EX-99.1 2 exhibit99120200213.htm EX-99.1 Document


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Cloudflare Announces Fourth Quarter and Fiscal Year 2019 Financial Results

•Fiscal year 2019 revenue totaled $287 million, growing 49% year-over-year
•Q4 revenue grew 51% year-over-year to $84 million
•Q4 GAAP gross margin of 78.3%, representing an increase of 160 basis points year-over-year; Non-GAAP gross-margin of 78.7%, representing an increase of 180 basis points year-over-year

San Francisco, CA, February 13, 2020 — Cloudflare, Inc. (NYSE: NET), the security, performance, and reliability company helping to build a better Internet, today announced financial results for its fourth quarter and fiscal year ended December 31, 2019.

“I’m proud of everything we accomplished in 2019. We capped off an exciting year with 51% year-over-year revenue growth for the quarter, and added a record number of total customers while accelerating large customer momentum,“ said Matthew Prince, co-founder and CEO of Cloudflare. "We also entered an entirely new enterprise security market with our Cloudflare for Teams offering, leveraging our unified, global platform to expand our addressable market and outperform the hardware solutions built for businesses of the past.”

Fourth Quarter Fiscal 2019 Financial Highlights

•Revenue: Total revenue of $83.9 million, representing an increase of 51% year-over-year.
•Gross Profit: GAAP gross profit was $65.7 million, or 78.3% gross margin, compared to $42.5 million, or 76.7%, in the fourth quarter of 2018. Non-GAAP gross profit was $66.0 million, or 78.7% gross margin, compared to $42.7 million, or 76.9%, in the fourth quarter of 2018.
•Operating Loss: GAAP loss from operations was $29.9 million, or 35.7% of total revenue, compared to $17.1 million, or 30.8% of total revenue, in the fourth quarter of 2018. Non-GAAP loss from operations was $18.3 million, or 21.8% of total revenue, compared to $15.9 million, or 28.7% of total revenue, in the fourth quarter of 2018.
•Net Loss: GAAP net loss was $28.2 million, compared to $16.7 million in the fourth quarter of 2018. Non-GAAP net loss was $16.4 million, compared to $15.6 million in the fourth quarter of 2018. GAAP net loss per share was $0.10, compared to $0.20 in the fourth quarter of 2018. Non-GAAP net loss per share was $0.06, compared to $0.18 in the fourth quarter of 2018.
•Cash Flow: Net cash flow from operations was negative $8.6 million, compared to negative $12.3 million for the fourth quarter of 2018. Free cash flow was negative $23.5 million, or 28% of total revenue, compared to negative $29.0 million, or 52% of total revenue, in the fourth quarter of 2018.
•Cash, cash equivalents, and available-for-sale securities were $636.9 million as of December 31, 2019.

Full Year Fiscal 2019 Financial Highlights

•Revenue: Total revenue of $287.0 million, representing an increase of 49% year-over-year.
•Gross Profit: GAAP gross profit was $223.6 million, or 77.9% gross margin, compared to $149.1 million, or 77.4%, in fiscal 2018. Non-GAAP gross profit was $224.4 million, or 78.2% gross margin, compared to $149.8 million, or 77.7%, in fiscal 2018.
•Operating Loss: GAAP loss from operations was $107.9 million, or 37.6% of total revenue, compared to $84.9 million, or 44.1% of total revenue, in fiscal 2018. Non-GAAP loss from operations was $71.2 million, or 24.8% of total revenue, compared to $57.0 million, or 29.6% of total revenue, in fiscal 2018.
•Net Loss: GAAP net loss was $105.8 million, compared to $87.2 million for fiscal 2018. Non-GAAP net loss was $69.5 million, compared to $59.5 million for fiscal 2018. GAAP net loss per share was $0.72, compared to $1.08 for fiscal 2018. Non-GAAP net loss per share was $0.48, compared to $0.73 for fiscal 2018.



•Cash Flow: Net cash flow from operations was negative $38.9 million, compared to negative $43.3 million for fiscal 2018. Free cash flow was negative $96.2 million, or 34% of total revenue, compared to negative $78.1 million, or 41% of total revenue, for fiscal 2018.
The section titled "Non-GAAP Financial Information" below describes our usage of non-GAAP financial measures. Reconciliations between historical GAAP and non-GAAP information are contained at the end of this press release following the accompanying financial data.

