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Item 8. Financial Statements and Supplementary Data

2022-02-22 compared with 2021-02-26 · 435 added, 546 removed, 925 unchanged (51% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm ( PCAOB ID:

Consolidated Balance Sheets

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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 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.

The Company acquired Zipwhip, Inc.

during fiscal 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Zipwhip, Inc.’s internal control over financial reporting associated with total assets of $51.9 million and total revenues of $55.4 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Zipwhip, Inc.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting, appearing under Item 9A(b).

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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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.

As discussed in Note 7 to the consolidated financial statements, on July 14, 2021, the Company acquired Zipwhip, Inc.

(Zipwhip) by issuing shares of its Class A common stock worth approximately $419.2 million and paying approximately $418.1 million of cash.

As part of the acquisition, the Company acquired $244.5 million of intangible assets, including customer relationships.

We identified the assessment of the valuation of the acquisition date customer relationship intangible asset acquired as a critical audit matter.

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

In addition, this fair value was challenging to test due to the sensitivity of the fair value determination 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 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 evaluated the Company’s forecasted revenue growth rates used to value the customer relationship intangible asset 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 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 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.

• evaluating the discount rate used by the Company to value the customer relationship intangible asset by assessing the relevant inputs used by the Company in their calculation of their discount rate

• recalculating the estimate of the fair value of the customer relationship intangible asset acquired using the Company’s cash flow forecast and discount rate independently corroborated by our valuation specialists and comparing the result to the Company’s fair value estimate.

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

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Property and equipment, net 255,316 183,239

Operating right-of-use asset 258,610 156,741

Operating right-of-use assets 234,584 258,610

Intangible assets, net 1,050,012 966,573

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Operating lease liability, current 52,325 48,338

Finance lease liability, current 9,062 6,924

Total current liabilities 703,550 448,306

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Finance lease liability, noncurrent 25,132 17,856

Convertible senior notes, net 302,068 458,190

Long-term debt 985,907 302,068

Other long-term liabilities 41,290 36,633

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Additional paid-in capital 13,169,118 9,613,246

Accumulated other comprehensive income 9,046 5,086

Accumulated other comprehensive (loss) income ( 18,141 ) 9,046

Accumulated deficit ( 2,119,691 ) ( 1,169,791 )

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Loss from operations ( 915,584 ) ( 492,901 ) ( 369,785 )

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 )

Other (expenses) income, net ( 45,345 ) ( 11,525 ) 7,569

Loss before benefit for income taxes ( 960,929 ) ( 504,426 ) ( 362,216 )

Benefit for income taxes 11,029 13,447 55,153

Net loss attributable to common stockholders $ ( 949,900 ) $ ( 490,979 ) $ ( 307,063 )

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Net loss $ ( 949,900 ) $ ( 490,979 ) $ ( 307,063 )

Other comprehensive income (loss):

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

Other comprehensive (loss) income:

Unrealized (loss) gain on marketable securities ( 27,215 ) 3,674 3,804

Foreign currency translation ( 266 ) 286 —

Total other comprehensive income (loss), net of tax 3,960 3,804 ( 743 )

Net change in market value of effective foreign currency forward exchange contracts 294 — —

Total other comprehensive (loss) income ( 27,187 ) 3,960 3,804

Comprehensive loss attributable to common stockholders $ ( 977,087 ) $ ( 487,019 ) $ ( 303,259 )

See accompanying notes to consolidated financial statements.

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Stockholder's Equity

Class A Common Stock

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

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

Exercises of vested stock options — — 3,625,991 4 29,732 — — 29,736

Vesting of early exercised stock options — — — — 36 — — 36

Exercises of stock options 1,466,813 1 2,154,053 2 37,760 — — 37,763

Recapitalization of a subsidiary — — — — 75 — ( 75 ) —

Vesting of restricted stock units 2,775,788 2 117,331 1 — — — 3

Value of equity awards withheld for tax liability ( 23,543 ) — ( 22,095 ) — ( 5,412 ) — — ( 5,412 )

Exercises of unvested stock options — — 2,041 — — — — —

Conversion of shares of Class B common stock into shares of Class A common stock 10,029,127 9 ( 10,029,127 ) ( 9 ) — — — —

Shares issued under ESPP 325,262 — — — 10,122 — — 10,122

Issuance of debt conversion option — — — — 119,435 — — 119,435

Debt conversion option issuance costs — — — — ( 2,819 ) — — ( 2,819 )

Capped call option issuance costs — — — — ( 58,465 ) — — ( 58,465 )

Donated common stock 62,338 — — — 5,996 — — 5,996

Shares of Class A common stock issued under ESPP 244,628 — — — 19,738 — — 19,738

Shares of Class A common stock issued in connection with a follow-on public offering, net of underwriters' discounts and issuance costs 8,064,515 8 — — 979,039 979,047

Shares of Class A common stock issued in acquisition 23,555,081 24 — — 2,658,874 — — 2,658,898

Value of equity awards assumed in acquisition — — — — 182,554 — — 182,554

Unrealized gain on marketable securities — — — — — 3,804 — 3,804

Foreign currency translation — — — — — ( 1,001 ) — ( 1,001 )

Stock-based compensation — — — — 271,844 — — 271,844

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

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

Recapitalization of a subsidiary — — — — 75 — ( 75 ) —

Vesting of early exercised stock options — — — — 21 — — 21

Exercises of 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

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

Shares issued under ESPP 244,628 — — — 19,738 — — 19,738

Issuance of common stock in connection with a follow-on public offering, net of underwriter discounts 8,064,515 8 — — 979,992 980,000

Costs related to the follow-on public offering — — — — ( 953 ) — — ( 953 )

Shares issued in acquisition 23,555,081 24 — — 2,658,874 — — 2,658,898

Equity component from partial settlement of convertible senior notes due 2023 2,902,434 3 — — 190,757 — — 190,760

Shares of Class A common stock issued under ESPP 291,800 1 — — 32,242 — — 32,243

Shares of Class A common stock donated to charity 88,408 — — — 18,993 — — 18,993

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

Shares of Class A common stock 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 of Class A common stock 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

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Stockholder's Equity

Class A Common Stock

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Net loss — — — — — — ( 949,900 ) ( 949,900 )

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

Exercises of stock options 1,779,320 2 509,499 — 87,693 — — 87,695

Vesting of restricted stock units 3,515,913 4 — — ( 4 ) — — —

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Conversion of shares of Class B common stock into shares of Class A common stock 1,218,696 1 ( 1,218,696 ) ( 1 ) — — — —

