What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-03-02 · 547 added, 450 removed, 924 unchanged (52% of the section changed)

17 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired SendGrid, Inc.

(SendGrid) during fiscal 2019, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, SendGrid’s internal control over financial reporting associated with $271.4 million, or 5%, of total assets and $177.1 million, or 16%, of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of SendGrid.

The Company acquired Segment.io (Segment) during fiscal 2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, Segment’s internal control over financial reporting associated with $253.6 million, or 3%, of total assets and $23.0 million, or 1%, of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2020.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Segment.

Change in Accounting Principle

As discussed in Note 2(v) to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Codification (ASC) Topic 842, Leases.

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Codification (ASC) Topic 842, Leases.

Basis for Opinions

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Testing of revenue recognition

As discussed in Note 2(e) to the consolidated financial statements, and disclosed in the consolidated statement of operations, the Company has recorded $1,134.5 million in revenues for the year ended December 31, 2019.

The Company’s revenue is derived from usage and non-usage based fees earned from customers accessing the Company’s enterprise cloud computing services.

Evaluation of the sufficiency of audit evidence over revenue recognition

As discussed in Note 2(e) to the consolidated financial statements, the Company’s revenue is derived from usage and non-usage based fees earned from customers accessing the Company’s enterprise cloud computing services.

As of December 31, 2020, the Company recorded $1.8 billion in revenues, a portion of which related to Programmable Messaging and Programmable Voice APIs.

The Company’s revenue recognition process is highly automated, and revenue is recorded within the Company’s general ledger through reliance on customized and proprietary information technology (IT) systems.

We identified the testing of revenue recognition as a critical audit matter.

This matter required especially subjective auditor judgment because of the number of information technology (IT) applications involved in the revenue recognition process.

Auditor judgment was required in determining the nature and extent of audit evidence obtained over revenue.

Involvement of IT professionals with specialized skills and knowledge was required to assist with the performance of certain procedures and determination of IT applications subject to testing.

The primary procedures we performed to address this critical audit matter included the following.

We involved IT professionals with specialized skills and knowledge, who assisted in testing the various systems interacting with the Company’s revenue recognition process.

We tested certain internal controls over the Company’s general information technology and application controls related to the systems utilized within the Company’s revenue recognition process, focusing on the automated elements of the flow of transactions.

We evaluated the Company’s significant accounting policies related to revenue recognition.

We identified the evaluation of the sufficiency of audit evidence over revenue recognition related to the Company’s Programmable Messaging and Programmable Voice APIs as a critical audit matter.

This matter required especially subjective auditor judgment because of the large number of information technology (IT) applications involved in the revenue recognition process.

Auditor judgment was required in determining the nature and extent of audit evidence obtained over these information systems that process revenue transactions.

Involvement of IT professionals with specialized skills and knowledge was required to assist with the performance and evaluation of certain procedures and determination of IT applications subject to testing.

The following are the primary procedures we performed to address this critical audit matter.

We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue recognition.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s Programmable Messaging and Programmable Voice revenue recognition process.

We involved IT professionals with specialized skills and knowledge, who assisted in testing controls related to the Company’s general information technology and application controls related to the systems utilized within the Company’s Programmable Messaging and Programmable Voice revenue recognition process.

For a sample of customer agreements, we tested the Company’s identification and treatment of significant contract terms, including comparing the pricing reflected in the Company’s revenue IT system to the contractually agreed upon pricing with the customer.

For a sample of transactions we compared the amounts recognized for consistency with underlying documentation, including contracts with customers.

For a sample of revenue transactions, we compared the amounts recognized for consistency with underlying documentation, including contracts with customers.

We assessed the recorded revenue by comparing revenue to underlying cash receipts.

We inspected credits issued subsequent to year end to assess the revenue recorded within the period.

In addition, we evaluated the overall sufficiency of audit evidence obtained over revenue.

Assessment of the acquisition date valuation of intangible assets related to a business combination

As discussed in Note 6 to the consolidated financial statements, on February 1, 2019, the Company acquired the outstanding shares of SendGrid, Inc.

by issuing shares of its Class A common stock worth approximately $2.7 billion.

of the acquisition, the Company acquired $483.0 million of intangible assets, including developed technology and customer relationships.

We identified the assessment of the acquisition date valuation of the developed technology and customer relationship intangible assets acquired as a critical audit matter.

There was a high degree of subjectivity in evaluating the discount rate and forecasted revenue growth rates used to derive the fair value of the developed technology and customer relationship acquired intangible assets.

The primary procedures we performed to address the critical audit matter included the following.

We tested certain internal controls over the Company’s valuation process, including the Company’s controls over the revenue growth rate forecasts and the assumptions used to develop the discount rate.

We evaluated credits issued after year end to assess the revenue recorded within the period.

In addition, we evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed, including appropriateness of the nature and extent of such evidence.

Valuation of the acquisition date intangible assets related to a business combination

As discussed in Note 6 to the consolidated financial statements, on November 2, 2020, the Company acquired Segment.io, Inc.

(Segment) by issuing shares of its Class A common stock worth approximately $2.5 billion and $413.3 million in cash.

As part of the acquisition, the Company acquired $595.0 million of intangible assets, including developed technology and customer relationships.

We identified the assessment of the valuation of the acquisition date developed technology and customer relationship intangible assets acquired as a critical audit matter.

There was a high degree of subjective auditor judgment in assessing the discount rate, customer retention rate, and forecasted revenue growth rates used to derive the fair value of the developed technology and customer relationship acquired intangible assets.

In addition, these fair values were challenging to test due to the sensitivity of the fair value determinations to changes in these assumptions.

The following are the primary procedures we performed to address the critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to value acquired intangible assets, including the Company’s controls over the discount rate, customer retention rate, and forecasted revenue growth rate.

We compared prior period forecasted revenue to prior period actual revenue to evaluate the Company’s ability to forecast.

We evaluated the Company’s forecasted revenue growth rates used to value intangible assets by 1) comparing the growth forecast assumptions to peer companies;

and 2) comparing forecasted growth rates to historical growth rates.

We evaluated the Company’s forecasted revenue growth rates used to value developed technology and customer relationship intangible assets by (1) comparing the growth forecast assumptions to historical growth rates of peer companies, and (2) comparing forecasted growth rates to historical growth rates.

We evaluated the estimated annual customer retention rate by comparing to Segment’s historical customer retention data.

We involved a valuation professional with specialized skills and knowledge, who assisted in testing by:

Evaluating the discount rate used by the Company to value the developed technology and customer relationship intangible assets by comparing it against a discount rate range that was independently developed using publicly available data for comparable companies;

Developing an estimate of the fair value of the developed technology and customer relationship intangible assets acquired using the Company’s cash flow forecast and independently developed discount rate, and comparing the results of our estimate of fair value to the Company’s fair value estimate.

• evaluating the discount rate used by the Company to value the developed technology and customer relationship intangible assets by comparing it against discount rates that were independently developed using publicly available data for comparable companies

• recalculating the estimate of the fair value of the developed technology intangible assets acquired using the Company’s forecasted revenue and our independently developed discount rate, and comparing the result to the Company’s fair value estimate

• recalculating the estimate of the fair value of the customer relationship intangible assets acquired using the Company’s cash flow forecast and our independently developed discount rate and comparing the result to the Company’s fair value estimate.

We have served as the Company’s auditor since 2013.

Santa Clara, California

March 2, 2020

February 25, 2021

Consolidated Balance Sheets

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Total current assets 3,372,335 2,061,331

Restricted cash

Property and equipment, net 183,239 141,256

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Intangible assets, net 966,573 460,849

Goodwill 4,595,394 2,296,784

Other long-term assets 111,282 33,555

Total assets $ 9,487,433 $ 5,150,516

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Year Ended December 31,

2020 2019 2018

(In thousands, except share and per share amounts)

Revenue $ 1,761,776 $ 1,134,468 $ 650,067

Cost of revenue 846,115 525,551 300,841

Gross profit 915,661 608,917 349,226

Operating expenses:

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Loss from operations ( 492,901 ) ( 369,785 ) ( 115,235 )

Other income (expense), net

Loss before provision for income taxes

Other (expense) income, net ( 11,525 ) 7,569 ( 5,923 )

Loss before benefit (provision) for income taxes ( 504,426 ) ( 362,216 ) ( 121,158 )

Income tax benefit (provision) 13,447 55,153 ( 791 )

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Year Ended December 31,

2020 2019 2018

(In thousands)

Net loss $ ( 490,979 ) $ ( 307,063 ) $ ( 121,949 )

Other comprehensive income (loss):

Unrealized gain (loss) on marketable securities, net of tax

Unrealized gain on marketable securities 3,674 3,804 258

Foreign currency translation 286 — ( 1,001 )

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Consolidated Statements of Stockholders' Equity

Additional Paid In Capital

Accumulated Other Comprehensive Income

Accumulated Deficit

Total Stockholders' Equity

Class A Common Stock

Class B Additional Paid In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity

Shares Amount Shares Amount

(In thousands, except share amounts)

Balance as of December 31, 2017 69,906,550 70 24,063,246 24 608,165 2,025 ( 250,438 ) 359,846

Exercises of vested stock options

Vesting of early exercised stock options

Vesting of restricted stock units

Value of equity awards withheld for tax liability

Exercises of unvested stock options

Conversion of shares of Class B common stock into shares of Class A common stock

Shares issued under ESPP

Donated common stock

Repurchases of unvested stock options

Unrealized loss on marketable securities

Foreign currency translation

Stock-based compensation

Balance as of December 31, 2017

Net loss — — — — — — ( 121,949 ) ( 121,949 )

Adjustment to opening retained earnings due to adoption of ASC 606 — — — — — — 713 713

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Balance as of December 31, 2018 80,769,763 80 19,310,465 20 808,527 1,282 ( 371,674 ) 438,235

Net loss — — — — — — ( 307,063 ) ( 307,063 )

Exercises of vested stock options 1,466,813 1 2,154,053 2 37,739 — — 37,742

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Balance as of December 31, 2019 126,882,172 $ 124 11,530,627 $ 14 $ 4,952,999 $ 5,086 $ ( 678,812 ) $ 4,279,411

Consolidated Statements of Stockholders' Equity

Class A Common Stock

Class B Additional Paid In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity

Shares Amount Shares Amount

(In thousands, except share amounts)

Balance as of December 31, 2019 126,882,172 $ 124 11,530,627 $ 14 $ 4,952,999 $ 5,086 $ ( 678,812 ) $ 4,279,411

Net loss — — — — — — ( 490,979 ) ( 490,979 )

Exercises of vested stock options 2,263,629 2 1,232,099 1 72,514 — — 72,517

Vesting of restricted stock units 3,525,401 4 29,007 — — — — 4

Value of equity awards withheld for tax liability ( 34,893 ) — ( 4,692 ) — ( 8,778 ) — — ( 8,778 )

Conversion of shares of Class B common stock into shares of Class A common stock 2,235,739 2 ( 2,235,739 ) ( 2 ) — — — —

Equity component from partial settlement of 2023 convertible

senior notes 2,902,434 3 — — 190,757 — — 190,760

Shares issued under ESPP 291,800 1 — — 32,242 — — 32,243

Donated common stock 88,408 — — — 18,993 — — 18,993

Issuance of common stock in connection with a follow-on public offering, net of underwriter discounts and issuance costs 5,819,838 6 — — 1,408,163 — — 1,408,169

Shares issued in acquisition 9,263,140 9 — — 2,532,347 — — 2,532,356

Value of equity awards assumed in acquisition — — — — 38,972 — — 38,972

Shares issued in acquisition subject to future vesting 258,554 — — — — — — —

Unrealized gain on marketable securities — — — — — 3,674 — 3,674

Foreign currency translation — — — — — 286 — 286

Stock-based compensation — — — — 375,037 — — 375,037

Balance as of December 31, 2020 153,496,222 151 10,551,302 13 9,613,246 9,046 ( 1,169,791 ) 8,452,665

See accompanying notes to consolidated financial statements.