Financial Outlook

For the first quarter of fiscal 2020, we expect:

•Total revenue of $87 to $88 million
•Non-GAAP loss from operations of $20 to $19 million
•Non-GAAP net loss per share of $0.06 to $0.05, utilizing weighted average common shares outstanding of approximately 297 million

For the full year fiscal 2020, we expect:

•Total revenue of $389 to $393 million
•Non-GAAP loss from operations of $65 to $61 million
•Non-GAAP net loss per share of $0.21 to $0.19, utilizing weighted average common shares outstanding of approximately 303 million

Conference Call Information

Cloudflare will host an investor conference call to discuss its fourth quarter and fiscal year ended December 31, 2019 earnings results today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time). Interested parties can access the call by dialing (866) 211-4146 from the United States or (647) 689-6734 internationally with conference ID 5227499. A live webcast of the conference call will be accessible from the investor relations website at cloudflare.NET. A replay will be available approximately two hours after the conclusion of the live event and will remain available for approximately 30 days.

Other Upcoming Events:

Cloudflare Lock-up Expiration: In connection with our initial public offering of Class A common stock, all of our executive officers, directors, and stockholders as of the IPO were parties to market standoff agreements with us or entered into lock-up agreements with the IPO underwriters that restrict their ability to sell or transfer their Cloudflare shares (the “lock-up”). Pursuant to the lock-up agreements, if (i) at least 120 days have elapsed since September 12, 2019, (ii) we have publicly released earnings results for the fiscal year ended December 31, 2019, and (iii) the lock-up is scheduled to end during or within five trading days prior to a broadly applicable period during which trading in our securities would not be permitted under our insider trading policy (the “blackout period”), then the lock-up will end up to ten trading days prior to the commencement of the blackout period; so long as we have publicly announced the lock-up expiration at least two trading days in advance of such expiration.

The lock-up is scheduled to end on March 11, 2020, which falls within the quarterly blackout period under our insider trading policy that commences on March 1, 2020. Therefore, in accordance with the lock-up agreements, the lock-up will end at the beginning of trading on February 19, 2020. We will also release all of our market standoff agreements when the lock-up expires.

Supplemental Financial and Other Information

Supplemental financial and other information can be accessed through the Company’s investor relations website at cloudflare.NET.

Non-GAAP Financial Information

Cloudflare believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of



operations. Reconciliations of non-GAAP financial measures to the most directly comparable financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future. For further information regarding why Cloudflare believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures” section at the end of this press release.

Available Information

Cloudflare intends to use its press releases, website, investor relations website, news site, blog, and Twitter account, in addition to filings made with the Securities and Exchange Commission (SEC) and public conference calls, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “explore,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these words, or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. However, not all forward-looking statements contain these identifying words. Forward-looking statements expressed or implied in this press release include, but are not limited to, statements regarding our future financial and operating performance, our reputation and performance in the market, general market trends, our estimated and projected revenue, non-GAAP net loss from operations and net loss per share, shares outstanding, our plans and objectives for future operations, growth, initiatives, or strategies, and comments made by our CEO and others. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: our history of net losses; our limited operating history; risks associated with managing our rapid growth; our ability to attract and retain new customers; our ability to retain and upgrade paying customers and convert free customers to paying customers; problems with our internal systems, network, or data, including actual or perceived breaches or failures; rapidly evolving technological developments in the market; length of sales cycles; and general market, political, economic, and business conditions. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in our filings with the SEC, including our Quarterly Report on Form 10-Q filed on November 12, 2019, as well as other filings that we may make from time to time with the SEC.

The forward-looking statements made in this press release relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

About Cloudflare

Cloudflare, Inc. (www.cloudflare.com / @cloudflare) is on a mission to help build a better Internet. Cloudflare’s platform protects and accelerates any Internet application online without adding hardware, installing software, or changing a line of code. Internet properties powered by Cloudflare have all web traffic routed through its intelligent global network, which gets smarter with every request. As a result, they see significant improvement in performance and a decrease in spam and other attacks. Cloudflare was named to Entrepreneur Magazine’s Top Company Cultures 2018 list and ranked among the World’s Most Innovative Companies by Fast Company in 2019. Headquartered in San Francisco, CA, Cloudflare has offices in Austin, TX, Champaign, IL, New York, NY, San Jose, CA, Seattle, WA, Washington, D.C., Lisbon, London, Munich, Beijing, Singapore, and Sydney.