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

Equity component from partial settlement and redemption of convertible senior notes due 2023 4,846,965 5 — — 335,637 — — 335,642

Settlement of capped call, net of related costs — — — — 225,233 — — 225,233

Shares of Class A common stock issued under ESPP 198,926 — — — 48,465 — — 48,465

Shares of Class A common stock donated to charity 88,408 — — — 31,169 — — 31,169

Issuance of shares of Class A common stock in connection with a follow-on public offering, net of underwriters' discounts and issuance costs 4,312,500 4 — — 1,765,709 — — 1,765,713

Shares of Class A common stock issued in acquisition 1,116,816 1 — — 419,169 — — 419,170

Value of equity awards assumed in acquisition — — — — 1,511 — — 1,511

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

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

Shares of Class A common stock subject to future vesting 84,230 — — — — — — —

Unrealized loss on marketable securities — — — — — ( 27,215 ) — ( 27,215 )

Foreign currency translation — — — — — ( 266 ) — ( 266 )

Net change in market value of effective foreign currency forward exchange contracts — — — — — 294 — 294

Stock-based compensation — — — — 651,678 — — 651,678

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Net loss $ ( 949,900 ) $ ( 490,979 ) $ ( 307,063 )

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

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

Depreciation and amortization 258,378 149,660 110,430

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Net amortization of investment premium and discount 36,158 6,789 ( 4,501 )

Impairment of operating right-of-use assets 8,854 — —

Amortization of debt discount and issuance costs 5,827 23,759 23,696

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Tax benefit related to release of valuation allowance ( 17,236 ) ( 16,459 ) ( 55,745 )

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

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

Value of shares of Class A common stock donated to charity 31,169 18,993 —

Loss on extinguishment of debt 28,965 12,863 —

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Other long-term liabilities ( 2,266 ) ( 826 ) ( 3,501 )

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

Net cash (used in) provided by operating activities ( 58,192 ) 32,654 14,048

CASH FLOWS FROM INVESTING ACTIVITIES:

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CASH FLOWS FROM FINANCING ACTIVITIES:

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

Proceeds from public offerings, net of underwriters' discount and issuance costs 1,765,713 1,408,113 979,123

Proceeds from issuance of senior notes due 2029 and 2031 987,500 — —

Payment of debt issuance costs ( 2,777 ) — —

Purchase of capped call — — ( 58,465 )

Principal payments on debt and finance leases ( 8,295 ) ( 10,784 ) ( 11,046 )

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

Proceeds from exercises of stock options and shares of Class A common stock issued under ESPP 136,160 104,760 57,480

Proceeds from settlements of capped call, net of settlement costs 228,412 — —

Value of equity awards withheld for tax liabilities ( 10,388 ) ( 8,778 ) ( 5,412 )

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NON-CASH INVESTING AND FINANCING ACTIVITIES:

Finance lease right-of-use assets assumed in a business combination $ — $ 14,173 $ —

Purchases of property and equipment through finance leases $ 22,157 $ 20,108 $ 5,848

Acquisition holdback $ 5,000 $ 7,980 $ 2,290

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

Value of common stock issued and equity awards assumed in acquisition $ 420,681 $ 2,571,328 $ 2,841,452

Value of common stock issued to settle convertible senior notes due 2023 $ 1,704,969 $ 892,640 $ —

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS

Cash and cash equivalents $ 1,479,452 $ 933,885 $ 253,735

Restricted cash in other current assets 1,536 — —

Restricted cash in other long-term assets 843 — —

Total cash, cash equivalents and restricted cash $ 1,481,831 $ 933,885 $ 253,735

See accompanying notes to consolidated financial statements.

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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, 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.

The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries across North America, South America, Europe, Asia and Australia.

Summary of Significant Accounting Policies

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(d) Concentration of Credit Risk

Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable.

The Company maintains cash, cash equivalents and marketable securities with financial institutions that management believes are financially sound and have minimal credit risk exposure although the balances will exceed insured limits.

Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, restricted cash, marketable securities and accounts receivable.

The Company maintains cash, restricted cash, cash equivalents and marketable securities with financial institutions that management believes are financially sound and have minimal credit risk exposure although the balances will exceed insured limits.

The Company sells its services to a wide variety of customers.

If the financial condition or results of operations of any significant customers deteriorate substantially, operating results could be adversely affected.

If the financial condition or results of operations of any significant customer deteriorates substantially, operating results could be adversely affected.

To reduce credit risk, management performs credit evaluations of the financial condition of significant customers.

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In the years ended December 31, 2021, 2020 and 2019, the revenue from usage-based fees represented 72 %, 76 % and 75 % of total revenue, respectively.

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.

Subscription-based fees are derived from certain non-usage-based contracts, such as those for the sales of short codes, customer support and fees charged to access the cloud-based platform of Segment io, Inc.

(“Segment”), which the Company acquired in 2020 as further described in Note 7.

Non-usage-based contracts revenue is recognized on a ratable basis over the contractual term which is generally between one to three years .

In the years ended December 31, 2021, 2020 and 2019, the revenue from non-usage-based fees represented 28 %, 24 %, and 25 % of total revenue, respectively.

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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.

Revenue allocated to remaining performance obligations for contracts with durations of more than one year was $ 154.2 million as of December 31, 2021, of which 62 % is expected to be recognized over the next 12 months and 92 % is expected to be recognized over the next 24 months.

(f) Deferred Revenue and Customer Deposits

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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 generally determined to be up to sixty months .

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 five years .

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.

Total net capitalized costs as of December 31, 2021 and 2020, were $ 193.4 million and $ 85.6 million, respectively, and are included in prepaid expenses and other current assets and other long‑term assets in the accompanying consolidated balance sheets.

Amortization of these assets was $ 31.5 million, $ 13.3 million and $ 4.5 million in the years ended December 31, 2021, 2020 and 2019, respectively, and is included in sales and marketing expense in the accompanying consolidated statements of operations.

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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 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.

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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.

The Black-Scholes option pricing model requires the use of complex assumptions, which determine the fair value of stock-based awards.

The Black-Scholes option pricing model requires the use of complex assumptions, which determine the fair value of stock options and the purchase rights issued under ESPP.

These assumptions include:

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• Expected term.

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, which reflects the weighted-average of time-to-vesting;

The expected term represents the period that the stock option or the purchase right is expected to be outstanding.

The Company uses the simplified calculation of expected term, which reflects the weighted-average time-to-vest and the contractual life of the stock option or the purchase right;

• Expected volatility.