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Year Ended December 31,

2020 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES:

(In thousands)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net loss $ ( 490,979 ) $ ( 307,063 ) $ ( 121,949 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 149,660 110,430 26,095

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Stock-based compensation 360,936 264,318 93,273

Amortization of deferred commissions 13,322 4,511 1,350

Tax benefit related to release of valuation allowance ( 16,459 ) ( 55,745 ) —

Allowance for credit losses 13,239 2,491 1,515

Value of donated common stock 18,993 — 5,996

Loss on extinguishment of debt 12,863 — —

Other adjustments ( 477 ) 674 3,963

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Deferred revenue and customer deposits 13,824 2,968 5,958

Operating right of use liability

Long-term liabilities

Net cash provided by (used in) operating activities

Operating lease liabilities ( 33,938 ) ( 21,138 ) —

Other long-term liabilities ( 826 ) ( 3,501 ) ( 597 )

Net cash provided by operating activities 32,654 14,048 7,983

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions, net of cash acquired

Acquisitions, net of cash acquired and other related payments ( 333,591 ) 122,749 ( 30,574 )

Purchases of marketable securities and other investments ( 1,636,590 ) ( 2,038,422 ) ( 279,687 )

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Capitalized software development costs ( 33,328 ) ( 21,922 ) ( 19,546 )

Purchases of long-lived assets

Purchases of long-lived and intangible assets ( 25,805 ) ( 45,368 ) ( 5,109 )

Net cash used in investing activities ( 845,855 ) ( 1,285,792 ) ( 139,419 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from a public offering, net of underwriting discount

Payments of costs related to public offerings

Proceeds from a public offering, net of underwriting discount and issuance costs 1,408,113 979,123 —

Proceeds from issuance of convertible senior notes — — 550,000

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Purchase of capped call — — ( 58,465 )

Principal payments on notes payable

Principal payments on finance leases

Principal payments on debt and finance leases ( 10,784 ) ( 11,046 ) —

Proceeds from exercises of stock options and shares issued in ESPP 104,760 57,480 39,879

Value of equity awards withheld for tax liabilities ( 8,778 ) ( 5,412 ) ( 2,654 )

Repurchases of common stock

Net cash provided by financing activities 1,493,311 1,020,145 515,819

Effect of exchange rate changes on cash, cash equivalents and restricted cash 40 — 163

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 680,150 ( 251,599 ) 384,546

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of year 253,735 505,334 120,788

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of year $ 933,885 $ 253,735 $ 505,334

Cash paid for income taxes, net $ 3,092 $ 1,368 $ 564

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Value of common stock issued and stock awards assumed in acquisition $ 2,571,328 $ 2,841,452 $ —

Value of common stock issued to settle convertible senior notes $ 892,640 $ — $ —

Stock-based compensation capitalized in software development costs $ 13,897 $ 7,777 $ 5,706

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(the “Company”) was incorporated in the state of Delaware on March 13, 2008.

The Company is the leader in the Cloud Communications Platform category and enables developers to build, scale and operate real-time communications within their software applications via simple-to-use Application Programming Interfaces (“API”).

The Company is the leading cloud communications platform and enables developers to build, scale and operate real-time customer engagement within their software applications via simple-to-use Application Programming Interfaces (“API”).

The power, flexibility, and reliability offered by the Company’s software building blocks empower entities of virtually every shape and size to build world-class engagement into their customer experience.

The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries in Australia,

Bermuda, Brazil, Colombia, Czech Republic, Estonia, France, Germany, Hong Kong, Ireland, India, Japan, the Netherlands, Singapore, Spain, Sweden, United Kingdom and the United States.

The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries in Australia, Bermuda, Brazil, Canada, Colombia, Czech Republic, Estonia, France, Germany, Hong Kong, India, Ireland, Japan, Mexico, the Netherlands, Serbia, Singapore, Spain, Sweden, the United Kingdom and the United States.

Summary of Significant Accounting Policies

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In the years ended December 31, 2020, 2019 and 2018, the revenue from usage-based fees represented 76 %, 75 % and 84 % of total revenue, respectively.

Subscription-based fees are derived from certain non-usage-based contracts, such as with the sales of short codes and customer support.

Non-usage-based contracts revenue is recognized on a ratable basis over the contractual term which is generally one year or less.

Subscription-based fees are derived from certain non-usage-based contracts, such as with the sales of short codes, customer support and fees charged to access the cloud-based platform of the Company's recently acquired Segment io, Inc.

("Segment") business that is further described in Note 6.

Non-usage-based contracts revenue is recognized on a ratable basis over the contractual term which is generally one year or less for the Company's legacy products and one to three years for the contracts acquired with Segment.

In the years ended December 31, 2020, 2019 and 2018, the revenue from non-usage-based fees represented 24 %, 25 %, and 16 % of total revenue, respectively.

The Company applied the optional exemption of not disclosing the transaction price allocated to the remaining performance obligations for its usage-based contracts and contracts with original duration of one year or less.

The majority of the Company's contracts have a duration of one year or less.

No significant judgments are required in determining whether products and services are considered distinct performance obligations and should be accounted for separately versus together, or to determine the stand-alone selling price ("SSP").

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Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met.

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents unearned revenue and amounts that were and will be invoiced and recognized as revenue in future periods for non-cancelable multi-year subscription arrangements.

The Company applies the optional exemption of not disclosing the transaction price allocated to the remaining performance obligations for its usage-based contracts and contracts with original duration of one year or less.

Revenue allocated to remaining performance obligations for contracts with duration from one to three years was $ 84.1 million as of December 31, 2020, of which 59 % is expected to be recognized over the next 12 months.

(f) Deferred Revenue and Customer Deposits

Deferred revenue is recorded when cash payments are received in advance of future usage on non-cancelable contracts.

Deferred revenue is recorded when a non-cancellable contractual right to bill exists or when cash payments are received in advance of future usage on non-cancelable contracts.

Customer refundable prepayments are recorded as customer deposits.

As of December 31, 2019 and 2018 , the Company recorded $ 26.4 million and $ 23.0 million as its deferred revenue and customer deposits, respectively.

During the years ended December 31, 2019 and 2018 , the Company recognized $ 18.7 million and $ 10.6 million of revenue, respectively, that was included in the deferred revenue and customer deposits balance as of the end of the prior year.

As of December 31, 2020 and 2019, the Company recorded $ 87.2 million and $ 26.4 million as its deferred revenue and customer deposits, respectively, that are included in deferred revenue and customer deposits and other long-term liabilities in the accompanying consolidated balance sheets.

During the years ended December 31, 2020, 2019 and 2018, the Company recognized $ 19.5 million, $ 18.7 million and $ 10.6 million of revenue, respectively, that was included in the deferred revenue and customer deposits balance as of the end of the previous year.

(g) Deferred Sales Commissions

The Company records an asset for the incremental costs of obtaining a contract with a customer, for example, sales commissions that are earned upon execution of contracts.

The Company uses the portfolio of data method to determine the estimated period of benefit of capitalized commissions which is determined to be five years .

The Company uses the portfolio of data method to determine the estimated period of benefit of capitalized commissions which is generally determined to be up to sixty months .

Amortization expense related to these capitalized costs related to initial contracts, upsells and renewals, is recognized on a straight line basis over the estimated period of benefit of the capitalized commissions.

The Company applies the optional exemption of expensing these costs as incurred with amortization periods of one year or less.

Total net capitalized costs as of December 31, 2020 and 2019 were $ 85.6 million and $ 30.4 million, respectively, and are included in prepaid expenses and other current and long‑term assets in the accompanying consolidated balance sheets.

Amortization of these assets was $ 4.5 million and $ 1.4 million in the years ended December 31, 2019 and 2018 , respectively, and is included in sales and marketing expense in the accompanying consolidated statements of operations.

Amortization of these assets was $ 13.3 million, $ 4.5 million and $ 1.4 million in the years ended December 31, 2020, 2019 and 2018, respectively, and is included in sales and marketing expense in the accompanying consolidated statements of operations.

(h) Cost of Revenue

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All stock-based compensation to employees, including the purchase rights issued under the Company's 2016 Employee Stock Purchase Plan (the "ESPP"), is measured on the grant date based on the fair value of the awards on the date of grant.

This cost is recognized as an expense following straight-line attribution method over the requisite service period.

These costs are recognized as an expense following straight-line attribution method over the requisite service period.

The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options and the purchase rights issued under the ESPP.

The fair value of the restricted stock units is determined using the fair value of the Company's Class A common stock on the date of grant and recognized as an expense following straight-line attribution method over the requisite service period.

Prior to adoption of ASU 2016-09, the stock-based compensation was recorded net of estimated forfeitures.

Forfeitures are recorded in the period in which they occur.

Compensation expense for stock options granted to nonemployees is calculated using the Black-Scholes option pricing model and is recognized in expense over the service period.

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The expected term represents the period that the stock-based awards are expected to be outstanding.

The Company uses the simplified calculation of expected term, as the Company does not have sufficient historical data to use any other method to estimate expected term;

The Company uses the simplified calculation of expected term, which reflects the weighted-average of time-to-vesting;

• Expected volatility.

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Equity transactions are translated using historical exchange rates.

Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations.

Foreign currency transaction gains and losses are included in other (expense) income, net in the consolidated statements of operations.

(o) Comprehensive Income (Loss)

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The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method.

For purposes of this calculation, convertible preferred stock, options to purchase common stock, unvested restricted stock units, common stock issued subject to future vesting, any shares of stock committed under the ESPP, any shares of stock held in escrow and any shares of stock reserved for future donations are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

The dilutive effect of convertible senior notes is reflected in diluted earnings per share by application of the if-converted method.

For purposes of this calculation, convertible preferred stock, options to purchase common stock, unvested restricted stock units, common stock issued subject to future vesting, any shares of stock committed under the ESPP, shares of stock held in escrow, shares subject to future services, shares issuable under the conversion of the Company's convertible senior notes and any shares of stock reserved for future donations are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

Class A and Class B common stock are the only outstanding equity of the Company.

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All credit and debit card transactions that process as of the last day of each month and settle within the first few days of the subsequent month are also classified as cash and cash equivalents as of the end of the month in which they were processed.

(r) Restricted Cash

Restricted cash consists of cash deposited into a savings account with a financial institution as collateral for the Company's obligations under certain vendor and facility leases contracts.

(s) Accounts Receivable and Allowance for Doubtful Accounts

(r) Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded net of the allowance for doubtful accounts.

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The allowance for doubtful accounts was $ 12.0 million and $ 6.3 million as of December 31, 2020 and 2019, respectively.

(t) Costs Related to Public Offerings

Costs related to the public offerings, which consist of direct incremental legal, printing and accounting fees, are deferred until the offering is completed.

(s) Costs Related to Public Offerings

Costs related to public offerings, which consist of direct incremental legal, printing and accounting fees are deferred until the offering is completed.

Upon completion of the offering, these costs are offset against the offering proceeds within the consolidated statements of stockholders' equity.

In the year ended December 31, 2019 , the Company recorded in its consolidated statement of stockholders' equity $ 1.0 million in total offering costs.

(u) Property and Equipment

(t) Property and Equipment

Property and equipment, both owned and under finance leases, is stated at cost less accumulated depreciation and amortization.

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The useful lives of property and equipment are as follows:

Capitalized internal-use software development costs

Data center equipment

Office equipment

Furniture and fixtures

Assets under financing lease

5 years or remaining lease term

Leasehold improvements

5 years or remaining lease term

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, "Leases (Topic 842)" , which was further clarified in July 2018 by ASU 2018‑10, “ Codification Improvements to Topic 842, Leases” , and ASU 2018‑11, “ Leases-Targeted Improvements” .

ASU 2018-10 provides narrow amendments to clarify how to apply certain aspects of the new lease standard.

ASU 2018-11 addresses implementation issues related to the new lease standard.

The standard became effective for the Company on January 1, 2019.

Under this standard, lessees are required to recognize in the balance sheet the right-of-use ("ROU") assets and lease liabilities that arise from operating leases.

