Cloudflare, Inc. (NYSE:NET) Q2 2023 Earnings Call Transcript

Operator: And we will take our next question from Matt Hedberg with RBC Capital Markets. Your line is open.

Matt Hedberg: Great. Thanks for taking my question, guys. Thomas, I had a question for you. Obviously, good results this quarter. And there was a lot of optimism in your portion of the prepared remarks. You talked about, sort of like better win rates, shorter deal cycles, et cetera. When I look though at sort of the sequential growth for Q3 and Q4, it’s a bit higher than what we saw in the first half. I just — what are some of those main factors that are giving you sort of increased optimism for the second half? And does guidance assume that macro stay constant or maybe even improve a little bit?

Thomas Seifert: Well, thank you, Matt. We saw the first data points that, what you call it, made me be a bit more optimistic. We think — we still think, we need to apply a good portion of caution to our outlook. One data point doesn’t really make a trend. At this point, we do not assume that the macroeconomic environment is improving significantly. We still see significant mixed macroeconomic data points that we factored into our guidance. And then therefore, it sets — data as we said, prudent and cautious, not over-interpreting just on one data point.

Matt Hedberg: Got it. That’s helpful. Maybe just a quick follow-up. Sort of double clicking on the strength that you saw this quarter, there was a lot of conversation about, shorter sales cycles, better win rates. Have you noticed any quantifiable benefit from your new CRO, Marc, as he’s come on board and maybe improved sort of the sales focus?

Thomas Seifert: We’re making good progress, both in terms of restructuring our team, in terms of adapting our tactics and strategies, how we move upmarket. But you have to remind — remember that, bringing on team new people takes ramp time, a little bit shorter in the mid-market, a little bit longer in the enterprise segment. We have not seen most of those improvements yet, and we do not expect to see them over the — over the course of the remainder of this year. So we are making really good progress, but, we’ve been cautious in terms of what we’ve factored in, in the guidance that we’ve given for the second half.

Matt Hedberg: Thanks, guys.

Operator: And we will take our next question from Trevor Walsh with JMP Securities. Your line is open.

Trevor Walsh: Great. Thanks for taking my question. Maybe, Matthew, just for you, first. A lot of the comments around AI seems to focus more around the developer piece and Workers specifically, which you kind of have as your part of your Act 3. Does that become more something accelerated into more of Act 2 for that part of the platform? Can you just maybe talk a little bit about kind of the, changes of the game from that perspective?

Matthew Prince: Sure. Thanks, Trevor. I think that — I mean, I think that the order of the acts is pretty — is, I would still say Act 1 is application security, Act 2 is Zero Trust and Act 3 is Workers. But I would say that we have been very pleasantly surprised at how quickly the Workers’ platform is taking off. But we are not, at this time, optimizing that platform for how can we bring as many dollars out of it as possible. We think that studying developer platforms across history, what we’ve seen is what you really need is adoption. And so, what I’m encouraged by is that every single day, when new companies are starting, when new trends take off like AI has, that people are turning to this. And I think it’s — I don’t think that this is a flash in the pan.

This isn’t a polyester kind of new wardrobe that that is going to look good for a little while, but quickly fade. This is something that’s real, and we’re seeing that more and more companies, more and more experienced developers are turning to the Workers’ platform in order to be able to deliver something that they can’t get from the traditional hyperscale public clouds. And so, I think that any great work of fiction or otherwise, that the — some of the excitement often comes in the later chapters. And so I don’t want to diminish it by saying that it’s act three, but I — and I think that there’s a huge opportunity there. But I also don’t want to lose the fact that we had many customers this year really dive into our Act 2 products and we’re making incredible gains in that space as well.

So I think we’ve got a really exciting second and third act.