The expected volatility is derived from an average of the historical volatilities of the common stock of the Company and several other entities with characteristics similar to those of the Company, such as the size and operational and economic similarities to the Company's principal business operations;

Prior to July 1, 2021, the expected volatility was derived from an average of the historical volatilities of the Class A common stock of the Company and several other entities with characteristics similar to those of the Company, such as the size and operational and economic similarities to the Company's principal business operations.

Beginning with the third quarter 2021, the expected volatility was derived from the average of the historical volatilities of the Class A common stock of the Company.

• Risk -free interest rate.

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If any of the assumptions used in the Black-Scholes model changes, stock-based compensation for future options may differ materially compared to that associated with previous grants.

(m) Income Taxes

The Company accounts for income taxes in accordance with authoritative guidance which requires the use of the asset and liability approach.

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The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.

(n) Foreign Currency Translation

(m) Foreign Currency Translation

The functional currency of the Company's foreign subsidiaries is generally the U.S.

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For those entities where the functional currency is a foreign currency, adjustments resulting from translating the financial statements into U.S.

dollars are recorded as a component of accumulated other comprehensive income (loss) in stockholders' equity.

Monetary assets and liabilities denominated in a foreign currency are translated into US dollars at the exchange rate on the balance sheet date.

dollars are recorded as a component of accumulated other comprehensive (loss) income in stockholders' equity.

Monetary assets and liabilities denominated in a foreign currency are translated into U.S.

dollars at the exchange rate on the balance sheet date.

Revenue and expenses are translated at the weighted average exchange rates during the period.

Equity transactions are translated using historical exchange rates.

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

(o) Comprehensive Income (Loss)

Comprehensive income (loss) refers to net income (loss) and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders' equity but are excluded from the calculation of net income (loss).

(p) Net Loss Per Share Attributable to Common Stockholders

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

(n) Comprehensive Loss

Comprehensive loss refers to net loss and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders' equity but are excluded from the calculation of net loss.

(o) Net Loss Per Share Attributable to Common Stockholders

The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities.

All series of convertible preferred stock are considered to be participating securities as the holders of the preferred stock are entitled to receive a non-cumulative dividend on a pro rata pari passu basis in the event that a dividend is declared or paid on common stock.

Shares of common stock issued upon early exercise of stock options that are subject to repurchase are also considered to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is declared or paid on common stock.

Under the two-class method, in periods when the Company has net income, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income less current period convertible preferred stock non-cumulative dividends, between common stock and the convertible preferred stock.

In computing diluted net income attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities.

The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for 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 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.

The Company has 100,000,000 shares of preferred stock that was authorized but never issued or outstanding.

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

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Shares of Class A common stock are not convertible.

(q) Cash and Cash Equivalents

The Company also has dilutive securities, such as potential or restricted common shares or common stock equivalents, that were excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

These securities are presented in Note 16 to these consolidated financial statements.

(p) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Cash equivalents consist of cash deposited into money market funds and reverse repurchase agreements.

Cash equivalents consist of cash deposited into money market funds and commercial paper.

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) Accounts Receivable and Allowance for Doubtful Accounts

(q) Accounts Receivable and Allowance for Doubtful Accounts

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

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The Company writes-off accounts receivable against the allowance when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued.

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

(s) Costs Related to Public Offerings

As of December 31, 2021 and 2020, the allowance for doubtful accounts was not significant to the accompanying consolidated balance sheets.

(r) 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.

(t) Property and Equipment

(s) Property and Equipment

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

9 unchanged sentences

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.

The Company elected to utilize the package of practical expedients available for expired or existing contracts which allowed the Company to carryforward historical assessments of (a) whether contracts are or contain leases, (b) lease classification, and (c) initial direct costs.

The Company elected the use of hindsight practical expedient in determining the lease term and assessing the likelihood that lease renewal, termination or purchase option will be exercised.

The Company also elected to apply the short-term lease exception for all leases.

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, 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.

1 unchanged sentence

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.

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 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.

Operating lease costs are recognized in operating expenses in the 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.

1 unchanged sentence

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

(u) 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.

25 unchanged sentences

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

(w) Derivatives and Hedging

The Company is exposed to a wide variety of risks arising from its business operations and overall economic conditions.

These risks include exposure to fluctuations in various foreign currencies against its functional currency and can impact the value of cash receipts and payments.

The Company minimizes its exposure to these risks through management of its core business activities, specifically, the amounts, sources and duration of its assets and liabilities, and the use of derivative financial instruments.

During 2021, the Company started using foreign currency derivative forward contracts and in the future may also use foreign currency option contacts.

Foreign currency derivative forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date.

These agreements are typically cash settled in U.S.

dollars for their fair value at or close to their settlement date.

Foreign currency option contracts will require the Company to pay a premium for the right to sell a specified amount of foreign currency prior to the maturity date of the option.

The Company does not enter into derivative financial instruments trading for speculative purposes.

Derivative instruments are carried at fair value and recorded as either an asset or a liability until they mature.

Gains and losses resulting from changes in fair value of these instruments are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.

For derivative instruments designated as cash flow hedges, gains or losses are initially recorded in other comprehensive income (“OCI”) in the balance sheet, then reclassified into the statement of operations in the period in which the derivative instruments mature.

These realized gains and losses are recorded within the same financial statement line item as the hedged transaction.

The Company’s foreign currency derivative contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.

(x) Impairment of Long-Lived Assets

25 unchanged sentences

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.

The Company's financial instruments, which include cash, restricted 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.

Marketable securities consist of U.S.

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

treasury securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper.

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).

Unrealized gains and

losses for available-for-sale securities are recorded in other comprehensive 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 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.

The fair value of the senior notes due 2031 and 2029 (“2029 Notes” and “2031 Notes,” respectively) and the fair value of the convertible senior notes due 2023 (the “Convertible Notes” fully redeemed in 2021) are determined based on their respective closing prices on the last trading day of the reporting period and are classified as Level 2 in the fair value hierarchy.

The carrying value of the strategic investments, which consist of restricted equity securities of a publicly held company and equity securities of privately held companies, is determined under the measurement alternative on a non-recurring basis adjusting for observable changes in fair value.

The Company does not have a controlling interest nor can it exercise significant influence over any of these entities.

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

As of December 31, 2021, the risk of expected credit losses was not significant.

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 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:

Measurement of Credit Losses on Financial Instruments” , which changes the impairment model for most financial assets.

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 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 ".

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which clarifies treatment of certain credit losses.