The Company adopted the standard using the optional alternative method on a prospective basis with an effective date as of the beginning of the Company’s fiscal year, January 1, 2019, and applied it to the operating leases that existed on that date.

Capitalized internal-use software development costs 3 years

Data center equipment 2 - 4 years

Office equipment 3 years

Furniture and fixtures 5 years

Software 3 years

Assets under financing lease 5 years or remaining lease term

Leasehold improvements 5 years or remaining lease term

The Company adopted ASU 2016-02, "Leases (Topic 842)" and applicable updates effective January 1, 2019, and applied it to the operating leases that existed on that date.

Prior year comparative financial information was not recast under the new standard and continues to be presented under ASC 840.

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Under the short-term lease exception, the Company will not recognize ROU assets or lease liabilities for leases that, at the acquisition date, have a remaining lease term of 12 months or less.

As a result of implementing this guidance, the Company recognized a $ 123.5 million net operating ROU asset and a $ 132.0 million operating lease liability in its consolidated balance sheet as of January 1, 2019.

The ROU asset was presented net of deferred rent of $ 9.0 million as of January 1, 2019, in the accompanying consolidated balance sheet.

In addition, on February 1, 2019, the Company acquired through its business combination with SendGrid approximately $ 33.7 million in operating ROU assets, $ 32.6 million in operating lease liability, $ 14.2 million in finance ROU assets and $ 13.6 million in finance lease liability.

The Company measured the lease liability at the present value of the future lease payments as of January 1, 2019.

The Company used its incremental borrowing rate to discount the lease payments.

The Company derived the discount rate, adjusted for differences in the term and payment patterns, from the information available at the adoption date.

The right-of-use asset is valued at the amount of the lease liability adjusted for the remaining December 31, 2018, balance of unamortized lease incentives, prepaid rent and deferred rent.

The lease liability is subsequently measured at the present value of unpaid future lease payments as of the reporting date with a corresponding adjustment to the right-of-use asset.

Absent a lease modification, the Company will continue to utilize the January 1, 2019, incremental borrowing rate.

The Company recognizes operating lease costs on a straight-line basis and presents these costs as operating expenses within the consolidated statements of operations and comprehensive loss.

Within the consolidated statements of cash flows the Company presents the lease payments made on the operating leases within the cash flows from operations and principal payments made on the finance leases as part of financing activities.

The financial results for the year ended December 31, 2019 , are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

See Note 5 , “Right-of-use Assets and Lease Liabilities” for further information.

(w) Intangible Assets

As a result, the Company recognized a $ 123.5 million net operating Right-of-use ("ROU") asset and a $ 132.0 million operating lease liability in its consolidated balance sheet as of January 1, 2019.

The Company determines if an arrangement is or contains a lease at contract inception.

The Company presents the operating leases in long-term assets and current and long-term liabilities.

Finance lease assets are included in property and equipment, net, and finance lease liabilities are presented in current and long-term liabilities in the accompanying consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and lease liabilities are measured and recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term, As the Company’s leases do not generally provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The Company’s

lease agreements may have lease and non-lease components, which the Company accounts for as a single lease component.

When estimating the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain such options will be exercised.

Operating lease costs are recognized in operating expenses in the Company's accompanying consolidated statements of operations on a straight-line basis over the lease term and variable payments are recognized in the period they are incurred.

The Company’s lease agreements do not contain any residual value guarantees.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Within the consolidated statements of cash flows, the Company presents the lease payments made on the operating leases as cash flows from operations and principal payments made on the finance leases as part of financing activities.

(v) Intangible Assets

Intangible assets recorded by the Company are costs directly associated with securing legal registration of patents and trademarks, acquiring domain names and the fair value of identifiable intangible assets acquired in business combinations.

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The useful lives of the intangible assets are as follows:

Developed technology

Customer relationships

Supplier relationships

Telecommunication licenses

Developed technology 3 - 7 years

Customer relationships 2 - 8 years

Supplier relationships 2 - 5 years

Trade names 5 years

Order backlog 1 year

Patents 20 years

Telecommunication licenses Indefinite

Trademarks Indefinite

Domain names Indefinite

Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination.

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However, the Company may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests.

The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill.

If the net book value exceeds its fair value, the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss.

In January 2017, the FASB issued ASU 2017‑04, “Simplifying the Test for Goodwill Impairment” , which removes the second step of the goodwill impairment test that required a hypothetical purchase price allocation.

A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value.

The impairment test involves comparing the fair value of the reporting unit to its carrying value, including goodwill.

A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value.

The impairment is limited to the carrying amount of goodwill.

This guidance is applied prospectively.

The Company early adopted this guidance effective April 1, 2019, which did not have a material impact to its consolidated financial statements.

No goodwill impairment charges have been recorded for any period presented.

(y) Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

(x) Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, including property, equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group.

If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value.

There was no impairment during the years ended December 31, 2019 , 2018 and 2017 .

(z) Business Combinations

There were no impairments during the years ended December 31, 2020, 2019 and 2018.

(y) Business Combinations

The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values.

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Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the consolidated statement of operations.

(aa) Segment Information

(z) Segment Information

The Company's Chief Executive Officer is the chief operating decision maker, who reviews the Company's financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company's financial performance.

Accordingly, the Company has determined that it operates in a single reporting segment.

(ab) Fair Value of Financial Instruments

The Company applies fair value accounting for all financial instruments on a recurring basis.

The Company's financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature.

Restricted cash is long-term in nature and consists of cash in a savings account, hence its carrying amount approximates its fair value.

Marketable securities consist of U.S.

treasury securities, high credit quality corporate debt securities and reverse repurchase agreements.

All marketable securities are considered to be available-for-sale and recorded at their estimated fair values.

Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive income (loss).

In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value of the convertible senior notes due 2023 (the "Notes") is determined based on the closing price for the Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis.

Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net.

(aa) Fair Value of Financial Instruments

The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements.

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A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” .

The amendments under ASU 2018-13 remove, add and modify certain disclosure requirements on fair value measurements.

The amendments are effective for interim and annual periods beginning after December 15, 2019.

The Company early adopted this guidance effective April 1, 2019, which did not have a material impact to its consolidated financial statements.

(ac) Recently Issued Accounting Guidance, Not yet Adopted

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes" which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes.

ASU 2019-12 will be effective for the Company beginning January 1, 2021, and early adoption is permitted.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements

In August 2018, the FASB issued ASU 2018‑15, “ Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”.

This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal‑use software.

The Company applies fair value accounting for all financial instruments on a recurring basis.

Marketable securities consist of U.S.

treasury securities, high credit quality corporate debt securities and reverse repurchase agreements.

All marketable securities are considered to be available-for-sale and recorded at their estimated fair values.

Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive income (loss).

The fair value of the convertible senior notes due 2023 (the "Notes") is determined based on the closing price for the Notes on the last trading day of the reporting period and is classified as Level 2 in the fair value hierarchy.

The fair value of the strategic investments, which consist of debt and equity securities of privately held companies in which the Company does not have a controlling interest or a significant influence, is determined under the measurement alternative on a non-recurring basis adjusting for observable changes in fair value.

Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis.

Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other (expense) income, net.

(ab) Recently Adopted Accounting Guidance

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, "Simplifying the Accounting for Income Taxes," which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes.

The standard is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

The Company is evaluating the impact of this guidance on its consolidated financial statements.

The Company elected to early adopt this guidance effective April 1, 2020.

The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In August 2018, FASB issued ASU 2018-15, “ Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350‑40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”.

This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain internal-use software.

The guidance is effective for interim and annual periods beginning after December 15, 2019.

The Company adopted this guidance effective January 1, 2020.

The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses:

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The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses.

In November 2018, the FASB issued ASU 2018‑19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses” , which clarifies that receivables arising from operating leases are no t within the scope of Topic 326, Financial Instruments-Credit Losses .

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses” , which clarifies that receivables arising from operating leases are not within the scope of Topic 326, "Financial Instruments-Credit Losses" .

Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, " Leases ".

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119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842)." This ASU provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses.

These ASUs are effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted.

The Company is evaluating the impact of this guidance on its consolidated financial statements.

2016-02, Leases (Topic 842)." This standard provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses.

These ASUs are effective for interim and annual periods beginning after December 15, 2019, and the Company adopted them effective January 1, 2020.

As of the date of adoption, this guidance did not have a material impact on the Company's consolidated financial statements.

(ac) Recently Issued Accounting Guidance, Not yet Adopted

In August 2020, the FASB issued ASU 2020-06, "Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)," which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component.

The ASU also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments.

The standard is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted.

The Company is evaluating the impact of the adoption of this guidance on its consolidated financial statements.

Fair Value Measurements

Financial Assets

The following tables provide the financial assets measured at fair value on a recurring basis:

Fair Value Hierarchy as of

December 31, 2019

Losses Fair Value Hierarchy as of

December 31, 2020 Aggregate

Level 1 Level 2 Level 3

Financial Assets:

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Money market funds $ 656,749 $ — $ — $ 656,749 $ — $ — $ 656,749

Reverse repurchase agreements

Commercial paper 2,000 — — — 2,000 — 2,000

Total included in cash and cash equivalents 658,749 — — 656,749 2,000 — 658,749

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Total marketable securities 2,097,504 8,538 ( 136 ) 273,635 1,832,271 — 2,105,906

Strategic investments

Total financial assets $ 2,756,253 $ 8,538 $ ( 136 ) $ 930,384 $ 1,834,271 $ — $ 2,764,655

Fair Value Hierarchy as of

December 31, 2018

Losses Fair Value Hierarchy as of

December 31, 2019 Aggregate

Level 1 Level 2 Level 3

Financial Assets:

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Reverse repurchase agreements 35,800 — — — 35,800 — 35,800

Commercial paper

Total included in cash and cash equivalents 189,052 — — 153,252 35,800 — 189,052

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Total financial assets $ 1,783,386 $ 4,757 $ ( 58 ) $ 374,337 $ 1,413,748 $ — $ 1,788,085

The Company's primary objective when investing excess cash is preservation of capital, hence the Company's marketable securities primarily consist of U.S.

Treasury Securities, high credit quality corporate debt securities, commercial paper and reverse repurchase agreements.

As the Company views its marketable securities as available to support current operations, it has classified all available for sale securities as short-term.

As of December 31, 2019 , the Company had no securities that were in unrealized loss position for over 12 months.

As of December 31, 2018 , for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis.

In addition, as of December 31, 2019 and 2018 , the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities and determined that no other-than-temporary impairments were required to be recognized during the years ended December 31, 2019 , 2018 and 2017 .

As of December 31, 2020 and 2019, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis.

In addition, as of December 31, 2020 and 2019, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity.

The Company regularly reviews changes to the rating of its debt securities by rating agencies as well as reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses.

As of December 31, 2020, the risk of expected credit losses was not significant.

Interest earned on marketable securities was $ 32.4 million, $ 20.8 million and $ 3.0 million in the years ended December 31, 2020, 2019 and 2018, respectively.

The interest is recorded as other income (expense), net, in the accompanying consolidated statements of operations.

The interest is recorded as other (expense) income, net, in the accompanying consolidated statements of operations.

The following table summarizes the contractual maturities of marketable securities:

As of December 31, 2019

As of December 31, 2018

As of December 31, 2020 As of December 31, 2019

Cost Aggregate

Fair Value Amortized

Cost Aggregate

Financial Assets:

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One to three years 971,413 976,979 734,338 737,852

The Company enters into reverse securities repurchase agreements, primarily for short-term investments with maturities of 90 days or less.

As of December 31, 2019 and 2018 , the Company was party to reverse repurchase agreements totaling $ 35.8 million and $ 35.0 million , respectively, which were reported in cash and equivalents in the accompanying consolidated balance sheets.

Total $ 2,097,504 $ 2,105,906 $ 1,594,334 $ 1,599,033

From time to time, the Company enters into reverse securities repurchase agreements, primarily for short-term investments with maturities of 90 days or less.

