All right. All right, good afternoon, everyone. Welcome to the final day of the Credit Suisse 26th Annual Technology Conference. My name is Phil Winslow, I'm a software analyst. Recognize many of you from prior sessions, so thank you for joining us as always. Very excited to have what has been one of our favorite stories, for many, many years, Cloudflare, and a longtime friend, Thomas Seifert, the CFO. You know, Thomas, you know, thanks for coming down. Thanks for having us. I was actually when I was prepping for this, I started to think. I was like, "You know what? You've just celebrated your five-year anniversary at Cloudflare just this June." I guess just to level some things for everybody, would you sort of just reflect back since the time you assumed this position? Can you walk us maybe some of the key issues, initiatives that you and the management team have addressed, and how that's evolving to where you are right now in the go-forward strategy? Well, first of all, five years, you know, that's the longest I've been in for a while. It has been quite a ride. Every time we get ready for an earnings call and we pick, you know, what are the customer samples we want to show and how do we talk about new products, and we say, "Gosh, we did all this in a quarter, and now you want me to summarize the five years." You know, we went public. That was a huge initiative. It's not so much the fact that we went public, it's I think what differentiated it is how much effort we put into the pre-IPO getting ready for being a public company. It was always this, "Don't worry about this one day in your life, worry about what comes after it." You know, what systems do we need and what processes do we need, not only to be a public company, but how do we scale? You know, what is life going to look like when you are running for, at that time, $500 million of revenue? That was always a big part of us thinking ahead and getting ready to scale system-wise, process-wise, people-wise. You know, when you grow north of 50% for compounding it for so many years, that is a true challenge. I think what is always amazing to me, even after five years, is the amount of innovation that happens. I still remember when we tried to find a way to convey our business model in simple terms and have, you know, people like you understand what Cloudflare's all about, and we came up at that time with this bumper sticker, "Cisco as a service. Yes. That was quite a way to get started. We've added Zero Trust, we added network services, we added storage products. There's Workers and edge computing. The sheer amount of innovation that happened over the five years, I think, is astonishing and keeps us up. The network went from, you know, to 270 points of presence. In many cities we are in more than one location. Now, this journey, I think that from a freemium model to a pay-as-you-go model, where people give us a credit card, to a place now where most of our revenue comes from enterprise customers and large enterprise customers that pay us more than $100,000 per year is far more than 50% of our revenue. We still had this reputation less than three years ago, "Oh, you're only serving small businesses and developers." Digesting this as a company in terms of go-to-market and messaging and branding, I think was a big part of what kept us up and will keep us up on the journey to the next milestone. You know, how do we move up the enterprise stack from a customer size and structure perspective, and still keep what we think makes us competitive and efficient. Yes as we scale up. There was plenty to do, and there's still a lot. Still a lot to do. ... that needs to get done. Yeah. Yeah. While you're still growing, you're growing fast and you're driving the train at scale, it only gets harder. Yeah. That's the fun part. It is. We've talked about over the sort of past five years. The next question is one that I'm sure you wouldn't have guessed is the near term. Yeah. The... We've been asking everyone with obviously there are these, you know, crosscurrents and headwinds- Yeah ... macro, you know, geopolitical. You know, how are customer conversations changing? You know, you talked about this a little bit on the last call, but what is being prioritized, maybe deprioritized? Where are people saying, "Look, I need to invest in Cloudflare now," versus maybe taking a little longer? Yeah. Well, the, you know, for us, this was a picture that started to form really early. I mean, I think we the first time we talked about headwinds that would be building up, it was as early as the fourth quarter of last year already. Folks at that time gave us little credit for that. We see a lot, we see a lot of data and that influences businesses' decisions. What has certainly become a theme over the last two or three quarters is that new logo acquisitions have become significantly more difficult. The more ACV is under negotiation, the longer it takes. People measure twice before they sign. We've seen that. We have not seen many changes to the better over the last two quarters, to be very honest. Where we see hope, especially unique to us, is when it comes to security and the threat landscape has not become more relentless. The war in the Ukraine does its thing to heighten the threat landscape. There are certain tailwinds that we are seeing, but overall, from a macro perspective, you know, the themes that showed up in the second quarter continued in the third, have not changed materially in the fourth quarter. We went from five years the last few quarters. Let's talk about today now. Actually, there's a blog post that I woke up to this morning. Obviously in the blog post, you talked about this is gonna be your first price increase. Yeah ... in 12 years. Yeah. 25% beginning January of 2023. Yeah. You also announced the option of to pay annually... Yeah rather than monthly, but do so at discounted rates. Yeah. You know, the question I've been getting in the hallway is, "Hey, could you help us figure out sort of the why... Yeah ... behind