In May 2019, the FASB issued ASU 2019-05, "Financial Instruments — Credit Losses (Topic 326):

Targeted Transition Relief", which permits an entity, upon adoption of ASU 2016-13, to irrevocably elect the fair value option (on an instrument-by-instrument basis) for eligible financial assets measured at amortized cost basis.

In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" , which clarifies the accounting treatment and disclosure requirements for assets purchased with credit deterioration, troubled debt restructurings, and certain other investments.

In February 2020, the FASB issued ASU 2020-02, "Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

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

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.

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 (expenses) income, net.

(ab) Recently Issued Accounting Guidance, Not yet Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, "Revenue from Contracts with Customers".

At the acquisition date, an acquirer should account for the related revenue contracts as if it had originated the contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contact assets and contract liabilities consistent with how they were recognized and measured in the acquiree's financial statements, assuming the acquirer is able to assess and rely on how the acquiree applied ASC 606.

ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

The Company expects to adopt ASU 2021-08 in the first quarter of 2022 with no material impact on the Company's consolidated financial statements.

Fair Value Measurements

12 unchanged sentences

Treasury securities 375,305 6 ( 2,561 ) 372,750 — — 372,750

government securities 221,641 — ( 1,355 ) 220,286 — — 220,286

Corporate debt securities and commercial paper 3,300,326 960 ( 15,892 ) 31,000 3,254,394 — 3,285,394

8 unchanged sentences

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

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

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

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

5 unchanged sentences

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.

Treasury Securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper.

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

1 unchanged sentence

In addition, as of December 31, 2021 and 2020, 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 $ 55.7 million, $ 32.4 million and $ 20.8 million in the years ended December 31, 2021, 2020 and 2019, respectively.

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

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

The following table summarizes the contractual maturities of marketable securities:

8 unchanged sentences

Total $ 3,897,272 $ 3,878,430 $ 2,097,504 $ 2,105,906

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.

government securities as collateral during the term of the agreement.

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

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.

As of December 31, 2021 and 2020, the Company held strategic investments with a carrying value of $ 68.3 million and $ 9.3 million, respectively.

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.

There were no impairments or other adjustments recorded in the years ended December 31, 2021 and 2020 related to these securities.

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.

The Company’s financial liabilities that are measured at fair value on a recurring basis consist of foreign currency derivative liabilities and are classified as Level 2 financial instruments in the fair value hierarchy.

As of December 31, 2021, the aggregate fair value of these instruments and the associated gross unrealized losses were not significant.

The Company’s financial liabilities that are not measured at fair value on a recurring basis consist of its 2029 Notes and 2031 Notes, respectively.

The Company’s Convertible Notes were fully redeemed in June 2021 and were no longer outstanding as of December 31, 2021.

Refer to Note 10 for further details on these financial liabilities.

As of December 31, 2021 the fair values of the 2029 Notes and 2031 Notes were $ 510.2 million and $ 512.8 million, respectively.

As of December 31, 2020, the fair value of the Convertible Notes was $ 1.7 billion.

Property and Equipment

8 unchanged sentences

Furniture and fixtures 15,360 12,312

12,312 10,095

Software 10,506 9,943

1 unchanged sentence

accumulated depreciation and amortization (1)

( 191,018 ) ( 130,084 )

Total property and equipment, net $ 255,316 $ 183,239

____________________________________

( 1 ) Data center equipment and furniture and fixtures contain assets under finance leases.

See Note 5 for further detail.

( 1 ) Data center equipment contains $ 63.0 million and $ 40.8 million in assets held under finance leases as of December 31, 2021 and 2020 , respectively.

Accumulated depreciation and amortization contains $ 26.8 million and $ 15.0 million in accumulated amortizations for assets held under finance leases as of December 31, 2021 and 2020 , respectively.

Depreciation and amortization expense was $ 59.6 million, $ 51.1 million and $ 37.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company capitalized $ 47.1 million, $ 29.7 million and $ 25.3 million in internal‑use software development costs in the years ended December 31, 2020, 2019 and 2018, respectively, of which $ 13.9 million, $ 7.8 million and $ 5.7 million, respectively, was stock‑based compensation expense.

Amortization of capitalized software development costs was $ 18.0 million, $ 17.1 million and $ 13.0 million in the years ended December 31, 2020, 2019 and 2018, respectively.

The amortization of the capitalized software development costs was allocated as follows:

Year Ended December 31,

2020 2019 2018

The Company capitalized $ 63.1 million, $ 47.1 million and $ 29.7 million in internal‑use software development costs in the years ended December 31, 2021, 2020 and 2019, respectively.

Derivatives and Hedging

As of December 31, 2021, the Company had outstanding foreign currency forward contracts designated as cash flow hedges with total sell and buy notional values of $ 276.2 million and $ 243.1 million, respectively.

The notional value represents the amount that will be purchased or sold upon maturity of the forward contract.

As of December 31, 2021, these contracts had maturities of less than 12 months.

Gains and losses associated with these foreign currency forward contracts were as follows:

Consolidated Statement of Operations and Statement of Comprehensive Loss Year Ended December 31,

(In thousands)

Cost of revenue $ 11,402 $ 9,546 $ 6,898

Research and development 6,609 7,345 5,437

General and administrative — 213 689

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

Right-of-Use Asset and Lease Liabilities

Gains recognized in OCI Net change in market value of effective foreign currency forward exchange contracts $ 294

Losses recognized in income due to instruments maturing Cost of revenue $ 7,545

The Company is subject to master netting agreements with certain counterparties of the foreign exchange contracts, under which it is permitted to net settle transactions of the same currency with a single net amount payable by one party to the other.

It is the Company’s policy to present the derivatives at gross in its consolidated balance sheet.

The Company’s foreign currency forward contracts are not subject to any credit contingent features or collateral requirements.

The Company manages its exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring its outstanding positions.

As of December 31, 2021, the Company did not have any offsetting arrangements.

Right-of-Use Assets and Lease Liabilities

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, 2021, the Company had 31 leased properties with remaining lease terms of 0.1 years to 7.8 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 accompanying consolidated statements of operations were as follows:

Year Ended December 31,

(In thousands)

Operating lease cost $ 49,268 $ 32,558

Finance lease cost:

Amortization of assets 9,038 6,090

Interest on lease liabilities 879 708

Short-term lease cost 4,684 6,342

Variable lease cost 7,359 3,792

Total net lease cost $ 71,228 $ 49,490

Supplemental balance sheet information related to leases was as follows:

As of December 31,

Leases Classification 2020 2019

(In thousands)

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 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 $ 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:

Operating lease costs recorded in the accompanying consolidated statements of operations were $ 61.0 million and $ 49.3 million for the year ended December 31, 2021 and 2020, respectively.