As of December 31, 2020, the Company had no reverse repurchase agreements.

As of December 31, 2019, the Company was party to reverse repurchase agreements totaling $ 35.8 million, which were reported in cash and equivalents in the accompanying consolidated balance sheet.

Under these reverse securities repurchase agreements, the Company typically lends available cash at a specified rate of interest and holds U.S.

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Collateral value is in excess of the amounts loaned under these agreements.

In May and August 2019, the Company made strategic investments totaling $ 5.5 million into privately held debt securities in which the Company does not have a controlling interest or significant influence.

These securities are recorded at fair value in other long-term assets in the consolidated balance sheet.

The Company classifies its strategic investments as Level 3 within the fair value hierarchy based on the nature of the fair value inputs and judgment involved in the valuation process.

There were no material changes to fair value of these securities during the year ended December 31, 2019 .

As of December 31, 2019 and 2018 , the fair value of the 0.25 % convertible senior notes due 2023 (the “Notes”), as further described in Note 9 below, was approximately $ 841.3 million and $ 743.4 million , respectively.

The fair value of the Notes is determined based on the closing price on the last trading day of the reporting period and is classified as a Level 2 security within the fair value hierarchy.

Strategic Investments

As of December 31, 2020 and 2019, the Company held strategic investments with a fair value of $ 9.3 million and $ 5.5 million, respectively, in debt and equity securities of privately held companies in which the Company does not have a controlling interest or significant influence.

These securities are recorded as other long-term assets in the accompanying consolidated balance sheets.

There were no impairments in the years ended December 31, 2020 and 2019.

Financial Liabilities

As of December 31, 2020 and 2019, the fair value of the 0.25 % convertible senior notes due 2023 (the “Notes”), as further described in Note 9, was approximately $ 1.7 billion and $ 841.3 million, respectively.

Property and Equipment

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Data center equipment (1)

43,477 22,009

Leasehold improvements 69,756 55,886

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Furniture and fixtures (1)

12,312 10,095

Software 9,943 9,176

Total property and equipment 313,323 222,404

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Year Ended December 31,

2020 2019 2018

(In thousands)

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General and administrative — 213 689

Total $ 18,011 $ 17,104 $ 13,024

Right-of-Use Asset and Lease Liabilities

The Company determines if an arrangement is a lease at inception.

The Company presents the operating leases in long-term assets and current and long-term liabilities.

Finance lease assets are included in property and equipment, net, and finance lease liabilities are presented in current and long-term liabilities in the accompanying consolidated balance sheet as of December 31, 2019 .

Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As the Company’s leases do not generally provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The Company’s lease agreements may have lease and non-lease components, which the Company accounts for as a single lease component.

The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term and variable payments are recognized in the period they are incurred.

The Company’s lease agreements do not contain any residual value guarantees.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company has entered into various operating lease agreements for data centers and office space, and various financing leases agreements for data center and office equipment and furniture.

The Company has entered into various operating lease agreements for office space and data centers and finance lease agreements for data center and office equipment and furniture.

As of December 31, 2020, the Company had 24 leased properties with remaining lease terms of 0.3 years to 8.3 years, some of which include options to extend the leases for up to 5.0 years.

The components of the lease expense recorded in the consolidated statement of operations were as follows:

The components of the lease expense recorded in the accompanying consolidated statements of operations were as follows:

Year Ended December 31,

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Supplemental balance sheet information related to leases was as follows:

Classification

December 31, 2019

As of December 31,

Leases Classification 2020 2019

(In thousands)

Operating lease assets

Operating right-of-use asset, net of accumulated amortization (1)

Finance lease assets

Property and equipment, net of accumulated depreciation (2)

Operating lease assets Operating right-of-use asset, net of accumulated amortization (1)

$ 258,610 $ 156,741

Finance lease assets Property and equipment, net of accumulated depreciation (2)

25,771 14,770

Total leased assets $ 284,381 $ 171,511

Operating lease liability, current

Financing lease liability, current

Operating lease liability, noncurrent

Finance lease liability, noncurrent

Operating Operating lease liability, current $ 48,338 $ 27,156

Finance Financing lease liability, current 9,062 6,924

Operating Operating lease liability, noncurrent 229,905 139,200

Finance Finance lease liability, noncurrent 17,856 8,746

Total lease liabilities $ 305,161 $ 182,026

(1) Operating lease assets are recorded net of accumulated amortization of $ 23.2 million as of December 31, 2019 .

(2) Finance lease assets are recorded net of accumulated depreciation of $ 6.0 million as of December 31, 2019 .

____________________________________

(1) Operating lease assets are recorded net of accumulated amortization of $ 57.1 million and $ 23.2 million as of December 31, 2020 and December 31, 2019, respectively.

(2) Finance lease assets are recorded net of accumulated depreciation of $ 15.0 million and $ 6.0 million as of December 31, 2020 and December 31, 2019, respectively.

Supplemental cash flow and other information related to leases was as follows:

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As of December 31, 2020

Year Ended December 31,

(In thousands)

Leases Finance

Year Ended December 31, (In thousands)

2021 $ 60,220 $ 9,866

2022 60,258 7,588

2023 49,023 6,841

2024 44,439 3,604

2025 32,225 316

Thereafter 75,410 518

Total lease payments 321,575 28,733

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Long-term lease obligations $ 229,905 $ 17,856

As of December 31, 2019 , the Company had additional operating lease obligations totaling $ 54.1 million related to leases that will commence in the first and second quarters of 2020 with lease terms ranging from 3.0 years to 6.8 years .

The Company had an additional finance lease obligation of $ 0.7 million related to a lease that will commence in the second quarter of 2020 with a lease term of 6.8 years .

As of December 31, 2020, the Company had an additional operating lease obligation totaling $ 11.0 million for a lease that will commence in the first quarter of 2023 with a lease term of 6.2 years.

As of December 31, 2020, the Company had no additional finance leases with future commencement dates.

Disclosures related to periods prior to adoption of the New Lease Standard

Rent expense was $ 10.3 million and $ 8.1 million for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payment obligations under noncancelable operating and finance leases were as follows:

Rent expense was $ 10.3 million for the year ended December 31, 2018.

Future minimum lease payment obligations under noncancellable operating and finance leases were as follows:

As of December 31, 2018

Year Ended December 31,

(In thousands)

Leases Financing

Year Ended December 31, (In thousands)

2019 $ 24,128 $ 306

2020 29,527 512

2021 30,898 573

2022 30,492 590

2023 30,122 608

Thereafter 81,316 1,939

Total minimum lease payments $ 226,483 $ 4,528

Business Combinations

Segment.io, Inc.

In November 2020, the Company acquired all outstanding shares of Segment, the market-leading customer data platform, by issuing 9.5 million shares of its Class A common stock with a fair value of $ 2.6 billion and $ 413.3 million in cash.

Of the total shares of Class A common stock issued at closing, 258,554 shares with the fair value of $ 70.7 million are subject to future vesting and will be recorded in the stock-based compensation expense as the services are provided over a period of 2.41 years.

Part of the cash consideration was paid to settle the vested equity awards of Segment employees.

The Company assumed all unvested and outstanding equity awards of Segment continuing employees as converted into its own equity awards at the conversion ratio provided in the Agreement and Plan of Reorganization (the "Merger Agreement").

The acquisition added additional products and services to the Company's offerings for its customers.

With these additional products, the Company can now offer a customer engagement platform.

The acquisition has also added new customers, new employees, technology and intellectual property assets.

The acquisition was accounted for as a business combination and the total preliminary purchase price of $ 3.0 billion was allocated to the net tangible and intangible assets and liabilities based on their preliminary fair values on the acquisition date with the excess recorded as goodwill.

The values assigned to the assets acquired and liabilities assumed are based on their fair values that was available on the acquisition date.

As of December 31, 2020, the areas that are not yet finalized due to information that may become available subsequently to the year end and may result in changes in the values recorded at year end relate to any and all contingencies, including income and other taxes.

At the time such contingencies may arise within the measurement period of 12 months from the acquisition closing date, it may result in adjustments to liability balances and goodwill.

The purchase price reflects the $ 2.5 billion fair value of $ 9.3 million shares of the Company's Class A common stock transferred as consideration for accredited outstanding shares of Segment, the $ 413.3 million cash consideration for unaccredited shares and vested equity awards and the $ 39.0 million fair value of the pre-combination services of Segment employees reflected in the unvested equity awards assumed by the Company on the acquisition date.

The additional 258,554 shares of Class A common issued at closing with future vesting as well as a portion of cash and shares of Class A common stock that were transferred as part of the purchase price are held in escrow.

The fair value of the 9.5 million shares of the Company's Class A common stock issued at closing was determined based of its closing price on the acquisition date.

The fair value of the assumed unvested equity awards was determined (a) for options, by using a Black-Scholes option pricing model with the applicable assumptions as of the acquisition date, and (b) for restricted stock units, by using the closing market price of the Company's Class A common stock on the acquisition date.

The fair value of unvested employee equity awards assumed on the acquisition date was $ 245.3 million.

These awards will continue to vest as the Segment employees provide services in the post-acquisition period.

The fair value of these awards will be recorded into the stock-based compensation expense over the respective vesting period of each award.

The purchase price components are summarized in the following table:

(In thousands)

Fair value of Class A common stock transferred $ 2,532,356

Cash consideration 413,291

Fair value of the pre-combination service through equity awards 38,972

Total purchase price, as adjusted $ 2,984,619

The following table presents the preliminary purchase price allocation, as adjusted, recorded in the Company's consolidated balance sheet as of December 31, 2020:

(In thousands)

Cash and cash equivalents $ 93,170

Accounts receivable and other current assets 90,846

Property and equipment, net 5,081

Operating right-of-use asset 52,490

Intangible assets (1)

Other assets 4,869

Goodwill 2,294,945

Accounts payable and other liabilities ( 24,263 )

Deferred revenue ( 47,013 )

Operating lease liability ( 58,206 )

Deferred tax liability ( 22,300 )

Total purchase price $ 2,984,619

____________________________________

( 1 ) Identifiable intangible assets are comprised of the following:

Total Estimated

(In thousands) (In years)

Developed technology $ 390,000 7

Customer relationships 190,000 6

Order backlog 10,000 1

Trade names 5,000 5

Total intangible assets acquired $ 595,000

The Company acquired a net deferred tax liability of $ 22.3 million in this business combination that is included in long-term liabilities in the accompanying consolidated balance sheet.

Developed technology consists of software products and domain knowledge around customer data developed by Segment, which will enable Twilio to layer data across its platform to power timely and personalized communications over the right channel, further enhancing the Company's customer engagement platform.

Customer relationships consists of contracts with platform users that purchase Segment’s products and services that carry distinct value.

Goodwill generated from this acquisition primarily represents the value that is expected from the increased scale and synergies as a result of the integration of both businesses.

Goodwill is not deductible for tax purposes.

The estimated fair value of the intangible assets acquired was determined by the Company.

The Company engaged a third‑party expert to assist with the valuation analysis.

The Company used a relief from royalty method to estimate the fair values of the developed technology and a multi-period excess earnings method to estimate the fair value of the customer relationships and order backlog.

Most of the net tangible assets were valued at their respective carrying amounts as of the acquisition date, as the Company believes that these amounts approximate their current fair values, except for ROU lease assets.

The value of the acquired operating ROU assets was reduced by $ 6.4 million to their respective fair values as of the acquisition date.

The acquired entity's results of operations were included in the Company's consolidated financial statements from the date of acquisition, November 2, 2020.

For the year ended December 31, 2020, Segment contributed net operating revenue of $ 23.0 million, which is reflected in the accompanying consolidated statement of operations.

Due to the integrated nature of the Company's operations, the Company believes that it is not practicable to separately identify earnings of Segment on a stand-alone basis.

During the year ended December 31, 2020, the Company incurred costs related to this acquisition of $ 20.8 million that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operations.