Investor Relations Information
Jayson Noland
ir@cloudflare.com

Press Contact Information
Daniella Vallurupalli
press@cloudflare.com
Source: Cloudflare, Inc.



CLOUDFLARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three Months Ended
December 31,		Year Ended
December 31,
2019201820192018
Revenue$83,930  $55,499  $287,022  $192,674  
Cost of revenue (1)(2)
18,198  12,956  63,423  43,537  
Gross profit65,732  42,543  223,599  149,137  
Operating expenses:
Sales and marketing (1)
47,107  28,188  159,298  94,394  
Research and development (1)
26,289  15,350  90,669  54,463  
General and administrative (1)
22,278  16,098  81,578  85,179  
Total operating expenses95,674  59,636  331,545  234,036  
Loss from operations(29,942) (17,093) (107,946) (84,899) 
Non-operating income (expense):
Interest income2,965  1,048  5,787  1,895  
Interest expense(142) (266) (1,112) (992) 
Other expense, net(412) (188) (1,442) (2,091) 
Total non-operating income (expense), net2,411  594  3,233  (1,188) 
Loss before income taxes(27,531) (16,499) (104,713) (86,087) 
Provision for (benefit from) income taxes624  188  1,115  1,077  
Net loss$(28,155) $(16,687) $(105,828) $(87,164) 
Net loss per share attributable to common stockholders, basic and diluted
$(0.10) $(0.20) $(0.72) $(1.08) 
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
294,418  84,618  146,306  80,981  

(1) Includes stock-based compensation as follows:
Three Months Ended
December 31,		Year Ended
December 31,
2019201820192018
Cost of revenue$253  $32  $716  $119  
Sales and marketing3,275  301  8,709  979  
Research and development4,413  454  13,037  1,532  
General and administrative3,674  275  14,165  24,717  
Total stock-based compensation expense$11,615  $1,062  $36,627  $27,347  

(2) Includes amortization of acquired intangible assets as follows:
Three Months Ended
December 31,		Year Ended
December 31,
2019201820192018
Cost of revenue$31  $108  $125  $517  
Total amortization of acquired intangible assets$31  $108  $125  $517  




CLOUDFLARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
December 31,
20192018
Assets
Current assets:
Cash and cash equivalents$138,976  $25,055  
Available-for-sale securities497,972  135,602  
Accounts receivable, net33,867  25,155  
Contract assets2,063  1,552  
Prepaid expenses and other current assets16,994  9,373  
Total current assets689,872  196,737  
Property and equipment, net101,466  73,210  
Goodwill4,083  4,083  
Acquired intangible assets, net31  156  
Deferred contract acquisition costs, noncurrent25,184  15,940  
Restricted cash6,660  6,371  
Other noncurrent assets3,528  1,883  
Total assets$830,824  $298,380  
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable$11,463  $14,285  
Accrued expenses and other current liabilities28,314  15,699  
Note payable, current portion—  255  
Liability for early exercise of unvested stock options13,263  14,323  
Deferred revenue30,843  16,817  
Total current liabilities83,883  61,379  
Build-to-suit lease financing obligation10,506  10,443  
Deferred revenue, noncurrent804  220  
Redeemable convertible preferred stock warrant liability—  1,618  
Other noncurrent liabilities9,803  6,704  
Total liabilities104,996  80,364  
Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock; $0.001 par value; zero and 168,108 shares authorized as of December 31, 2019 and 2018, respectively; zero and 165,658 shares issued and outstanding with aggregate liquidation preference of zero and $332,041 as of December 31, 2019 and 2018, respectively
—  331,521  
Stockholders’ Equity (Deficit)
Class A common stock; $0.001 par value; 2,250,000 and 550,000 shares authorized as of December 31, 2019 and 2018, respectively; 87,072 and zero shares issued and outstanding as of December 31, 2019 and 2018, respectively
87  —  
Class B common stock; $0.001 par value; 315,000 and 300,000 shares authorized as of December 31, 2019 and 2018, respectively; 213,101 and 91,542 shares issued and outstanding as of December 31, 2019 and 2018, respectively
207  85  
Additional paid-in capital1,027,179  82,345  
Accumulated deficit(301,706) (195,878) 
Accumulated other comprehensive income (loss)61  (57) 
Total stockholders’ equity (deficit)725,828  (113,505) 
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)$830,824  $298,380  




CLOUDFLARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year Ended December 31,
20192018
Cash Flows From Operating Activities
Net loss$(105,828) $(87,164) 
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization expense29,479  18,905  
Amortization of deferred contract acquisition costs10,821  7,060  
Stock-based compensation expense36,627  27,347  
Net accretion of discounts and amortization of premiums on available-for-sale securities(1,801) (570) 
Deferred income taxes370  385  
Provision for bad debt2,488  1,080  
Change in fair value of redeemable convertible preferred stock warrant liability1,517  1,220  
Other304  46  
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net(11,200) (14,758) 
Contract assets(511) 2,158  
Deferred contract acquisition costs(20,065) (12,235) 
Prepaid expenses and other current assets(7,621) (5,942) 
Other noncurrent assets(1,575) (352) 
Accounts payable(1,328) 4,386  
Accrued expenses and other current liabilities12,334  6,824  
Deferred revenue14,610  4,903  
Other noncurrent liabilities2,462  3,426  
Net cash used in operating activities(38,917) (43,281) 
Cash Flows From Investing Activities
Purchases of property and equipment(43,289) (25,466) 
Capitalized internal-use software(13,990) (9,373) 
Purchases of available-for-sale securities(537,382) (145,269) 
Sales of available-for-sale securities1,978  —  
Maturities of available-for-sale securities174,998  59,249  
Other investing activities44  64  
Net cash used in investing activities(417,641) (120,795) 
Cash Flows From Financing Activities
Proceeds from issuance of preferred stock, net of issuance costs—  149,975  
Proceeds from initial public offering, net of underwriting discounts and commissions570,544  —  
Proceeds from the exercise of stock options3,058  4,412  
Proceeds from the early exercise of stock options2,909  14,525  
Repurchases of unvested common stock(283) (65) 
Payments on note payable(255) (356) 
Proceeds from build-to-suit lease financing obligation drawdown63  130  
Payments of deferred offering costs(5,268) —  
Net cash provided by financing activities570,768  168,621  
Net increase in cash, cash equivalents, and restricted cash114,210  4,545  
Cash, cash equivalents, and restricted cash, beginning of period31,426  26,881  
Cash, cash equivalents, and restricted cash, end of period$145,636  $31,426  




CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(unaudited)

Three Months Ended
December 31,		Year Ended
December 31,
2019201820192018
Reconciliation of cost of revenue:
GAAP cost of revenue$18,198  $12,956  $63,423  $43,537  
Less: Stock-based compensation expense(253) (32) (716) (119) 
Less: Amortization of acquired intangible assets(31) (108) (125) (517) 
Non-GAAP cost of revenue$17,914  $12,816  $62,582  $42,901  
Reconciliation of gross profit:
GAAP gross profit$65,732  $42,543  $223,599  $149,137  
Add: Stock-based compensation expense253  32  716  119  
Add: Amortization of acquired intangible assets31  108  125  517  
Non-GAAP gross profit$66,016  $42,683  $224,440  $149,773  
Non-GAAP gross margin78.7 %76.9 %78.2 %77.7 %
Reconciliation of operating expenses:
GAAP sales and marketing$47,107  $28,188  $159,298  $94,394  
Less: Stock-based compensation expense(3,275) (301) (8,709) (979) 
Non-GAAP sales and marketing$43,832  $27,887  $150,589  $93,415  
GAAP research and development$26,289  $15,350  $90,669  $54,463  
Less: Stock-based compensation expense(4,413) (454) (13,037) (1,532) 
Non-GAAP research and development$21,876  $14,896  $77,632  $52,931  
GAAP general and administrative$22,278  $16,098  $81,578  $85,179  
Less: Stock-based compensation expense(3,674) (275) (14,165) (24,717) 
Non-GAAP general and administrative$18,604  $15,823  $67,413  $60,462  
Reconciliation of loss from operations:
GAAP loss from operations$(29,942) $(17,093) $(107,946) $(84,899) 
Add: Stock-based compensation expense11,615  1,062  36,627  27,347  
Add: Amortization of acquired intangible assets31  108  125  517  
Non-GAAP loss from operations$(18,296) $(15,923) $(71,194) $(57,035) 
Non-GAAP operating margin(21.8)%(28.7)%(24.8)%(29.6)%
Reconciliation of provision for (benefit from) income taxes:
GAAP provision for (benefit from) income taxes$624  $188  $1,115  $1,077  
Income tax effect of non-GAAP adjustments(127) 129  437  154  
Non-GAAP provision for (benefit from) income taxes$497  $317  $1,552  $1,231  
Reconciliation of net loss and net loss per share:
GAAP net loss attributable to common stockholders$(28,155) $(16,687) $(105,828) $(87,164) 
Add: Stock-based compensation expense11,615  1,062  36,627  27,347  
Add: Amortization of acquired intangible assets31  108  125  517  
Income tax effect of non-GAAP adjustments127  (129) (437) (154) 
Non-GAAP net loss$(16,382) $(15,646) $(69,513) $(59,454) 
GAAP net loss per share$(0.10) $(0.20) $(0.72) $(1.08) 
Add: Stock-based compensation expense0.04  0.01  0.25  0.34  
Add: Amortization of acquired intangible assets—  —  —  0.01  
Income tax effect of non-GAAP adjustments—  —  —  —  
Non-GAAP net loss per share (1)
$(0.06) $(0.18) $(0.48) $(0.73) 
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted294,418  84,618  146,306  80,981  
____________
(1) Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data.