Short-term lease, variable lease and finance lease costs were not significant.

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

Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

(In thousands)

Operating cash flows from operating leases $ 46,895 $ 28,291

Operating cash flows from finance leases (interest) $ 879 $ 687

Financing cash flows from finance leases $ 8,799 $ 5,646

Operating cash flows paid for amounts included in operating lease liabilities (in thousands) $ 60,085 $ 46,895

Weighted average remaining lease term (in years) 5.5 6.0

Operating leases 6.0 6.1

Finance leases 3.3 3.0

Weighted average discount rate 4.5 % 4.8 %

Operating leases 4.8 % 5.5 %

Finance leases 3.9 % 5.3 %

Maturities of lease liabilities were as follows:

Maturities of operating lease liabilities were as follows:

As of December 31, 2021

Leases Finance

Year Ended December 31, (In thousands)

2022 $ 63,086

2022 60,258 7,588

2023 49,023 6,841

2024 44,439 3,604

2025 32,225 316

Thereafter 54,760

1 unchanged sentence

imputed interest ( 34,631 )

Total lease obligations 278,243 26,918

Total operating lease obligations 263,578

current obligations ( 52,325 )

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

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 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

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

Long-term operating lease obligations $ 211,253

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.

Zipwhip, Inc.

In July 2021, the Company acquired all outstanding shares of Zipwhip, Inc.

(“Zipwhip”), a leading provider of toll-free messaging in the United States, for a purchase price, as adjusted, of $ 838.8 million.

The purchase price included $ 418.1 million of cash, $ 419.2 million fair value of 1.1 million shares of the Company's Class A common stock and $ 1.5 million fair value of the pre-combination services of Zipwhip employees reflected in the unvested equity awards assumed by the Company at closing.

Additionally, at closing, the Company issued 59,533 shares of its Class A common stock which are subject to vesting over a period of 3 years.

Vesting of these shares will be recorded in the stock-based compensation expense as the services are provided..

Part of the cash consideration paid at closing was to settle the vested equity awards of Zipwhip employees.

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

This transaction also included a $ 19.1 million of additional cash consideration for certain employees, which will vest as these employees provide services in the post-acquisition period.

This amount will be recorded in the operating expenses over a period of 3 years as the services are provided.

The acquisition was accounted for as a business combination and the total purchase price of $ 838.8 million was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date with the excess recorded

These estimates were derived from information currently available.

The determination of the fair values and estimated lives of depreciable tangible and identifiable intangible assets requires significant judgment.

As of December 31, 2021, the areas that are not yet finalized include contingencies and income and other taxes.

The fair value of the 1.2 million aggregate number of shares of the Company's Class A common stock issued at closing was determined based on the closing market price of the Company's Class A common stock on the acquisition date.

The fair value of the $ 30.7 million unvested equity awards assumed on the acquisition closing date was determined (a) for options, by using the Black-Scholes option pricing model with the applicable assumptions as of the acquisition date;

(b) for restricted stock units, by using the closing market price of the Company's Class A common stock on the acquisition date.

These awards will continue to vest as Zipwhip employees continue to 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:

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

(In thousands)

2 unchanged sentences

Fair value of the pre-combination service through equity awards 1,511

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:

Total purchase price $ 838,781

The following table presents the purchase price allocation, as adjusted, recorded in the Company's consolidated balance sheet as of December 31, 2021:

(In thousands)

8 unchanged sentences

Deferred revenue ( 4,526 )

Operating lease liability ( 58,206 )

Operating lease liability, noncurrent ( 23,169 )

Deferred tax liability ( 18,144 )

6 unchanged sentences

Customer relationships 147,700 10

Order backlog 10,000 1

Supplier relationships 39,600 5

Trade names 400 5

Total intangible assets acquired $ 244,500

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.

2 unchanged sentences

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.

The Company used a relief-from-royalty method to estimate the fair values of the developed technology and trade names, a multi-period excess earnings method to estimate the fair values of customer relationships and a with-and-without method to estimate the fair value of the supplier relationships.

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 operating right-of-use assets.

The value of the acquired operating right-of-use assets was reduced to its respective fair value on the acquisition date.

The acquired entity's results of operations were included in the Company's consolidated financial statements from the date of acquisition, July 14, 2021.

For the year ended December 31, 2021, Zipwhip contributed net operating revenue of $ 55.4 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 Zipwhip on a stand-alone basis.

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

Costs incurred related to the acquisition were not significant.

Other Fiscal 2021 Acquisitions

During 2021, the Company completed other business combinations for an aggregate purchase price of $ 105.0 million, of which $ 13.4 million was allocated to developed technology, $ 23.6 million was allocated to other intangible assets and $ 63.2 million was allocated to goodwill.

Fiscal 2020 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 $ 2.7 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").

Segment.io, Inc.

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

The total amortization period was over 2.41 years from the date of acquisition.

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

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

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 $ 2.8 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.

The fair value of the 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 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 stock-based compensation expense over the respective vesting period of each award.

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 purchase price of $ 3.0 billion, as adjusted, 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.

The purchase price, as adjusted, reflected 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 $ 415.9 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.

As of December 31, 2021, 150,824 shares of Class A common stock issued at closing with future vesting was 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 on its closing price on the acquisition date.

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

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

The fair value of these awards is

recorded in the stock-based compensation expense over the respective vesting period of each award.

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

1 unchanged sentence

Fair value of Class A common stock transferred $ 2,532,329

Cash consideration 415,899

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

Total purchase price, as adjusted $ 2,841,452

The following table presents the purchase price allocation, as adjusted, recorded in the Company's consolidated balance sheet as of December 31, 2019:

Total purchase price $ 2,987,200

The following table presents the purchase price allocation, as adjusted:

(In thousands)

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Accounts payable and other liabilities ( 24,263 )

Deferred revenue ( 50,005 )

Operating lease liability ( 58,206 )

Finance lease liability ( 13,616 )

Note payable ( 5,387 )

Deferred tax liability ( 21,728 )

1 unchanged sentence

____________________________________

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

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

Total Estimated

2 unchanged sentences

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 $ 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.

Developed technology consists of software products and domain knowledge around email delivery developed by SendGrid, which enables the delivery of email reliably and at scale.

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

Trade names represent the Company’s right to the SendGrid trade names and associated design as it existed on the acquisition closing date.