the change, and also just the kind of the math on the sort of the impact, so to speak? Yeah. So there are, you know, if you look at our business, there are literally three parts to it. There's a freemium business, you know, where you have millions of customers that use our products and services for free. There is a business that we call pay-as-you-go. This is literally how the company got started, where folks gave us a credit card, and we charged them, in the beginning, $20 a month, and then later $200 a month. You bought literally a eat as much as you can plan, right? Everything that we offered in terms of products and services was included in this plan. There's an enterprise business, which is today the majority of the business. When we talk about this price increase, it refers to the pay-as-you-go business where people give us a credit card, and we charge them monthly. This is a business that, you know, is less than 15% of our revenue. It used to be all of Cloudflare, now it's significantly less. We've had discussions over the years a lot in terms of when do we increase prices in the segments, because what you get today for $20 is very much different from what you got. Yeah. for $20, 10, 11, 12 years ago in terms of number of products, quality of products and service levels. We've been doing a lot of work over the years, you know, when would be the right time? What is the price sensitivity in the segment? We decided to do it now. There's inflation, but cost is not really the important part. It's also not so much a revenue topic, to be very honest. We've been quite vocal about our push to get to free cash flow. Yes. break even. The important part in this program of raising prices is not only that prices will be increased, but that you can lock in existing prices if you commit to an an annual plan. I think this is literally the main motivation behind this move, is turning another, you know, 15% of our revenue, probably not fully, but to a larger extent, from a monthly to an annual billing concept with all the advantages that comes up front, which gives us an opportunity to reinvest more and earlier into more innovation. That's pretty much the motivation behind it. Excellent. Thank you. Yeah. All right. Let's zoom back out here for a moment 'cause, you know, Cloudflare, you know, at a high level addresses multiple markets. You know, application services, Zero Trust, network services. Yeah. obviously developer platform. Can you really please touch on the opportunity, you know, in each of those markets? Specifically, where are you seeing the most growth and traction near term, but what offers the greatest longer term opportunity? you know, we started when you said application services, this as a service is how we got started. This is obviously today the main portion of our revenue. At the IPO, we sized it that this is a TAM of about $35-ish billion that we are going to disrupt. The second wave of products is what you call Zero Trust or is Cloudflare One Pass. That's email, browser isolation, access gateway, and now a fifth product feature called Threat Intelligence that falls into that category. It's probably another $30 billion-$35 billion market that we are disrupting. That is, we call it a second wave product, so it's gaining momentum this year. It will be a significant part from an ACV new business generation opportunity next year. This will drive growth in the short term. Network services come next. There is storage. Okay. Yeah. Then there is Workers. Workers is a product that allows you to literally write code and deploy code at the edge of our network. That is how it started. Now it has become significantly more. Yes. We, you know, I remember discussions as early as five years ago where people said, "You have to push this for revenue, and when are you going to monetize it?" Matthew, thank God, was really strong pushing back and said, "This is not about revenue. This is about adoption. Yes. How do you get more developers on the platform? Even in the next year, this will not be a significant revenue opportunity that will come towards the end of this. Yes. this five-year horizon. Yeah. Today, we think we address with the products we have, without Workers, a TAM of slightly north of $100 billion. Got it. Yeah. When we started discussing, talking about, you know, the half a billion, now $1 billion, obviously you're given the target of $5 billion, just like as kind of Cloudflare's revenue streams have evolved, to your point, over the past five years, when you think about sort of this next target, $5 billion, how do these revenue streams evolve from here? Like, how does the contribution mix change when you think about sort of backing into that $5 billion? You know, I think our core business will continue to grow. Zero Trust will be the second wave that builds on that. We will see network services and storage, and then Workers will come at the end. I think what makes this discussion so interesting for us is that we think we can get there with the products we have, or, and the features that are in the short-term pipeline. First of all, the innovation engine is so strong, and then of course, the TAM that we address is quite significant, and we have penetrated it only, you know, to less than 1% at this point. Yeah. You know, I jokingly say that Cloudflare has a very big menu. It's, you know, to choose from. There are multiple paths and multiple different options to choose from that are kinda connected, disconnected, but actually, you all do provide and very unique in the sense of what you provide versus other people that maybe are just focusing on a sliver of that. Yeah. When you think about just multi-product, you know, call it bundling or go- to- market. Right. you know, how do you expect this to evolve at Cloudflare? How is this sort of changing also or impacting your competitive position? I think it will impact it rather favorably. I mean, you know, when the first part of the journey was literally all you can eat plans. We sold you everything