The following unaudited pro forma condensed combined financial information gives effect to the acquisition of Segment as if it was consummated on January 1, 2019 (the beginning of the comparable prior reporting period), and includes pro forma adjustments related to the amortization of acquired intangible assets, share-based compensation expense, one-time tax benefit and direct and incremental transaction costs reflected in the historical financial statements.

Specifically, the following adjustments were made:

• For the year ended December 31, 2020, the Company's and Segment's direct and incremental transaction costs of $ 79.3 million are excluded from the pro forma condensed combined net loss.

• For the year ended December 31, 2019, the Company's direct and incremental transaction costs of $ 20.8 are included in the pro forma condensed combined net loss.

• In the year ended December 31, 2020, the pro forma condensed combined net loss includes a reversal of the valuation allowance release of $ 13.8 million.

• In the year ended December 31, 2019, the pro forma condensed combined net loss includes a one-time tax benefit of $ 38.1 that would have resulted from the acquisition, and an ongoing tax benefit of $ 7.5 million.

This unaudited data is presented for informational purposes only and is not intended to represent or be indicative of the results of operations that would have been reported had the acquisition occurred on January 1, 2019.

It should not be taken as representative of future results of operations of the combined company.

The following table presents the unaudited pro forma condensed combined financial information:

Year Ended December 31,

(Unaudited, in thousands)

Revenue $ 1,874,720 $ 1,217,502

Net loss attributable to common stockholders $ ( 655,355 ) $ ( 576,962 )

Other Fiscal 2020 Acquisition

In fiscal 2020 the Company completed other business and asset acquisitions for a total purchase price of $ 13.0 million paid in cash, of which $ 5.0 million was withheld by the Company for a period up to 60 months.

An additional consideration of $ 8.6 million is subject to future vesting and will be settled in shares of fully vested restricted stock units at the end of the vesting period.

The Company does not consider these acquisition to be material, individually or in aggregate.

The total purchase price was allocated to the tangible and intangibles assets acquired and liabilities assumed based on their fair values at the time of the acquisition.

Goodwill of $ 8.8 million was recorded to reflect the excess of purchase price over the net assets acquired and represents the value that the Company expects to realize from expanding its product offerings and other synergies.

Goodwill that is expected to be deductible for tax purposes is approximately $ 2.8 million.

The acquired entities' results of operations have been included in the consolidated financial statements of the Company from their respective dates of acquisition.

At the time such contingencies may arise within the measurement period of 12 months from the acquisitions closing dates, it may result in adjustments to liability balances and goodwill.

The following table summarizes the preliminary purchase price allocation in aggregate for the businesses and assets acquired in fiscal 2020 recorded in the Company's consolidated balance sheet as of December 31, 2020:

(In thousands)

Net liabilities $ ( 45 )

Intangible assets (1)

Goodwill 8,835

Total preliminary purchase price $ 13,040

____________________________________

(1) Identifiable intangible assets were comprised of the following:

Total Estimated

(In thousands) (In years)

Customer relationships 3,750 4

Trademark and tradename 500 3

Total intangible assets acquired $ 4,250

During the year ended December 31, 2020, the Company incurred $ 1.3 million of costs related to these acquisitions that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operation.

Pro forma results of operations for these acquisitions are not presented as the financial impact to the Company's consolidated financial statements is immaterial.

Fiscal 2019 Acquisitions

SendGrid, Inc.

In February 2019, the Company acquired all outstanding shares of SendGrid, Inc.

("SendGrid"), the leading email API platform, by issuing 23.6 million shares of its Class A common stock with a total value of $ 2,658.9 million .

("SendGrid"), the leading email API platform, by issuing 23.6 million shares of its Class A common stock with a total value of $ 2.7 billion.

The Company also assumed all of the outstanding stock options and restricted stock units of SendGrid as converted into stock options and restricted stock units, respectively, of the Company based on the conversion ratio provided in the Agreement and Plan of Merger and Reorganization, as amended (the "Merger Agreement").

The acquisition added additional products and services to the Company's offerings for its customers.

With these additional products, the Company now offers an email API and Marketing Campaigns product leveraging the email API.

The acquisition has also added new customers, new employees, technology and intellectual property assets.

With these additional products, the Company offers an email API and Marketing Campaigns product leveraging the email API.

The acquisition also added new customers, new employees, technology and intellectual property assets.

The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date with the excess recorded as goodwill.

Subsequent to the acquisition date of February 1, 2019, and during the measurement period that ended on December 31, 2019, the Company recorded $ 4.4 million of adjustments to goodwill.

The adjusted purchase price of $ 2,841.5 million reflects the $ 2,658.9 million fair value of 23.6 million shares of the Company's Class A common stock transferred as consideration for all outstanding shares of SendGrid, and the $ 182.6 million fair value of the pre-combination services of SendGrid employees reflected in the equity awards assumed by the Company on the acquisition date.

The adjusted purchase price of $ 2.8 billion reflects the $ 2.7 billion fair value of 23.6 million shares of the Company's Class A common stock transferred as consideration for all outstanding shares of SendGrid, and the $ 182.6 million fair value of the pre-combination services of SendGrid employees reflected in the equity awards assumed by the Company on the acquisition date.

The fair value of the 23.6 million shares transferred as consideration was determined on the basis of the closing market price of the Company's Class A common stock on the acquisition date.

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The unvested stock awards assumed on the acquisition date continue to vest as the SendGrid employees continue to provide services in the post-acquisition period.

The fair value of these awards is recorded as share-based compensation expense over the respective vesting period of each award.

The fair value of these awards is recorded as stock-based compensation expense over the respective vesting period of each award.

The purchase price components, as adjusted, are summarized in the following table:

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Intangible assets (1)

Other assets 1,664

Goodwill 2,235,193

Accounts payable and other liabilities ( 11,114 )

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Finance lease liability ( 13,616 )

Note payable ( 5,387 )

Deferred tax liability ( 56,230 )

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____________________________________

(1) Identifiable intangible assets are comprised of the following:

(In thousands)

( 1 ) Identifiable intangible assets were comprised of the following:

Total Estimated

(In thousands) (In years)

Developed technology $ 294,000 7

Customer relationships 169,000 7

Trade names 20,000 5

Total intangible assets acquired $ 483,000

The Company acquired a net deferred tax liability of $ 56.2 million in this business combination that is included in long-term liabilities in the accompanying consolidated balance sheet.

The Company acquired a net deferred tax liability of $ 56.2 million in this business combination that was included in long-term liabilities in the accompanying consolidated balance sheet.

This amount was offset by a release of a valuation allowance on deferred tax assets of $ 47.9 million.

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For the year ended December 31, 2019, SendGrid contributed net operating revenue of $ 177.1 million, which is reflected in the accompanying consolidated statement of operations.

Due to the integrated nature of the Company's operations, the Company believes that it is not practicable to separately identify earnings of SendGrid on a stand-

During the year ended December 31, 2019 , the Company incurred costs related to this acquisition of $ 13.9 million that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operations.

For the year ended December 31, 2019, the Company incurred costs related to this acquisition of $ 13.9 million that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operations.

The following unaudited pro forma condensed combined financial information gives effect to the acquisition of SendGrid as if it was consummated on January 1, 2018 (the beginning of the comparable prior reporting period), and includes pro forma adjustments related to the amortization of acquired intangible assets, share-based compensation expense and direct and incremental transaction costs reflected in the historical financial statements.

Specifically, the following adjustments were made:

For the year ended December 31, 2019 , the Company's and SendGrid's direct and incremental transaction costs of $ 40.8 million are excluded from pro forma combined net loss.

For the year ended December 31, 2018 , the Company's direct and incremental transaction costs of $ 13.9 million are included in the pro forma combined net loss.

In the year ended December 31, 2019 , the pro forma combined net loss includes a reversal of the valuation allowance release of $ 48.0 million .

• For the year ended December 31, 2019, the Company's and SendGrid's direct and incremental transaction costs of $ 40.8 million are excluded from pro forma condensed combined net loss.

• For the year ended December 31, 2018, the Company's direct and incremental transaction costs of $ 13.9 million are included in the pro forma condensed combined net loss.

• In the year ended December 31, 2019, the pro forma condensed combined net loss includes a reversal of the valuation allowance release of $ 48.0 million.

• In the year ended December 31, 2018, the pro forma condensed combined net loss includes a one-time tax benefit of $ 53.5 million that would have resulted from the acquisition, and an ongoing tax benefit of $ 29.4 million.

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(Unaudited, in thousands)

Revenue $ 1,148,214 $ 796,607

Net loss attributable to common stockholders $ ( 322,030 ) $ ( 211,705 )

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In fiscal 2019 the Company acquired several businesses for a total purchase price of $ 43.2 million paid in cash, of which $ 9.1 million was withheld for the period of 18 to 36 months, and $ 12.8 million of deferred equity consideration, which is recorded in the post-acquisition period as the services are provided.

The Company does not consider these acquisition to be material, individually or in aggregate.

Total purchase price was allocated to the tangible and intangibles assets acquired and liabilities assumed based on preliminary calculations as the Company continues to gather information necessary to finalize the valuations.

These preliminary values may change in the future reporting periods until the valuations are finalized, which will occur in the second and fourth quarters of 2020.

Goodwill of $ 23.4 million was recorded to reflect the excess purchase price over the net assets acquired and represents the value that the Company expects to realize from expanding its product offerings and other synergies.

Goodwill that is expected to be deductible for tax purposes is $ 6.8 million .

The following table summarizes the preliminary purchase price allocation in aggregate for the other business acquired in fiscal 2019 recorded in the Company's consolidated balance sheet as of December 31, 2019 :

The Company does not consider these acquisitions to be material, individually or in aggregate.

The acquisitions were accounted for as business combinations and the total purchase price was allocated to the net tangible and intangibles assets acquired and liabilities assumed based on their fair values on the acquisition date and the excess was recorded as goodwill.

The acquired entities' results of operations have been included in the consolidated financial statements of the Company from the date of acquisition.

The following table summarizes the purchase price allocation in aggregate for the other business acquired in fiscal 2019 recorded in the Company's consolidated balance sheet as of December 31, 2019:

(In thousands)

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Intangible assets (1)

Goodwill 23,425

Total preliminary purchase price $ 43,192

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( 1 ) Identifiable intangible assets were comprised of the following:

(In thousands)

Total Estimated

(In thousands) (In years)

Developed technology $ 11,771 4 - 6

Customer relationships 5,185 3 - 5

Telecommunication licenses

Telecommunication licenses 4,370 Indefinite

Supplier relationships 1,660 2

Total intangible assets acquired $ 22,986

During the year ended December 31, 2019 , the Company incurred $ 1.9 million of costs related to this acquisition that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operation.

During the year ended December 31, 2019, the Company incurred $ 1.9 million of costs related to these acquisitions that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operations.

Pro forma results of operations for these acquisitions are not presented as the financial impact to the Company's consolidated financial statements is immaterial.

Fiscal 2018 Acquisitions

Ytica.com a.s.

In September 2018, the Company acquired all outstanding shares of Ytica.com a.s.

("Ytica"), a developer and provider of a contact center reporting and analytics based in the Czech Republic, for a total purchase price of $ 21.8 million , paid in cash, of which $ 3.2 million was held in escrow with a term of 18 months .

Additionally, the Company granted 47,574 restricted stock units of the Company's Class A common stock to a former shareholder of Ytica that had a value of $ 3.6 million and is subject to vesting over a period of three years.

The Company is recording stock-based compensation expense as the shares are vesting.

The acquired entity's results of operations have been included in the consolidated financial statements of the Company from the date of acquisition.

The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet as of December 31, 2018:

(In thousands)

Net liabilities

Intangible assets (1)

Total purchase price

_________________

Identifiable intangible assets were comprised of the following:

(In thousands)

Developed technology

Customer relationships

Total intangible assets acquired

The goodwill is primarily attributable to the future cash flows to be realized from the acquired technology platform as well as operational synergies.

The Company has filed for the elections that make the goodwill deductible for U.S.

tax purposes.

The Company acquired a net deferred tax liability of $ 1.7 million in this business combination.

