrote to me saying, huge fan of Cloudflare, but I think I can disrupt this. Here's my business plan. And I wrote back something like that's the dumbest idea I've ever heard. Why would you waste your time? He strangely over the next 4 years continued to write e-mails, including as recently as about 2 months ago, wrote an incredibly thoughtful sort of set of suggestions for our Workers platform, which I forwarded to CJ. And he's a big Cloudflare fan. And so I think that there are a lot of federal contracts that legacy vendors, we would think are overcharging the government for. And I think that there's an opportunity for us to potentially win business there. And then I also think this is an example of how having a product that a 15-year-old kid can play with and experiment with -- usually, it's not the 15-year-old kid who ends up running the federal government. In this case, it seems that way. But oftentimes, we find ways that people who start experimenting with us early, bring us to work, grow their careers around us. That has been just a very natural way that we go to market and that we build fans. And I think that historically the practitioners have been huge Cloudflare fans, and we haven't had as much of the relationship with the C-level executives. But over time, those practitioners become the C-level executives, and we've brought in folks like Mark and CJ and Stephanie, who have the relationships with the C-level executives. And so we're going to meet in the middle. And I think that creates an enormous opportunity regardless of what happens in the macro.

Adam?

Adam Borg with Stifel. Maybe for both Mark and CJ. Just as we think about Cloudflare One and Zero Trust more broadly, talk a little bit about how you feel where we are in the go-to-market motion, specifically, where we are on the R&D side? What still needs to happen to maybe win at the upper most enterprise level on both sides?

Do you want to start with the product?

Sure. So first of all, Zero Trust, massive space. TAM is massive and still growing. So fundamentally, it's a good place to have great products. So that's number one. From an R&D perspective, we have a phenomenal team, great leaders, Annika, who is here and a few others who run that team. And we are very focused on making sure that where Cloudflare's strengths are, which is around access gateway, we go really, really deep and become world-class to get hundreds of millions of users on it. So that's where the focus is. The team is already delivering great innovations this quarter, next quarter and so on as we penetrate the enterprise and the large enterprise space. And what I hear from customers when I ask them, okay, what do you think about this portfolio, specifically for Zero Trust and where we stand? And they always say, your performance for the end users is so much better than the other players that are out there that you have a chance to win and you provide a great pricing and value. So CJ will always have this conversation. And these -- literally, I had a conversation yesterday with Fortune 35, who said they are going to kick off a project to evaluate us as well and also a large bank in Japan. So very, very optimistic on where the product direction is and specifically going deep where it's our strength, which is around network and, of course, access and gateway.

Yes. And on the go-to-market side, we spent a lot of time in the last year making sure that all of our sellers, all of our solution architects really become very competent in being able to articulate why security controls belong over a highly performing, highly secure network like ours, right? And you've heard Matthew in the last couple of earnings calls talk about some pretty large Zero Trust or SASE wins on the earnings calls. And again -- but it continues to be a work in progress. I think the products, from my perspective, are terrific, and our sellers are getting more and more capable of articulating that. And I think just my earlier point about this drive for consolidation, I spent almost 8 years acquiring companies at Palo Alto trying to chase the security controls that we're moving off of people's data centers and real estate. And that's why I really believe the market is coming to Cloudflare because they belong over an edge network like ours.

Gabriela?

Two quick ones. One is a clarification. So you mentioned doubling the CapEx -- doubling the compute capacity in the network this year. You also said you normally invest CapEx behind demand. So inherently, does that mean that demand signals are doubling demand this year? Maybe just clarify that for us. And then the follow-up is on isolates. Maybe just a little bit more about how that technology has evolved over the last 4 years. I think it was 2021 when you first talked about it coming out of the remote browser isolation category. So I would love to hear a little bit about what's unique versus serverless.

Yes. I mean I think it is fair to say that we see traffic and demand growing, and we're investing behind that. So that is -- that is roughly what we see today. If that grows faster, then we'll invest faster. But that -- because we can invest behind the demand because we can invest behind the revenue that means that CapEx as a percentage of revenue should hold fairly consistent. In terms of isolates, again, I think it's just -- it's the natural evolution. We used to have bare metal servers, then we had VMs, then we had containers. Isolates are the next stage. I think there were much like when VMs and containers came out, there were concerns around is this actually secure? Is this actually something that works? We have done the hard work to be able to validate that, worked with some of the top research labs in the world to be able to validate that. And so being able to have what is just the lightest weight underlying infrastructure is what gives us the ability to put code all around the world. I was actually with the person who, for a long time, ran AWS Lambda, which is kind of the equivalent product, although it's actually much more of a container-based product at AWS. He's at a different employer now, and we were seated next to each other at a dinner. And he said, one, you guys just beat us in this space, and you've run so much further ahead that we sort of decided that we were going to sort of double down on our previous strategy not try and chase you because they thought they couldn't catch up. And then two, which was both exciting but also somewhat concerning, said at inside of AWS, we think of Cloudflare as our top competitor.