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 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 developed technology, an incremental income approach to estimate the value of the customer relationships and a relief from royalty method to estimate the fair value of the trade name.

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.

The leases acquired were recorded at 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, February 1, 2019.

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.

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.

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 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, 2021, Segment contributed net operating revenue of $ 200.9 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.

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 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.

• 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, 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.

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

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

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

Year Ended December 31,

3 unchanged sentences

Other Fiscal 2020 Acquisitions

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 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)

Net liabilities $ ( 3,219 )

Intangible assets (1)

Goodwill 23,425

Total preliminary purchase price $ 43,192

____________________________________

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

Total Estimated

(In thousands) (In years)

Developed technology $ 11,771 4 - 6

Customer relationships 5,185 3 - 5

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 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.

During 2020, the Company completed other business combinations for an aggregate purchase price of $ 13.0 million.

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.

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

Goodwill and Intangible Assets

34 unchanged sentences

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

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

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

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

Patent 3,360 ( 373 ) 2,987

10 unchanged sentences

Total $ 1,044,797

Accrued Expenses and Other Liabilities

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

6 unchanged sentences

ESPP contributions 10,284 6,272

Acquisition holdback 184 6,520

Finance lease liability, current 12,370 9,062

Accrued other expense 71,425 28,527

Total accrued expenses and other current liabilities $ 417,503 $ 252,895

Other long-term liabilities consisted of the following:

Notes Payable

Long-term debt consisted of the following:

As of December 31,

(In thousands)

Deferred tax liability $ 13,684 $ 7,535

Acquisition holdback 8,800 3,750

Accrued other expenses 14,149 6,462

Total other long-term liabilities $ 36,633 $ 17,747

Notes Payable

2029 and 2031 Senior Notes

2029 Senior Notes

Principal $ 500,000 $ —

Unamortized discount ( 5,701 ) —

Unamortized issuance costs ( 1,286 ) —

Net carrying amount 493,013 —

2031 Senior Notes

Principal 500,000 —

Unamortized discount ( 5,832 ) —

Unamortized issuance costs ( 1,274 ) —

Net carrying amount 492,894 —

Convertible Senior Notes and Capped Call Transactions

In May 2018, the Company issued $ 550.0 million aggregate principal amount of 0.25 % convertible senior notes due 2023 in a private placement, including $ 75.0 million aggregate principal amount of such Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (collectively, the “Notes”).

The interest on the Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2018.

The Notes may bear special interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the indenture relating to the issuance of Notes (the “indenture”) or if the Notes are not freely tradeable as required by the indenture.

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 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.

The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest.

In addition, upon the occurrence of a make-whole fundamental change, as defined in the indenture, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.

Prior to the close of business on the business day immediately preceding March 1, 2023, the Notes may be convertible at the option of the holders only under the following circumstances:

Convertible Senior Notes

Principal — 343,702

Unamortized discount — ( 38,406 )

Unamortized issuance costs — ( 3,228 )

Net carrying amount — 302,068

Total long-term debt $ 985,907 $ 302,068

2029 and 2031 Senior Notes

In March 2021, the Company issued $ 1.0 billion aggregate principal amount of senior notes, consisting of $ 500.0 million principal amount of 3.625 % notes due 2029 (the “2029 Notes”) and $ 500.0 million principal amount of 3.875 % notes due 2031 (the “2031 Notes,” and together with the 2029 Notes, the “Notes”).

Initially, none of the Company’s subsidiaries guaranteed the Notes.

However, under certain circumstances in the future the Notes can be guaranteed by each of the Company’s material domestic subsidiaries.

The 2029 Notes and 2031 Notes will mature on March 15, 2029 and March 15, 2031, respectively.

Interest payments are payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2021.

The aggregate net proceeds from offering of the Notes were approximately $ 984.7 million after deducting underwriting discounts and issuance costs paid by the Company.

The issuance costs of $ 2.8 million are amortized into interest expense using the effective interest method over the term of the Notes.

The Company may voluntarily redeem the 2029 Notes, in whole or in part, under the following circumstances:

(1) at any time prior to March 15, 2024 with the net cash proceeds received by the Company from an equity offering at a redemption price equal to 103.625 % of the principal amount, provided the aggregate principal amount of all such redemptions does not exceed 40 % of the original aggregate principal amount of the 2029 Notes.

Such redemption shall occur within 180 days after the closing of an equity offering and at least 50 % of the then-outstanding aggregate principal amount of the 2029 Notes shall remain outstanding, unless all 2029 Notes are redeemed concurrently;

(2) at any time prior to March 15, 2024 at 100 % of the principal amount, plus a “make-whole” premium;

(3) at any time on or after March 15, 2024 at a prepayment price equal to 101.813 % of the principal amount;

(4) at any time on or after March 15, 2025 at a prepayment price equal to 100.906 % of the principal amount;

(5) at any time on or after March 15, 2026 at a prepayment price equal to 100.000 % of the principal amount;

in each case, the redemption will include the accrued and unpaid interest, as applicable.

The Company may voluntarily redeem the 2031 Notes, in whole or in part, under the following circumstances:

(1) at any time prior to March 15, 2024 with the net cash proceeds received by the Company from an equity offering at a redemption price equal to 103.875 % of the principal amount, provided the aggregate principal amount of all such redemptions does not to exceed 40 % of the original aggregate principal amount of the 2031 Notes.

Such redemption shall occur within 180 days after the closing of an equity offering and at least 50 % of the then-outstanding aggregate principal amount of the 2031 Notes shall remain outstanding, unless all 2031 Notes are redeemed concurrently;

(2) at any time prior to March 15, 2026 at 100 % of the principal amount, plus a “make-whole” premium;

(3) at any time on or after March 15, 2026 at a prepayment price equal to 101.938 % of the principal amount;

(4) at any time on or after March 15, 2027 at a prepayment price equal to 101.292 % of the principal amount;

(5) at any time on or after March 15, 2028 at a prepayment price equal to 100.646 % of the principal amount;

(6) at any time on or after March 15, 2029 at a prepayment price equal to 100.000 % of the principal amount;

in each case, the redemption will include accrued and unpaid interest, as applicable.

The Notes are unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes that the Company may incur in the future and equal in right of payment with the Company’s existing and future liabilities that are not subordinated.

In certain circumstances involving a change of control event, the Company will be required to make an offer to repurchase all, or, at the holder’s option, any part, of each holder’s notes of that series at 101 % of the aggregate principal amount, plus accrued and unpaid interest, as applicable.