The estimated fair value of the intangible assets acquired was determined by the Company, and the Company considered or relied in part upon a valuation report of a third-party expert.

The Company used an income approach to estimate the fair values of the identifiable intangible assets.

The Company incurred costs related to this acquisition of $ 0.6 million that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operation.

Pro forma results of operations for this acquisition are not presented as the financial impact to the Company's consolidated financial statements is immaterial.

Core Network Dynamics GmbH

In August 2018, the Company acquired all outstanding shares of Core Network Dynamics GmbH ("CND"), a developer and provider of a complete software mobile network infrastructure based in Germany, for a total purchase price of $ 11.1 million , paid in cash, of which $ 2.0 million was withheld by the Company for a term of 18 months .

Additionally, the Company granted 35,950 restricted stock units of the Company's Class A common stock to a former shareholder of CND that had a value of $ 2.2 million and is subject to vesting over a period of three years .

The Company is recording a stock-based compensation expense as the shares are vesting.

The acquired entity's results of operations have been included in the consolidated financial statements of the Company from the date of acquisition.

The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet as of December 31, 2018:

(In thousands)

Net liabilities

Intangible assets (1)

Total purchase price

_________________

Identifiable intangible assets were comprised of the following:

(In thousands)

Developed technology

Customer relationships

Total intangible assets acquired

The goodwill is primarily attributable to the future cash flows to be realized from the operating synergies between the acquired technology platform and the Company's Programmable Wireless products.

The Company has filed for the elections that make the goodwill deductible for U.S.

tax purposes.

The Company acquired a net deferred tax liability of $ 1.2 million in this business combination.

The estimated fair value of the intangible assets acquired was determined by the Company, and the Company considered or relied in part upon a valuation report of a third-party expert.

The Company used a replacement cost approach to estimate the fair values of the identifiable intangible assets.

The Company incurred costs related to this acquisition of $ 0.8 million that were expensed as incurred and have been recorded in general and administrative expenses in the accompanying consolidated statement of operation.

Pro forma results of operations for this acquisition are not presented as the financial impact to the Company's consolidated financial statements is immaterial.

Fiscal 2017 Acquisitions

In February 2017, the Company completed its acquisition of Beepsend AB, a messaging provider based in Sweden, specializing in messaging and SMS solutions, for a total purchase price of $ 23.0 million , paid in cash, of which $ 5.0 million was held in escrow with a term of 18 months and was fully released at the escrow expiration date.

The acquired entity's results of operations were included in the consolidated financial statements of the Company from the date of acquisition.

The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet:

(In thousands)

Net liabilities

Intangible assets (1)

Total purchase price

_________________

Identifiable intangible assets were comprised of the following:

(In thousands)

Developed technology

Customer relationships

Supplier relationships

Total intangible assets acquired

Goodwill represents the excess of purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed.

The goodwill in this transaction was primarily attributable to the future cash flows to be realized from the acquired technology platform, existing customer and supplier relationships as well as operational synergies.

Goodwill is deductible for tax purposes.

The Company acquired a net deferred tax liability of $ 2.6 million in this business combination.

The estimated fair value of the intangible assets acquired was determined by the Company, and the Company considered or relied in part upon a valuation report of a third-party expert.

The Company used income approaches to estimate the fair values of the identifiable intangible assets.

Specifically, the developed technology asset class was valued using the-relief-from

royalty method, while the customer relationships asset class was valued using a multi-period excess earnings method and the supplier relationships asset class was valued using an incremental cash flow method.

The Company incurred costs related to this acquisition of $ 0.7 million , of which $ 0.3 million was incurred during the year ended December 31, 2017.

All acquisition related costs were expensed as incurred and have been recorded in general and administrative expenses in the accompanying consolidated statements of operations.

Pro forma results of operations for this acquisition are not presented as the financial impact to the Company's consolidated financial statements is immaterial.

Goodwill and Intangible Assets

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Measurement period adjustments ( 4,003 )

Effect of exchange rate

Balance as of December 31, 2019 $ 2,296,784

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December 31, 2020

Gross Accumulated

Amortization Net

Amortizable intangible assets:

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Supplier relationships 4,356 ( 3,044 ) 1,312

Trade names 25,560 ( 7,921 ) 17,639

Order backlog 10,000 ( 1,667 ) 8,333

Patent 3,360 ( 373 ) 2,987

Total amortizable intangible assets 1,147,219 ( 185,861 ) 961,358

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Trademarks and other 295 — 295

Total $ 1,152,434 $ ( 185,861 ) $ 966,573

December 31, 2019

Gross Accumulated

Amortization Net

Amortizable intangible assets:

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Supplier relationships 4,356 ( 1,532 ) 2,824

Trade name 20,060 ( 3,727 ) 16,333

Patent 2,707 ( 262 ) 2,445

Total amortizable intangible assets 543,442 ( 87,258 ) 456,184

Non-amortizable intangible assets:

Telecommunication licenses 4,370 — 4,370

Trademarks and other 295 — 295

Total $ 548,107 $ ( 87,258 ) $ 460,849

Amortization expense was $ 98.6 million, $ 72.9 million and $ 7.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Total estimated future amortization expense is as follows:

Year Ended December 31,

(In thousands)

Year Ended December 31, (In thousands)

2021 $ 171,530

Thereafter 138,509

Total $ 961,358

Accrued Expenses and Other Liabilities

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ESPP contributions 6,272 4,023

Deferred rent

VAT and other taxes

Acquisition holdback 184 6,520

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(In thousands)

Deferred rent

Deferred tax liability $ 13,684 $ 7,535

Acquisition holdback 8,800 3,750

Capital lease obligation

Accrued other expenses 14,149 6,462

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The Notes will mature on June 1, 2023, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms.

The total net proceeds from the debt offering, after deducting initial purchaser discounts and debt issuance costs, paid or payable by us, were approximately $ 537.0 million .

The total net proceeds from the debt offering, after deducting initial purchaser discounts and debt issuance costs paid by us were approximately $ 537.0 million.

Each $1,000 principal amount of the Notes is initially convertible into 14.104 shares of the Company’s Class A common stock par value $ 0.001 , which is equivalent to an initial conversion price of approximately $ 70.90 per share.

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On or after March 1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Notes may, at their option, convert all or a portion of their Notes regardless of the foregoing conditions.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at the Company’s election.

It is the Company’s current intent to settle the principal amount of the Notes with cash.

Upon conversion, the Company may pay or deliver, as the case may be, cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at the Company’s election.

It is the Company’s current intent to settle the principal amount of the Notes in shares of Class A common stock if a conversion were to occur.

During the year ended December 31, 2020, the conditional conversion feature of the Notes was triggered as the last reported sale price of the Company's Class A common stock was more than or equal to 130 % of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on December 31, 2020 (the last trading day of the calendar quarter), and therefore the Notes are currently convertible, in whole or in part, at the option of the holders between January 1, 2021 through March 31, 2021.

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Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

In the year ended December 31, 2020, the Company converted $ 206.3 million aggregate principal amount of the Notes by issuing 2,902,434 shares of its Class A common stock and $ 2.0 million of cash.

Of the $ 894.6 million total value of these transactions, $ 701.9 million and $ 192.7 million were allocated to the equity and liability components, respectively, utilizing an effective interest rate to determine the fair value of the liability component.

The selected interest rate reflects the Company's incremental borrowing rate, adjusted for the Company's credit standing on nonconvertible debt with similar maturity.

The extinguishment of these Notes resulted in a $ 12.9 million loss that is included in the other (expense) income, net, in the accompanying condensed consolidated statement of operations.

The net carrying amount of the liability component of the Notes was as follows:

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(In thousands)

Principal $ 343,702 $ 549,999

Unamortized discount ( 38,406 ) ( 84,647 )

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Proceeds allocated to the conversion options (debt discount) $ 74,636 $ 119,435

Reacquisition of equity component upon conversion ( 657,073 ) —

Issuance costs ( 2,819 ) ( 2,819 )

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Year Ended December 31,

2020 2019 2018

(In thousands)

Balance, beginning of period $ 6,287 $ 4,945 $ 1,033

Additions 13,413 2,226 4,085

Write-offs ( 7,654 ) ( 884 ) ( 173 )

Balance, end of period $ 12,046 $ 6,287 $ 4,945

Percentage of revenue 1 % 1 % 1 %

(b) Sales credit reserve:

(b) Customer credit reserve:

Year Ended December 31,

2020 2019 2018

(In thousands)

Balance, beginning of period $ 6,784 $ 3,015 $ 1,761

Additions 50,817 18,143 5,560

Deductions against reserve ( 40,818 ) ( 14,374 ) ( 4,306 )

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Year Ended December 31,

2020 2019 2018

Revenue by geographic area:

2 unchanged sentences

International 479,563 325,611 165,258

Total $ 1,761,776 $ 1,134,468 $ 650,067

Percentage of revenue by geographic area:

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International 27 % 29 % 25 %

Long-lived assets outside the United States were not significant.

Long-lived assets outside of the United States were not significant.

Commitments and Contingencies

(a) Lease and Other Commitments

The Company entered into various non-cancelable operating lease agreements for its facilities that expire over the next 9.0 years .

The Company entered into various non-cancelable operating lease agreements for its facilities with remaining lease terms from less than one year to nine years .

See Note 5 to these consolidated financial statements for additional detail on the Company's operating and finance lease commitments.

Additionally, the Company has contractual commitments with its cloud infrastructure provider, network service providers and other vendors that are noncancelable and expire within one to four years .

Future minimum payments under these noncancelable purchase commitments were as follows.

Additionally, the Company has contractual commitments with its cloud infrastructure provider, network service providers and other vendors that are noncancellable and expire within one to three years .

Future minimum payments under these noncancellable purchase commitments were as follows.

Unrecognized tax benefits are not included in these amounts because any amounts expected to be settled in cash are not material:

December 31, 2020

Year Ending December 31,

(In thousands)

Year Ending December 31, (In thousands)

2021 $ 81,988

Total payments $ 139,037

(b) Legal Matters

On April 30, 2015 and March 28, 2016, Telesign Corporation (“Telesign”) filed lawsuits (which were subsequently consolidated) against the Company in the United States District Court, Central District of California (“Telesign I/II”).

Telesign alleges in Telesign I/II that the Company is infringing four U.S.

patents that it holds:

7,945,034 (“034”), U.S.

8,462,920 (“920”), U.S.

8,687,038 (“038”) and U.S.

9,300,792 (“792”).

The consolidated Telesign I/II actions have been transferred to the United States District Court, Northern District.

The patent infringement allegations in the lawsuit relate to the Company's two‑factor authentication use case , Authy, and an API tool to find information about a phone number.

Telesign seeks, among other things, to enjoin the Company from allegedly infringing the patents, along with damages for lost profits and damages based on a reasonable royalty.

On March 8, 2017, in response to a petition by the Company, the U.S.

Patent and Trademark Officer (“PTO”) issued an order instituting an inter partes review for the ‘792 patent.

On March 6, 2018, the PTO found all claims challenged by the Company in the inter partes review unpatentable.

On April 30, 2015 and March 28, 2016, Telesign Corporation (“Telesign”) filed lawsuits (which were subsequently consolidated) against the Company alleging that certain of the Company's products infringed four patents owned by TeleSign.

The Company challenged the validity of one of the patents at issue in an inter partes review at the U.S.

Patent and Trademark Office ("PTO"), and the PTO found all claims challenged by the Company in the inter partes review unpatentable.

Telesign did not appeal the PTO's decision and it is final.

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On November 8, 2018, Telesign appealed the judgment to the United States Court of Appeals for the Federal Circuit.

On January 9, 2020, the Federal Circuit Court affirmed the district court’s judgment.

Telesign has not indicated whether it will seek a further appeal of the judgment.

Based on, among other things, the district court’s judgment being affirmed on appeal in the Company’s favor, the Company does not believe a loss is probable or estimable.

On December 1, 2016, the Company filed a patent infringement lawsuit against Telesign in the United States District Court, Northern District of California (“Telesign III”), alleging infringement of United States Patent No.