Madeline?

Madeline Brooks with Bank of America. And it's really for Matt and for Mark. Just to follow up earlier on macro and outlook. Just talking about enterprise. I mean I think the last couple of weeks have been really volatile outside of just government but for everyone here. So when you talk with enterprise customers, are they starting to feel the uncertainty that's ahead of us? And is that giving them any pause or hesitation in moving forward with any type of purchasing decisions?

So I'll start and then Mark can add. I think we're not seeing it show up in the conversations that we're having with sales -- with our customers right now. They're continuing to invest. The balance is, again, there's a fundamental shift where, yes, we're still working on going to the cloud. We hear from every enterprise. We're still -- security is still top of mind, but now I've got to work AI into that as well. And so the fact that we can engage very much in all 3 of those interests and concerns means that we haven't seen any slowdown in taking meetings. We haven't seen any slowdown in pipeline. All of those things continue to be positive. But that said, I mean, obviously, as markets are volatile that can have an impact, but it's not something that's showing up at this point.

Yes, I think the longer-term trends around consolidation and embracing more modern architecture to exploit the benefits of AI and all that, that means. I think those are the things that people are more focused on than sort of 1-, 2-month kind of horizons. I don't know, CJ, you talked to a lot of customers as well.

Same. I would just echo, it has not shown up and customers are very focused on whether there is a modernization initiative on the network side or the cyber side, but it has not come up.

And maybe one follow-up, if I could. In terms of putting any of the risk or uncertainty in the future into that $5 billion guide that's now 2028, what were the puts and takes for moving it to 2028? Was it really more just previously things that Cloudflare has experienced? Or is there a level of uncertainty going forward that you also took into account?

Well, to a large extent, it's just math, right? So if you put it into '28 and you -- we get to the consensus run rate in the fourth quarter 28% to 29% CAGR. To get to $5 billion in '28 seems like a very reasonable assumption at this point in time, with ambition to do better, of course. I think this was clearly obvious in the presentations you saw, but we are where we are today. We were in an earnings call where in a slight acceleration where are you sure. But from where we are today, that is a very reasonable assumption.

Mark?

Mark Murphy, JPMorgan. Fantastic presentation. Wondering if you can speak to the GPU fleet and the nature of it, the direction it's going to take. And just specifically on 2 topics. One is, do you want to be able to handle super complex multistep reasoning, the type of thing we see when we do deep research, which is pretty amazing. It will work on something for 15 to 20 minutes. It will write Python scripts for you to answer a question. Do you want to architect to that? Or do you want to architect to sort of smaller language model types of use cases? And the other concept that's coming up is the intertwining of the training and the inference, right, where you have runtime training. If that is a trend that you think is emerging, do you want to architect to that where then you might want to take on some of the training workloads?

Yes. So first of all, I think we do want to continue to innovate to be able to support as many inference tasks as possible. As we look out at where demand is right now in the market, it's actually -- again, they are the OpenAIs of the world. There are a handful of large companies that are building kind of these frontier models, but that isn't what the average company is necessarily building for. And so we have relationships with those companies. I think you'll see them use our inference platform more and more. I think we will have to invent tech in order to make that -- in order to make that work. But I think we have the right team to be able to do that. So I think we want to support everything over time. But at the same time, there will be just the nature of the beast will be that it might not be at every moment we can support every possible model, but I am amazed at the work that our team has done to support the breadth of models, including some very large models across our platform, and we're inventing the technology to be able to do that. Behind the scenes, we've been an NVIDIA partner for quite some time. They make great silicon, and we've deployed that, but you will see us have much more diversity of silicon across the board. And I think it's kind of like the old Steve Jobs line, focusing on speeds and feeds, like exactly what chips we're using, exactly what the ratios are, we think is a mistake. We want to abstract that all away from our customers. And what we're seeing as we experiment with both the silicon, which is coming out of companies like AMD, Qualcomm, Intel in the GPU space as well as a number of the start-ups that are in the space is that the right answer might be different depending on exactly what the use case and what the model is. And so it might be that an AMD GPU is better for one model and an NVIDIA GPU is better for another. And so behind the scenes, in our CPUs, we have Intel CPUs, we have AMD CPUs, we have ARM-based CPUs that are running. And customers have no earthly idea which of those is actually running behind the scenes. And I think that, that is what we want to do in the GPU space as well. And so I think we will become more heterogeneous over time. That will allow us also to drive down what the underlying hardware costs are. And what we're seeing is that there are very big advantages that you can get in terms of performance even on NVIDIA GPUs, if you don't necessarily use CUDA and some of the platforms that are there, if you start to program a layer lower than that. And those are the engineers that we have are the ones that love taking those challenges. I'll give you just a really specific example. If -- so to load and unload a model, using standard kind of APIs on an NVIDIA chip, it takes about 2 seconds. And in most cases, who cares, 2 seconds. In our case, though, we want to be able to load and unload models incredibly quickly. And so our engineering team said there's no physics reason the bus supports that, the memory is fast enough. There's no physics reason that, that has to be the case. It's just no one is optimized for it. Whereas we've now optimized for that and can load and unload models in orders of magnitude less amounts of time. And then you can imagine that, that then allows us to have much higher utilization rates because I don't have to dedicate a particular chip to a particular model. I can literally load and unload models as they come on board. That's the type of innovation, which I think actually creates a real moat for us as we go into the space, and it allows us to get more practical use out of every dollar of CapEx.