The indenture governing the Notes (the “Indenture”) contains covenants limiting the Company’s ability and the ability of its subsidiaries to:

(i) create liens on certain assets to secure debt;

(ii) grant a subsidiary guarantee of certain debt without also providing a guarantee of the Notes;

and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its assets to another person.

These covenants are subject to a number of limitations and exceptions.

Certain of these covenants will not apply during any period in which the Notes are rated investment grade by either Moody’s Investors Service, Inc.

or Standard & Poor’s Ratings Services.

The interest expense recognized during the year ended December 31, 2021 was not significant.

As of December 31, 2021, the Company was in compliance with all of its financial covenants under the Indenture.

Convertible Senior Notes and Capped Call Transactions

In May 2018, the Company issued $ 550.0 million aggregate principal amount of 0.25 % convertible senior notes due 2023 (“Convertible Notes”) in a private placement, including $ 75.0 million aggregate principal amount of such Convertible Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers.

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

The Convertible Notes had the original maturity date of June 1, 2023, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms.

On May 18, 2021, the Company issued a notice of redemption for its Convertible Notes and in June 2021, redeemed all of the remaining outstanding principal amount of the Convertible Notes.

During 2021 and through the date of the redemption, the Company converted $ 343.7 million aggregate principal amount of the Convertible Notes by issuing 4,846,965 shares of its Class A common stock.

Of the $ 1.7 billion total value of these transactions, $ 1.4 billion and $ 335.7 million were allocated to the equity and liability components, respectively, utilizing the effective interest rate to determine the fair value of the liability component.

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

The extinguishment of these Convertible Notes resulted in a $ 29.0 million loss that is included in other (expenses) income, net, in the accompanying consolidated statement of operations.

No sinking fund was provided for these Convertible Notes.

In the year ended December 31, 2020, the Company converted $ 206.3 million aggregate principal amount of the Convertible 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.

The extinguishment of these notes resulted in a $ 12.9 million loss and was included in other (expenses) income, net, in the accompanying consolidated statements of operations.

There were no conversions in the year ended December 31, 2019.

Prior to their redemption, the Convertible Notes were convertible at the option of the holders only under the following circumstances:

(1) during any calendar quarter commencing after September 30, 2018, and only during such calendar quarter, if the last reported sale price of the Class A common stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is more than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business days period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of Notes for such trading day was less than 98 % of the product of the last reported sale price of the Class A common stock and the conversion rate on each such trading day;

(3) upon the Company’s notice that it is redeeming any or all of the Notes;

(2) during the five business days period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of Convertible Notes for such trading day was less than 98 % of the product of the last reported sale price of the Class A common stock and the conversion rate on each such trading day;

(3) upon the Company’s notice that it is redeeming any or all of the Convertible Notes;

(4) upon the occurrence of specified corporate events.

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 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.

Whether the Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.

The Company continues to classify the Notes as a long-term liability in its consolidated balance sheet as of December 31, 2020, based on contractual settlement provisions.

The Company may redeem the Notes, in whole or in part, at its option, on or after June 1, 2021 but before the 35th scheduled trading day before the maturity date, at a cash redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, if the last reported sale price of the Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including, the trading day immediately before the date the redemption notices were sent;

and the trading day immediately before such notices were sent.

No sinking fund is provided for the Notes.

Upon the occurrence of a fundamental change (as defined in the indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the Notes for cash at a price equal to 100 % of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes;

equal in right of payment with the Company’s existing and future liabilities that are not so subordinated;

effectively subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.

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

The conversion rate was subject to adjustment upon the occurrence of certain specified events but would not be adjusted for any accrued and unpaid special interest.

In addition, upon the occurrence of a make-whole fundamental change, as defined in the indenture, the Company would, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.

Further, the Convertible Notes could bear special interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the indenture relating to the issuance of Convertible Notes (the “indenture”) or if the Convertible Notes were not freely tradeable as required by the indenture.

None of the above mentioned events occurred during the period the notes were outstanding and prior to the redemption.

Upon conversion, the Company had an ability to 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.

Throughout the period the Convertible Notes were outstanding the conditional redemption feature was triggered several times and the Company settled the notes presented for conversion primarily in shares of its Class A common stock.

The foregoing description is qualified in its entirety by reference to the text of the indenture and the form of 0.25 % convertible senior notes due 2023, which were filed as exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and are incorporated herein by reference.

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components.

In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was $ 119.4 million and was determined by deducting the fair value of the liability component from the par value of the Notes.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an annual effective interest rate of 5.7 % over the contractual terms of the Notes.

In accounting for the transaction costs related to the Notes, the Company allocated the total amount incurred to the liability and equity components of the Notes based on the proportion of the proceeds allocated to the debt and equity components.

Issuance costs attributable to the liability component were approximately $ 10.2 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual terms of the Notes.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an annual effective interest rate of 5.7 % over the contractual terms of the Convertible Notes.

In accounting for the transaction costs related to the Convertible Notes, the Company allocated the total amount incurred to the liability and equity components of the Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components.

Issuance costs attributable to the liability component were approximately $ 10.2 million, were recorded as an additional debt discount and were amortized to interest expense using the effective interest method over the contractual terms of the Convertible Notes and were written off upon the redemption of the Convertible Notes.

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:

As of December 31,

(In thousands)

Principal $ 343,702 $ 549,999

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

Unamortized issuance costs ( 3,228 ) ( 7,162 )

Net carrying amount $ 302,068 $ 458,190

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

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

As of December 31,

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

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

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

Net carrying amount $ ( 2,819 ) $ 71,817

The following table sets forth the interest expense recognized related to the Notes:

Year Ended December 31,

(In thousands)

Contractual interest expense $ 1,221 $ 1,375

Amortization of debt issuance costs 1,863 1,858

Amortization of debt discount 21,896 21,838

Total interest expense related to the Notes $ 24,980 $ 25,071

In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the “capped calls”).

The capped calls each have an initial strike price of approximately $ 70.90 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes.

The capped calls have initial cap prices of $ 105.04 per share, subject to certain adjustments.

The capped calls cover, subject to anti-dilution adjustments, approximately 7,757,200 shares of Class A common stock.

The capped calls are generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.

The capped calls expire on the earlier of (i) the last day on which any convertible securities remain outstanding and (ii) June 1, 2023, subject to earlier exercise.

The capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company.

In addition, the capped calls are subject to certain specified additional disruption events that may give rise to a termination of the capped calls, including changes in law, insolvency filings, and hedging disruptions.

The capped call transactions are recorded in stockholders’ equity and are not accounted for as derivatives.