On January 9, 2020, the Federal Circuit Court affirmed the district court’s judgment, and the matter is now concluded.

On December 1, 2016, the Company filed a patent infringement lawsuit against Telesign in the United States District Court, Northern District of California, alleging infringement of United States Patent No.

8,306,021 (“021”), United States Patent No.

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PTO”) for inter partes review of the ‘021, ‘465, and ‘376 patents.

On March 9, 2018, the PTO denied Telesign’s petition for inter partes review of the ‘021 patent and granted Telesign’s petitions for inter partes review of the ‘465 and ‘376 patents.

On March 6, 2019, the PTO found all claims challenged by Telesign in the inter partes review unpatentable.

The Company has appealed the decisions to the United States Court of Appeals for the Federal Circuit.

Telesign III is currently stayed pending resolution of the inter partes reviews (and appeals from them) of the ‘465 and

‘376 patents.

The Company is seeking a judgment of infringement, a judgment of willful infringement, monetary and injunctive relief, enhanced damages, and an award of costs and expenses against Telesign.

On February 18, 2016, a putative class action complaint was filed in the Alameda County Superior Court in California, entitled Angela Flowers v.

The complaint alleges that the Company’s products permit the interception, recording and disclosure of communications at a customer’s request and are in violation of the California Invasion of Privacy Act.

The complaint seeks injunctive relief as well as monetary damages.

On January 2, 2018, the court issued an order granting in part and denying in part the plaintiff’s class certification motion.

The court certified two classes of individuals who, during specified time periods, allegedly sent or received certain communications involving the accounts of three of the Company’s customers that were recorded.

Following mediation, on January 7, 2019, the parties signed a long form settlement agreement, providing for a payment of $ 10.0 million into a common fund and injunctive relief involving certain updates to Twilio’s Acceptable Use Policy and customer documentation.

On January 15, 2019, the court entered an order granting preliminary approval of the settlement, and the parties signed an amended settlement agreement to conform to the court’s order.

The court entered a final order and judgment approving the settlement on June 17, 2019.

On August 30, 2019, Twilio made a payment of $ 1.7 million to fund the settlement.

A compliance hearing has been scheduled for May 19, 2020.

Any additional loss related to this matter is neither probable nor reasonably possible.

On September 1, 2015, Twilio was named as a defendant in a First Amended Complaint in a putative class action captioned Jeremy Bauman v.

David Saxe, et al.

pending in the United States District Court, District of Nevada relating to the alleged sending of unsolicited text messages to the plaintiffs and putative class members.

The Company filed a motion to dismiss, which was granted, and on September 20, 2016 the plaintiff filed a Second Amended Complaint with additional allegations that the Company violated the Telephone Consumer Protection Act (“TCPA”), and the Nevada Deceptive Trade Practices Act (“NDTPA”), NRS 41.600(2)(e).

On January 10, 2019, the court granted Plaintiffs’ motion for class certification under the TCPA and denied plaintiff’s request to certify a class under the NDTPA.

On February 13, 2019, the court issued an order denying the Company's motion to dismiss as to Plaintiffs’ TCPA claim and granting dismissal as to Plaintiffs’ NDTPA claim.

On February 22, 2019, the court stayed the case and directed all parties to mediation, which was conducted on May 15, 2019.

On May 17, 2019, the original defendants (the “Saxe Defendants”) and Twilio entered an agreement, which among other things, obligates the Saxe Defendants to fully fund all monetary and non-monetary aspects of the settlement of the matter and to obtain the dismissal of the plaintiffs’ and the class’s claims against the Company with prejudice.

On October 7, 2019, the plaintiffs filed an unopposed motion for settlement and an unopposed motion to dismiss Twilio from the action without prejudice.

Based on, among other things, the dismissal motion and our agreement with the Saxe Defendants, the Company does not believe a loss is reasonably possible or estimable.

On March 9, 2018, the U.S PTO denied Telesign’s petition for inter partes review of the ‘021 patent and granted Telesign’s petitions for inter partes review of the ‘465 and ‘376 patents.

On March 6, 2019, the U.S.

PTO found all challenged claims of the '465 and '376 patents unpatentable.

The Company appealed the decisions to the United States Court of Appeals for the Federal Circuit who, on June 10, 2020, affirmed the U.S.

PTO's rulings.

The district court litigation had been stayed pending resolution of the inter partes reviews (and appeals from them).

After the appeals were concluded, the district court reopened the case and set trial on the ’021 Patent for July 2021.

The Company sought a judgment of infringement, a judgment of willful infringement, monetary and injunctive relief, enhanced damages, and an award of costs and expenses against Telesign.

A settlement agreement was executed on November 25, 2020, settling all claims.

On December 2, 2020, a joint stipulation of dismissal was filed and the Court entered an order dismissing the case with prejudice.

This matter is now concluded.

In addition to the litigation discussed above, from time to time, the Company may be subject to legal actions and claims in the ordinary course of business.

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In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.

Further, the Company’s

obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments.

Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments.

The terms of such obligations may vary.

As of December 31, 2019 and 2018 , no amounts were accrued.

As of December 31, 2020 and 2019, no amounts were accrued related to any outstanding indemnification agreements.

(d) Other Taxes

The Company conducts operations in many tax jurisdictions throughout the United States.

In many of these jurisdictions, non-income-based taxes, such as sales and use and telecommunications taxes are assessed on the Company’s operations.

The Company conducts operations in many tax jurisdictions within and outside the United States.

In many of these jurisdictions, non-income-based taxes, such as sales, use, telecommunications, and other local taxes are assessed on the Company’s operations.

Prior to March 2017, the Company had not billed nor collected these taxes from its customers and, in accordance with U.S.

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These estimates included several key assumptions including, but not limited to, the taxability of the Company’s services, the jurisdictions in which its management believes it had nexus, and the sourcing of revenues to those jurisdictions.

Starting in March 2017, the Company began collecting these taxes from customers in various jurisdiction and since then has expanded to most jurisdictions where these taxes are now being collected.

Simultaneously, the Company continues to be in discussions with certain states regarding its prior state sales and other taxes, if any, that the Company may owe.

During 2017, the Company revised its estimates of its tax exposure based on settlements reached with various states indicating that certain revisions to the key assumptions were appropriate.

Those revisions included, but were not limited to, the sourcing of revenue and the taxability of the Company's services.

In the year ended December 31, 2017, the total impact of these changes on the net loss attributable to common stockholders was a reduction of $ 13.4 million .

Starting in March 2017, the Company began collecting these taxes from customers in certain jurisdictions and since then has expanded to collect taxes in most jurisdictions where the Company operates.

The Company is also in discussions with certain jurisdictions regarding its prior sales and other taxes, if any, that it may owe.

In the event any of these jurisdictions disagrees with management’s assumptions and analysis, the assessment of the Company's tax exposure could differ materially from management's current estimates.

For example, one jurisdiction has assessed the Company for $ 38.8 million in taxes, including interest and penalties, which exceeded the $ 11.5 million the Company had accrued for the period covered by this assessment.

The Company believes that this assessment is incorrect and has disputed it, paid the full amount as required by law, and is seeking a refund or settlement.

The payment made in excess of the accrued amount is reflected as a deposit in the Company's accompanying consolidated balance sheet.

If a reasonable settlement cannot be reached in the near future, the Company will challenge the jurisdiction’s assessment in court.

However, litigation is uncertain and a ruling against the Company may adversely affect its financial position and results of operation.

As of December 31, 2020 and 2019, the liability recorded for these taxes was $ 25.6 million and $ 27.0 million, respectively.

In the event other jurisdictions challenge management’s assumptions and analysis, the actual exposure could differ materially from the current estimates.

Stockholders’ Equity

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Holders of Class A and Class B common stock are entitled to one vote per share and 10 votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting and conversion rights.

In June 2019, the Company completed a public equity offering in which the Company sold 8,064,515 shares of its Class A common stock, which included 1,051,893 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $ 124.00 per share.

The Company received aggregate proceeds of $ 979.0 million after deducting underwriting discounts and offering expenses paid and payable by the Company.

The Company had reserved shares of common stock for issuance as follows:

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Class A common stock reserved for the convertible senior notes 7,569,731 10,472,165

Total 45,310,099 46,270,890

Public Equity Offerings

In August 2020 and June 2019, the Company completed public equity offerings in which it sold 5,819,838 shares and 8,064,515 shares, respectively, of its Class A common stock at a public offering price of $ 247.00 per share and $ 124.00 per share, respectively.

The Company received total proceeds of $ 1.4 billion and $ 979.0 million, respectively, net of underwriting discounts and offering expenses paid and payable by the Company.

Stock-Based Compensation

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In July 2017, the Company began granting restricted stock units to existing employees that vest in equal quarterly installments over a four year service period.

SendGrid Equity Awards Assumed in Acquisition

In connection with its acquisition of SendGrid, the Company assumed all stock options and restricted stock units issued under SendGrid’s 2009, 2012 or 2017 Stock Incentive Plans that were outstanding on the date of acquisition.

Equity Awards Assumed in Acquisitions

In connection with its acquisition of Segment, the Company assumed and replaced all stock options and restricted stock units of continuing employees issued under Segment’s 2013 Stock Incentive Plan ("Segment Plan") that were unvested and outstanding on the acquisition date.

The assumed equity awards will continue to be outstanding and will be governed by the provisions of the Segment Plan.

In connection with its acquisition of SendGrid, the Company assumed all stock options and restricted stock units issued under SendGrid’s 2009, 2012 and 2017 Stock Incentive Plans that were outstanding on the date of acquisition.

The assumed equity awards will continue to be outstanding and will be governed by the provisions of their respective plans.

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The 2016 ESPP allows eligible employees to purchase shares of the Company’s Class A common stock at a discount of up to 15 % through payroll deductions of their eligible compensation, subject to any plan limitations.

Except for the initial offering period, the 2016 ESPP provides for separate six-month offering periods beginning in May and November of each fiscal year, starting in May 2017.

The 2016 ESPP provides for separate six-month offering periods beginning in May and November of each fiscal year.

On each purchase date, eligible employees purchase the Company’s stock at a price per share equal to 85 % of the lesser of (i) the fair market value of the Company’s Class A common stock on the offering date or (ii) the fair market value of the Company’s Class A common stock on the purchase date.

As of December 31, 2020, total unrecognized compensation cost related to the 2016 ESPP was $ 6.5 million, which will be amortized over a weighted-average period of 0.37 years.

Stock option activity under the Company's 2008 Plan and 2016 Plan as well as respective Stock Incentive Plans assumed in the SendGrid acquisition was as follows:

Stock-options and restricted stock units activity under the Company's 2008 Plan and 2016 Plan as well as respective Stock Incentive Plans of SendGrid and Segment was as follows:

Stock Options

outstanding Weighted-

(Per share) Weighted-

(In years) Aggregate

(In thousands)

Outstanding options as of December 31, 2019 7,150,848 $ 28.79 6.47 $ 511,971

Granted 692,797 151.06

Assumed in acquisition 1,030,638 67.61

Exercised ( 3,495,728 ) 20.74

Forfeited and canceled ( 307,820 ) 73.46

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Year Ended December 31,

2020 2019 2018

(In thousands, except per share amounts)

Aggregate intrinsic value of stock options exercised (1)

$ 603,597 $ 394,998 $ 178,504

Total estimated grant date fair value of options vested $ 107,854 $ 81,292 $ 21,761

Weighted-average grant date fair value per share of options granted $ 170.70 $ 58.13 $ 18.40

____________________________________

( 1 ) Aggregate intrinsic value represents the difference between the fair value of the Company’s Class A common stock as reported on the New York Stock Exchange and the exercise price of outstanding “in-the-money” options.

On February 28, 2017, the Company granted a total of 555,000 shares of performance-based stock options in three distinct awards to an employee with grant date fair values of $ 13.48 , $ 10.26 and $ 8.41 per share for a total grant value of $ 5.9 million.