you want in one piece or in single pieces. As product complexity increases, you have to find a way to make it digestible. We talk like all successful software companies that went ahead of us and in front of us, we bundle our products in groups. Application services is one. Zero Trust or what we call Cloudflare One is another really important bundle. You become this one-stop shopping place where people can bundle point solutions in one platform, you know, through one control plane, with all the efficiencies that come from a cost, from an ROI, and from a, from a performance perspective. Especially on Cloudflare One, which is the Zero Trust security bundle, you know, we want to be this place where customers and enterprises go for anything that concerns enterprise security. Yep. Similar to, you know, you go to Microsoft 365 when you think about enterprise productivity. That's the kind of opportunity I think we have. The products are put in place now. You know, there are five now that make up this bundle. You can buy it in one. Yep. We go where the customer is. We pick you up wherever you are in your journey. Yeah. When you think about this, let's double-click on Zero Trust and call it Cloudflare One for a little bit, because to your point, you have this bundle. Why don't you talk about some of the key products? Obviously, you talked about access, but you have remote browser isolation. You have added email. Yes. You have this bundle, you also need to think about you can add to actually have it more modular. You can just take RBI. Yes. You can just do components of it. How does that impact, you know, both of you competitively, the go-to-market, and how customers can adopt? Well, it gives us and the customer the utmost flexibility, right? If your gateway on-premise license is up for a re-negotiation, we can just sell you that and pick up the other features, you know, as need moves or as budget dollars moves or as existing contracts expire. We can sell you also the whole bundle. What makes it so interesting from our perspective is that once you are on the network with one product and one feature, literally every additional service we offer is one mouse click away, right? This is the neat part about, there are no professional services, there are no Cloudflare employees that need to visit you and get on-premise. You see the benefit of moving to the next product immediately. Yeah. We have now a feature that we call fly fishing, where for enterprise customers, testing out all features that we have is just an opportunity. If you're an enterprise customer, you have five products, you can test every other feature that is on the platform for a certain period of time. You know, if you are a firewall customer and you switch on bot mitigation, you probably see that 40% of the traffic that hits your firewalls or your load balancers is malicious traffic. Enabling the feature automatically, instantly reduces whatever it is, 30%-40% of the traffic. It lowers your cost, increases your security posture. In terms of flexibility for the customer, it's huge. For us, in terms of finding paths, a path to expansion is really close at hand. Let's talk competitively a little bit about the Zero Trust, just sort of just SASE market, because there seems to be sort of a split right now. If you think about sort of, call it the architecture. You've got people that maintain their own POPs, you know, their own networks, you know, Netskope, Cloudflare, you know, et cetera, versus those that are trying to leverage hyperscalers. Like, you know, Palo Alto Networks, you know, a Check Point. Can you walk us through sort of why running your own network is the optimal architecture versus and how this sort of impacts the competitive dynamics versus these others that don't? You know, if our CTO would sit here, he would say, "The speed of light. Yeah. That is the reason. That's a nerdy answer, but it's true, in a way. That's You know, that is the thing we cannot make faster. Mm-hmm. So the way our- There's no Moore's Law than the speed of light. There is. At least not in our universe. We need to get as close to the eyeballs as possible. You know, this is what we have done with our reverse proxy and our Zero Trust offerings runs through the same network, through the same points of presence. The performance, the latency you have by being this close to the eyeballs, regardless of where you are in the world, not in big cities where, you know, a lot of knowledge workers live, but even in remote places, is one of the big advantages of our architecture, not sitting on a hyperscaler, owning our own infrastructure. Everything we do over the 12 years, you know, talk about what else did we do, is getting closer to the eyeballs that want to connect. Today, we are less than 100 milliseconds away from 99% of the things that want to connect to the Internet. That's a clear performance improvement and advantage that we have in the architecture we offer. Got it. Let's talk about another advantage. Yes. I think it's a little maybe unique and esoteric. Yeah ...but it's often overlooked is that, you know, Cloudflare versus, let's say, the other Zero Trust or SASE players, you know, that use, let's say, forward proxy, you know, networks to secure users' access to applications. Well, Cloudflare added these forward proxy capabilities to your core reverse proxy. You're forward and reverse. You're both ends of the connection theoretically. Yeah. What can that do for you as you sit in front of more and more of the Internet and more and more of the origin servers, but also more users? What can you do security-wise, connection, the performance of the connection, et cetera? Well, in many cases now, you know, you don't leave a POP anymore, right? Yeah. The connection to the application and the application and the data you want to address in some cases, if it's cash, deciding in the top that you're addressing. That is huge from a performance and from a latency perspective, a huge benefit. It has some other benefits to our business