[indiscernible] from UBS.

Roger Boyd with UBS. Matthew, you were talking earlier about giving content owners more controls over how their content is accessed by AI. That seems like a massive opportunity. Just how do you think about that playing out? And how do you see that kind of trickle into kind of Act 1 Bot Manager?

Yes. I mean -- so the first thing is there are a number of media companies that had used other providers that kind of were like, it's not worth switching. And we'd say we can do it cheaper. So like this is the first catalyzing event where I think you're going to see a huge amount of media companies switch to Cloudflare from some other providers because no one else is thinking about this and helping them. And this is what they think of as an existential problem for them. How it plays out, I think we'll see. I think in the short term, the challenge is the AI companies haven't figured out what their business model is. And so exactly what that looks like. I actually think it's a mistake for content owners to say $20 million, but you get access to our entire catalog. I think you want to do something that is more like as the AI companies grow, we get to grow with you and figuring out what that model looks like. I think some of the work that folks like Bill Gross have done is really interesting in that I think you'll watch the space because I think there's a lot of things that we can potentially do with them. And the steps feel like we're kind of -- it's a 3-step process. Step one is give people the analytics to understand what AI companies are using. And every publisher that puts content behind Cloudflare and looks at the data, they're like, why is ByteDance crawling me that? They don't -- they have never had that visibility. And then Step 2 is give people the controls. I think we're kind of in the middle of Step 2 now, and you'll see us in the next few months make it -- we think we've figured out and patented some really interesting technology that can help differentiate between content that publishers would want in AI. So for example, Cloudflare, we have a whole bunch of knowledge-based entries on how to write Cloudflare Workers. We want that to be in AI. And so we want to be able to provide that. On the other hand, if I'm -- it's a New York Times article, New York Times probably doesn't want that. And we want to make that just auto magic to be able to differentiate between those things, and we think we've actually figured out a pretty creative way to do that. So in the next little bit, we will default block all AI crawlers unless a publisher permits them to on content that we believe that publishers don't want them to have access to. That then creates scarcity. Once you have scarcity now you can create a market, right? And so that's step 3. I think exactly what that market looks like, I'm not sure. There's probably some fee for crawling and then there's some fee for using the information, the crawled information in a response. And we're going to figure that out. What I am encouraged by is that the leading AI companies that are the most thoughtful in this space are saying, this is something that has to happen. And really, if you're a top AI company, one of the challenges is right now, there's not a ton of barrier to -- I mean we're seeing this right now, where there's just everybody has -- it's just everyone's leapfrogging it every day. Access to content might actually be the barrier to the AI companies that are out there. And again, in my kind of optimistic view, we could actually see a reemergence in really high-quality content that is super valuable. So if you're columnist like -- and you're supplying data to an AI chatbot that talks to teenage women about fashion like the fact that you have exclusive access to what happens at Met Gala is really interesting content. You can imagine that someone sitting in Indianapolis who has a fleet of drones that reports on what traffic patterns are on I-70, like all of a sudden that becomes incredibly valuable and that content creator could make millions of dollars a year off of actually creating that content in a way that -- I mean that content has to be in an AI system if you've got that. And so I think there's actually -- there's going to be a new business model for the next version of the web, and I don't think there's any company that's better positioned to help figure that out than Cloudflare is today. It's like Google figured it out for the last version of the web, I think we hope that Cloudflare is the one that helps figure it out for the next.

All right. That will actually be the last question of the day. The day went fast.

Very fast.

So thank you, everyone. Thank you everyone on the live webcast for joining us. And then for those in the room, stick around for just a moment while the webcast ends. So thank you.