CLOUDFLARE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands)
(unaudited)

Three Months Ended
December 31,		Year Ended
December 31,
2019201820192018
Free cash flow
Net cash used in operating activities$(8,574) $(12,270) $(38,917) $(43,281) 
Less: Purchases of property and equipment(12,308) (12,959) (43,289) (25,466) 
Less: Capitalized internal-use software(2,658) (3,728) (13,990) (9,373) 
Free cash flow$(23,540) $(28,957) $(96,196) $(78,120) 
Net cash used in investing activities$(352,659) $(58,525) $(417,641) $(120,795) 
Net cash provided by (used in) financing activities$(1,497) $11  $570,768  $168,621  
Net cash used in operating activities (percentage of revenue)(10)%(22)%(14)%(22)%
Less: Purchases of property and equipment
(percentage of revenue)		(15)%(23)%(15)%(13)%
Less: Capitalized internal-use software
(percentage of revenue)		(3)%(7)%(5)%(5)%
Free cash flow margin (1)(28)%(52)%(34)%(41)%


____________

(1) Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data.





Explanation of Non-GAAP Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States (U.S. GAAP), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash provided by (used in) operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided above for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures as analytical tools. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Expenses Excluded from Non-GAAP Measures. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. We exclude amortization of intangible assets, which is a non-cash expense, related to business combinations from certain of our non-GAAP financial measures because such expenses are related to business combinations and have no direct correlation to the operation of our business.

Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit and non-GAAP gross margin as U.S. GAAP gross profit and U.S. GAAP gross margin, respectively, excluding stock-based compensation expense and amortization of acquired intangible assets.

Non-GAAP Loss from Operations and Non-GAAP Operating Margin. We define non-GAAP loss from operations and non-GAAP operating margin as U.S. GAAP loss from operations and U.S. GAAP operating margin, respectively, excluding stock-based compensation expense and amortization of acquired intangible assets.

Non-GAAP Net Loss and Non-GAAP Net Loss per Share, Basic and Diluted. We define non-GAAP net loss as GAAP net loss plus stock-based compensation expense, amortization of acquired intangible assets, and a non-GAAP provision for (benefit from) income taxes. The difference between our GAAP and non-GAAP income tax expense (benefit) is primarily due to adjustments in stock-based compensation and amortization of intangibles associated with business combinations. We define non-GAAP net loss per share, basic and diluted, as non-GAAP net loss divided by the weighted-average common shares outstanding. Since we have reported net losses for all periods presented, we have excluded all potentially dilutive securities from the calculation of net loss per share as their effect is antidilutive and accordingly, basic and diluted net loss per share is the same for all periods presented. We believe that excluding these items from non-GAAP net loss and non-GAAP net loss per share, diluted, provides management and investors with greater visibility into the underlying performance of our core business operating results.

Free Cash Flow and Free Cash Flow Margin. Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property and equipment and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position. We believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that these measures do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.