model, because you have to imagine that the reverse proxy, you know, all the first wave of products is paying for the infrastructure of the network. You know how the network is cost structured is it's the size of the pipe that is moving data is determining the cost and not the amount of data that goes back and forth. The size of the pipe is already sized. Yes. by the reverse proxy. Zero Trust is products are bringing traffic back. The size of the pipe is there. We are adding these products at literally zero marginal cost to our, to our infrastructure. They are very high margin, and, you know, this gives us an advantage in how we partner and how we can compete in this market. There are significant security and performance advantages for the customer, but they are inherent competitive advantages just in the architecture of the network itself that allows us to be super competitive in this space. Yeah. If I pay for the higher egress and ingress. Egress is up here, so therefore. Yes. it takes a long time to close those two, and it subsidizes the other. I think that's another. I'm glad you brought that up. That was actually my next question, because I think that's an aspect of it too, that people. It's not just the performance, not just security being on both ends, but egress, ingress, there's a pricing dynamic here and a gross margin. Let's talk about extending Cloudflare's network directly into buildings. Your point is be as close as possible with Cloudflare for offices. Yeah. You're talking about moving, you know, Cloudflare's basically backbone directly into its, you know, where millions of people, you know, work. You know, how does this a multiplier when you think about, your global background, your SASE initiatives, edge computing with Workers, et cetera? Well, you know, if you keep the philosophy of how can you get closer and closer. Yeah. to the eyeballs that connect, then, you know, pushing your, the edge of your network out as far as possible is hugely important. Today, we are in north of 270 cities, north of 100 countries in many cities in more than one location. This gives us now literally an opportunity to move into additional hundreds and thousands of office buildings. You get closer to what connects. You allow a smoother on-ramp also of our customers into our network. It also allows you to turn this around and get moving forward our services and products closer to the eyeballs that want to connect. That's a huge opportunity for us. In all fairness, you know, from an investment perspective, we slowed this down a little bit because, you know, the post, COVID world needs to figure itself out, which offices will grow and which office locations will move forward. It's a really interesting concept for us to take, to move the edge further out and closer. Exactly. I love the line in your blog post. You know, the most global network but also the most local. Yep. That was a great line. We're gonna go on to what is one of my favorite topics. You know this. I mean, I've obviously been in the-- I'd call it the original fanboy of Workers, you know, five years ago. Obviously, we remain huge believers in just the rise of the edge as really a third tier of compute and storage. Now you think back to the Cloudflare Connect, Matthew highlighted 450,000 developers are using Workers with the goal of having, you know, 1 million developers, you know, by year-end. Can you walk us through just sort of the growth trajectory? You touched on this a little bit earlier, thinking about adoption first. You know, how do you think about this platform? What are the key puts and takes? Well, for, you know, Workers was, you know, you talked about the five years and the initiatives. Workers started actually before. Yes. it was one of these key innovations that allowed us to be what we are and to keep this speed of innovation, right? Worker is literally this product that allows you to write and deploy code at the edge of our network, and it was originally developed for us. Yes. Right? Because we saw that in our traditional development processes, we were slowed down, how fast we could deploy, how fast we could test, and our innovation rate came down. You know, in one of those interesting sessions, night sessions at a restaurant not far from our office, this idea of Workers was born and then further developed, and then we opened it up as a product for our customers. The original application was actually enabling our customers to use our products and use Workers in conjunction to make our products the most customized version of whatever they wanted to buy. You had load balancer, your business model was about uptime, you attached Workers, and you made this the most customized load balancer on the planet, and that was true for every product. Today, it's much more. The idea has changed over time. There's this really interesting blog post that Matthew wrote a couple of two years ago, I think it was now. He said, "You know, when we built Workers and we looked at the use cases that could benefit from the ability to deploy code at the edge of our network." You know, you think about before Workers, there were two places where you could write code. You could write it on your, on an endpoint, on your mobile phone, on your laptop, wherever your compute speed was latency dependent and important. You could deploy code in a data center where speed and execution was the most important parameter. At the edge of our network, you try to optimize for both, right? Almost at the latency as if it were on the device because you're less than 100 milliseconds away from the device, but at the speed as if it were in a data center. This is how this all started. We thought in the beginning that the most interesting use cases would all be about speed and taking advantage of that. We learned over time that it shifted. That actually be deploying code at the edge of our network together with the fact that we have this very global but very local network, allowed for use cases where the controlling the flow of