The first half of each award vests upon satisfaction of a performance condition and the remainder vests thereafter in equal monthly installments over a two year period.

The achievement window expires after 4.3 years from the date of grant and the stock options expire seven years after the date of grant.

The stock options are amortized over a derived service period, as adjusted, of 3.1 years , 3.9 years and 4.6 years , respectively.

The stock options value and the derived service period were estimated using the Monte-Carlo simulation model.

All performance conditions have been met.

The following table summarizes the details of the performance options:

outstanding Weighted-

(Per share) Weighted-

(in years) Aggregate

(In thousands)

Outstanding options as of December 31, 2019 555,000 $ 31.72 4.16 $ 36,941

Exercised — —

Forfeited and canceled — —

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Options vested and exercisable as of December 31, 2020 531,875 $ 31.72 3.16 $ 163,169

As of December 31, 2019 , total unrecognized compensation cost related to nonvested stock options was $ 95.6 million , which will be amortized on a ratable basis over a weighted-average period of 1.9 years .

As of December 31, 2020, total unrecognized compensation cost related to all nonvested stock options was $ 250.5 million, which will be amortized on a ratable basis over a weighted-average period of 2.3 years.

Restricted Stock Units

outstanding Weighted-

(Per share) Aggregate

(In thousands)

Nonvested RSUs as of December 31, 2019 8,490,517 $ 74.21 $ 830,167

Granted 3,285,382 196.80

Assumed in acquisition 158,593 273.38

Vested ( 3,557,147 ) 73.67

Forfeited and canceled ( 853,463 ) $ 92.71

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As of December 31, 2020, total unrecognized compensation cost related to nonvested RSUs was $ 904.7 million, which will be amortized over a weighted-average period of 2.5 years.

As of December 31, 2020, the unrecognized compensation cost related to Class A common stock subject to future vesting conditions is $ 65.9 million, which will be amortized over a term of 2.2 years.

Valuation Assumptions

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Employee Stock Options:

Fair value of common stock

2020 2019 2018

Fair value of common stock $ 108.37 - $ 301.72

$ 103.70 - $ 130.70

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38.6 % - 44.2 %

44.3% - 47.6%

Risk-free interest rate 0.1 % - 1.4 %

1.6 % - 2.5 %

2.9 % - 3.0 %

Dividend rate — %

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Employee Stock Purchase Plan:

2020 2019 2018

Expected term (in years) 0.50

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39.8 % - 47.5 %

33.2% - 33.9%

Risk-free interest rate 0.1 % - 0.2 %

1.6 % - 2.4 %

2.1 % - 2.5 %

Dividend rate — %

The following assumptions were used in the Monte Carlo simulation model to estimate the grant date fair value and the derived service period of the performance options:

Asset volatility

Equity volatility

Discount rate

Stock price at grant date

Stock-Based Compensation Expense

The Company recorded the total stock-based compensation expense as follows.

In the year ended December 31, 2019 , the stock-based compensation expense associated with awards assumed in the SendGrid acquisition was $ 81.8 million .

The Company recorded total stock-based compensation expense as follows.

In the year ended December 31, 2020, stock-based compensation expense associated with the acquisition of Segment was $ 31.7 million.

Year Ended December 31,

2020 2019 2018

(In thousands)

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General and administrative 76,301 70,297 26,254

Total $ 361,911 $ 264,318 $ 93,273

Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per common share is presented in conformity with the two-class method required for participating securities.

Class A and Class B common stock are the only outstanding equity in the Company.

The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion.

Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share.

Class B common stock may be converted into Class A common stock at any time at the option of the stockholder and are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions.

Basic net loss per share attributable to common stockholders is computed using the weighted-average number of common shares outstanding during the period.

Diluted net loss per share attributable to common stockholders is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period.

The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented:

Year Ended December 31,

(In thousands, except share and per share data)

Net loss attributable to common stockholders

2020 2019 2018

Net loss attributable to common stockholders (in thousands) $ ( 490,979 ) $ ( 307,063 ) $ ( 121,949 )

Weighted-average shares used to compute net loss per share attributable to

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As of December 31,

2020 2019 2018

Stock options issued and outstanding 5,625,735 7,705,848 7,978,369

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Class A common stock committed under 2016 ESPP 103,703 207,792 113,312

Conversion spread (1)

Convertible senior notes (1)

4,847,578 3,150,647 233

Class A common stock in escrow 75,612 — —

Class A common stock in escrow subject to future vesting 268,030 — —

Unvested shares subject to repurchase — — 1,250

(1) Since the Company expects to settle the principal amount of its outstanding convertible senior notes in cash and any excess in shares of the Company's Class A common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

The conversion spread will have a dilutive impact on diluted net income per share of Class A common stock when the average market price of the Company's Class A common stock for a given period exceeds the conversion price of $ 70.90 per share for the Notes.

Total 19,151,805 20,350,477 16,928,742

____________________________________

(1) Since, effective with the fourth quarter 2020, the Company expects to settle the principal amount of its outstanding convertible senior notes in shares of the Company's Class A common stock, as of December 21, 2020, the Company used the if-converted method for calculating any potential dilutive effect of the debt settlement on diluted net income per share, if applicable.

Prior to the fourth quarter 2020, the Company expected to settle the principal amount of its outstanding convertible senior notes in cash and any excess in shares of the Company's Class A common stock.

Hence, as of December 31, 2019 and 2018, the Company used the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

The conversion spread has a dilutive impact on diluted net income per share of Class A common stock when the average market price of the Company's Class A common stock for a given period exceeds the conversion price of $ 70.90 per share for the Notes.

The conversion spread is calculated using the average market price of Class A common stock during the period, consistent with the treasury stock method.

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Year Ended December 31,

2020 2019 2018

(In thousands)

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Loss before provision for income taxes $ ( 504,426 ) $ ( 362,216 ) $ ( 121,158 )

Provision for income taxes consists of the following:

Provision (benefit) for income taxes consists of the following:

Year Ended December 31,

2020 2019 2018

(In thousands)

State 272 198 139

Foreign 5,215 2,684 881

Total 5,487 2,882 1,020

Federal ( 12,719 ) ( 49,393 ) 29

State ( 3,563 ) ( 7,474 ) 19

Foreign ( 2,652 ) ( 1,168 ) ( 277 )

Total ( 18,934 ) ( 58,035 ) ( 229 )

Income tax provision (benefit) $ ( 13,447 ) $ ( 55,153 ) $ 791

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Year Ended December 31,

2020 2019 2018

Tax benefit at federal statutory rate 21 % 21 % 21 %

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Stock-based compensation 24 14 31

Credits 3 4 8

Foreign rate differential ( 4 ) ( 2 ) ( 4 )

Permanent book vs.

tax differences ( 1 ) — —

Change in valuation allowance ( 51 ) ( 29 ) ( 68 )

Change in federal statutory rate

Other — ( 1 ) ( 3 )

Effective tax rate 4 % 15 % — %

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As of December 31,

2020 2019 2018

Deferred tax assets:

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Charitable contributions 8,229 3,172 3,100

Capped call 4,475 9,914 13,175

Debt issuance cost 230 493 638

Depreciable property — 2 —

Intangibles 135,500 — —

Lease liability 68,566 39,117 —

Other — — 194

Gross deferred tax assets 1,014,962 439,632 188,244

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Deferred commissions ( 21,162 ) ( 7,446 ) ( 2,396 )

Other ( 2,876 ) ( 405 ) —

Net deferred tax liability $ ( 13,684 ) $ ( 7,535 ) $ ( 5,181 )

The following table summarizes our tax carryforwards, carryovers, and credits:

December 31, 2019

Expiration Date

December 31, 2020 Expiration Date

(If not utilized)

(In thousands)

Federal net operating loss carryforwards

Various dates beginning in 2029

Federal tax credits

Various dates beginning in 2029

Federal net operating loss carryforwards

State net operating loss carryforwards

Various dates beginning in 2025

State tax credits

Foreign net operating loss carryforwards

Federal net operating loss carryforwards $ 303,793 Various dates beginning in 2029

Federal tax credits $ 79,844 Various dates beginning in 2029

Federal net operating loss carryforwards $ 2,430,006 Indefinite

State net operating loss carryforwards $ 1,782,465 Various dates beginning in 2025

State tax credits $ 57,670 Indefinite

Foreign net operating loss carryforwards $ 27,941 Indefinite

A limitation may apply to the use of the net operating loss and credit carryforwards, under provisions of the Internal Revenue Code of 1986, as amended, and similar state tax provisions that are applicable if the Company experiences an "ownership change." An ownership change may occur, for example, as a result of issuance of new equity.

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The Company primarily considered such factors as its history of operating losses, the nature of the Company's deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible.

At present, the Company does not believe that it is more likely than not that the net deferred tax assets will be realized, accordingly, a full valuation allowance has been

Additionally, in December 2020, the Company completed an intra-entity asset transfer of certain intellectual property rights to an Irish subsidiary where its international business is headquartered.

The transfer resulted in a step-up in the tax basis of the transferred intellectual property rights and a correlated $ 135.5 million increase in foreign deferred tax assets.

At present, the Company does not believe that it is more likely than not that the net deferred tax assets will be realized, and accordingly, a full valuation allowance has been established.

The valuation allowance increased by approximately $ 421.9 million and $ 108.5 million during the years ended December 31, 2020 and 2019, respectively.

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Year Ended December 31,

2020 2019 2018

(In thousands)

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Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized.

The Company is not currently subject to U.S.

The Company is fully reserved for all open U.S.

federal, state and local, or non-U.S.

income tax examinations by any tax authorities.

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act).

The Tax Act reduces the U.S.

statutory corporate tax rate to 21% , effective January 1, 2018.

Consequently, we recorded a decrease to the Company's federal deferred tax assets of $ 28.0 million , which was fully offset by a reduction in the Company's valuation allowance for the year ended December 31, 2017 .

The other provisions of the Tax Act, including the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, did not have a material impact on the Company's financial statements as of December 31, 2019 or 2018 .

In December 2017, the SEC staff issued Staff Accounting Bulletin No.

118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date.

The Company's accounting for the Tax Act is complete and we did not have any significant adjustments to provisional amounts recorded as of December 31, 2017 .

The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs' U.S.

GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S.

inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method") or (2) factoring such amounts into the measurement of its deferred taxes (the "deferred method").

The Company selected the period cost method.

On June 7, 2019, a three-judge panel from the U.S.

Court of Appeals for the Ninth Circuit overturned the U.S.

Tax Court's decision in Altera Corp.

Commissioner and upheld the portion of the Treasury regulations under Section 482 of the Internal Revenue Code that requires related parties in a cost-sharing arrangement to share expenses related to share-based compensation.

As a result of this decision, the Company's gross unrecognized tax benefits increased to reflect the impact of including share-based compensation in cost-sharing arrangements.

On July 22, 2019, Altera filed a petition for a rehearing before the full Ninth Circuit and the request was denied on November 12, 2019.

On February 10, 2020, Altera filed a petition to appeal the decision to the Supreme Court and on June 22, 2020 the Supreme Court denied the petition.

There is no impact on the Company’s effective tax rate for year ended December 31, 2020 due to a full valuation allowance against its deferred tax assets.

We will continue to monitor future developments and their potential effects on our consolidated financial statements.

In connection with the Segment acquisition, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets and, accordingly, during the year ended December 31, 2020, the Company released a total of $ 13.8 million of its U.S.

valuation allowance.

The Company continues to maintain a valuation allowance for its U.S.

Federal and State net deferred tax assets.

In connection with the SendGrid acquisition, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets and, accordingly, during the year ended December 31, 2019, the Company released a total of $ 55.0 million of its U.S.

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deferred tax assets.

Subsequent Events

On February 22, 2021, the Company completed a public equity offering in which it sold 4,312,500 shares of its Class A common stock at a public offering price of $ 409.60 per share, including shares sold in connection with the exercise of the underwriters' option to purchase additional shares.

The Company received total proceeds of $ 1.8 billion, net of offering expenses paid or payable by the Company.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data