data was the most important criteria, especially in a world where data sovereignty and data privacy is of increasing importance, whether it's Europe, South Korea, Brazil. The ability to wrap something around a piece of data and saying, "This is so credit card number at Credit Suisse." You can only keep the move between data centers in Switzerland and only in data centers of that security class became almost all of a sudden the most important use case. Today, this has evolved. You know, it's about controlling the flow of data, minimizing, maximizing speed and minimizing egress fees that data that has high moving velocity, it needs to be moved between different clouds. Adoption has exploded. We are on our path to 1 million developers, as you just said. The diversity of use case is just incredible from, you know, controlling flow of data, building and re-architecting complete business models... Yes. on Workers. We just announced, together with a large group of venture capital firms, a $2 billion fund- Yeah. -that supports startups that are founded on Workers. We just priced out the first cohort. The first one. Awarded, you know, prices and support based on this. It has become this unique tool, so to speak. I'm glad we didn't try for revenue maximization, but for penetration and adoption. It'll get to revenue by itself. Yeah. Just- Exactly. In time. Give it time. Yeah. Give it time, give it time. I can keep talking about Workers and R2 and D1 all day, but let's focus on go-to-market, because I do get this question. Yeah. Because obviously, that was one of the big announcements. Yep. On the Q3 call, obviously, Chris Merritt, incredible run. Yep. He had a Cloudflare and, I said Matthew, I think said less than 10, and I did some math here, and I could only find seven. People that have gone from 0 to $1 billion. If I had to bet, I would take Matthew's number. Less than. No offense. Okay. Maybe somewhere between seven and nine. Yeah. Okay. seven and nine. Okay. I must have forgotten somebody along the way. Point being, very few. The... What was the thought process of call it the skills, the experience, you know, that Marc, now brings to the table when you think about sort of the next evolution of Cloudflare from a go-to-market motion perspective, when you think about, in particular, that $5 billion target, what do you need to do, Miles? It's a good question. You know, and it was a rather smooth process because Chris was rather proactive when he was signaled, so we had really lots of time to get ready and find the right person. We think we've, you know, we're convinced we found the right person with Marc. If you just go back from the person for a second and look at the business model, right? You know, there is freemium, there is pay-as-you-go, there is enterprise. In our evolution, you need a go-to-market leader that understands and is familiar with all three motions. It's really easy. It's a lot easier. I shouldn't say easy. It's a lot easier to find experienced enterprise sales people. Yeah. We are more than just enterprise sales. Our efficiency, our cost of customer acquisition, the ease of install of use for the product literally comes from the freemium and pay-as-you-go model, right? If you sign up with your home, blog or your homepage, it takes you five minutes. If the largest bank in New York signs up, it takes five hours. There's a reason why it only takes five hours. You need somebody who is familiar with all three go-to-market motions and is comfortable in them. That was a big part. I think. Of course, we needed somebody who has seen scale before. Yes. Getting to, you know, you learn that, you know, whatever gets you to 100 doesn't get you to 500. Yeah. Will not get you to $1 billion, will not get you to $5 billion. You need somebody who has seen that before. I think the other thing that makes us really unique is that our sales motion on all three go-to-market venues is a very data-driven approach. This is relationship is important, campaigns are important, personas are important that we target, but data really drives our go-to-market motion. You have to have somebody in this lead revenue responsibility position that is highly comfortable with data science and making use of the data, and we think Marc is. He hit all the prerequisites and chemistry was good. Yeah. He's a, he's a fun person to work with. He's a couple of weeks in his job trying to get his arms around it. I think we're off to a good start. Awesome. All right. Our 30 minutes is up, but I always like to end with one final question. Which is, you know, let's say we're sitting up here, you know, two, three years from now. You know, what do you think that you're gonna look back on and say, "Hey, sort of this technology, this product, this trend", or maybe even call it something in the business model, that it was more impactful to Cloudflare and its customers, and maybe people were giving it credit for back in 2022? I think there are two parts that I would answer. For sure, Workers. I think the opportunity, the potential, the disruption that will come with Workers and how it develops and what we can now call super- Yeah. Supercloud. cloud computing is gonna be very disruptive. I still think that the architecture of the network itself, you know, that you have this off-the-shelf hardware and a software stack that allows you to deliver every product and service we have on every server. Now imagine Yes. the server is not in 270 cities, it's in thousands of buildings. It could be on endpoints. Yeah. We talked about having an, you know, a virtual SIM card. Yes. A software SIM card. Is, I think, the still, even after ten years, the most underestimated part in the competitive mode we have built. Yeah. We will look back to that and say, "This drives." Being global and so much local at the same time is, I think, what makes us unique. Exactly. Well, the network is a computer. There we go. Exactly. All right. Fantastic. Thank you. I appreciate the time, my friend, as always. Good seeing you. Thank you.