The net cost of $ 58.5 million incurred to purchase the capped call transactions was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheet.

In connection with the offering of the Convertible Notes in May 2018, the Company entered into privately negotiated capped call transactions with certain counterparties (the “capped calls”).

The capped calls each had an initial strike price of approximately $ 70.90 per share, subject to certain adjustments, which corresponded to the initial conversion price of the Notes.

The capped calls had initial cap prices of $ 105.04 per share, subject to certain adjustments.

The capped calls covered, subject to anti-dilution adjustments, approximately 7,757,200 shares of Class A common stock.

The capped calls were generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.

Concurrently with the redemption of the Convertible Notes, the Company settled its capped call arrangement.

The capped call arrangement was settled in June 2021 for gross cash consideration of $ 229.8 million received by the Company and recorded in additional paid-in-capital, net of $ 1.4 million in transaction costs and a $ 3.2 million realized gain.

The gain was primarily driven by the change in the fair value of the Company’s Class A common stock on the transaction settlement date.

The gain was recorded in other (expenses) income, net, in the accompanying consolidated statement of operations.

Supplemental Balance Sheet Information

A roll‑forward of the Company’s reserves is as follows:

(a) Allowance for doubtful accounts:

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) Customer credit reserve:

A roll‑forward of the Company’s customer credit reserve is as follows:

Year Ended December 31,

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Balance, end of period $ 18,577 $ 16,783 $ 6,784

Percentage of revenue 1 % 1 % — %

Revenue by Geographic Area

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(a) Lease and Other Commitments

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 noncancellable and expire within one to three years .

The Company entered into various non-cancelable operating lease agreements for its facilities.

See Note 6 to these consolidated financial statements for additional detail on the Company's operating lease commitments.

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 four years .

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

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Total payments $ 471,585

In February 2021, the Company entered into a Framework Agreement, as subsequently amended, with Syniverse Corporation (“Syniverse”) and Carlyle Partners V Holdings, L.P.

(“Carlyle”) (the “Framework Agreement”), pursuant to which Syniverse would issue to the Company shares of Syniverse common stock in consideration for an investment by the Company of up to $ 750.0 million.

In August 2021, Syniverse entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Blue Steel Merger Sub Inc.

(the “Merger Sub”) and M-3 Brigade Acquisition II Corp.

(“MBAC”), which would result in Syniverse being a wholly owned subsidiary of MBAC (the “Merger”).

Concurrently, the Company and MBAC entered into the Twilio Subscription Agreement (the “Subscription Agreement”), pursuant to which the Company agreed, subject to the terms and conditions set forth therein, to subscribe for and purchase, and MBAC agreed to issue and sell to the Company, immediately prior to the closing of the Merger, shares of Class A common stock and, if applicable, shares of Class C common stock for an aggregate amount up to $ 750.0 million, depending on redemptions by MBAC’s shareholders.

In connection with the closing of the investment, the Company and Syniverse (or their respective subsidiaries) would enter into a wholesale agreement.

See Note 18 for details on developments on this transaction which occurred in the period subsequent to December 31, 2021.

(b) Legal Matters

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.

On October 19, 2018, the district court granted the Company's motion that all remaining asserted claims of the asserted patents are invalid under 35 U.S.C.

§ 101 and entered judgment in the Company's favor.

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, 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.

8,837,465 (“465”), United States Patent No.

8,755,376 (“376”), United States Patent No.

8,736,051 (“051”), United States Patent No.

8,737,962 (“962”), United States Patent No.

9,270,833 (“833”), and United States Patent No.

9,226,217 (“217”).

Telesign filed a motion to dismiss the complaint on January 25, 2017.

In two orders, issued on March 31, 2017 and April 17, 2017, the court granted Telesign’s motion to dismiss with respect to the ‘962, ‘833, ‘051 and ‘217 patents, but denied Telesign’s motion to dismiss as to the ‘021, ‘465 and ‘376 patents.

On August 23, 2017, Telesign petitioned the U.S.

Patent and Trademark Office (“U.S.

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

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.

The City and County of San Francisco (“San Francisco”) has assessed the Company for additional Telephone Users Tax (“TUT”) and Access Line Tax (“ALT”) on certain of the Company’s services for the years 2009 through 2018.

The assessments totaled $ 38.8 million, including interest and penalties.

The Company paid the assessments under protest in the third quarter of 2020.

On May 27, 2021, the Company filed a lawsuit against San Francisco in San Francisco Superior Court challenging the assessments.

The Company raised numerous defenses to the assessments including that its services are not telecommunications services, application of the taxes to Twilio’s services violates the Internet Tax Freedom Act and San Francisco does not have jurisdiction to impose tax on services provided outside of San Francisco.

The Company is seeking refunds of the taxes paid, waivers of interest and penalties, cost of suit and reasonable attorneys’ fees, and other legal and equitable relief as the court deems appropriate.

The Company believes it has strong arguments against the assessments, but litigation is uncertain and there is no assurance that it will prevail in court.

Should the Company lose on one or more of its arguments, it could incur additional losses associated with taxes, interest, and penalties that together, in aggregate, could be material.

The Company regularly assesses the likelihood of adverse outcomes resulting from tax disputes such as this and examines all open years to determine the necessity and adequacy of any tax reserves.

The Company’s tax reserves are further discussed in Note 13(d) of these consolidated financial statements.

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 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.

GAAP, recorded a provision for its tax exposure in these jurisdictions when it was both probable that a liability had been incurred and the amount of the exposure could be reasonably estimated.

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 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 last several years the Company has expanded to collect taxes in most jurisdictions where it operates.

The Company continues to carry reserves for certain of its prior non-income-based tax exposures in certain jurisdictions when it is both probable that a liability was incurred and the amount of the exposure could be reasonably estimated.

These reserves are based on estimates which include 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

The Company continues to remain in discussions with certain jurisdictions regarding its prior sales and other taxes that it may owe.

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

For example, San Francisco City and County 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 paid the full amount as required by law.

The payment made in excess of the accrued amount is reflected as a deposit in the accompanying consolidated balance sheets.

The Company believes, however, that this assessment is incorrect and, after failing to reach a settlement, filed a lawsuit on May 27, 2021 contesting the assessment as described above.

However, litigation is uncertain and a ruling against the Company, or a dismissal of our complaint, may adversely affect its financial position and results of operations.

As of December 31, 2021, the liabilities recorded for these taxes were $ 25.4 million for domestic jurisdictions and $ 17.7 million for jurisdictions outside of the United States.

As of December 31, 2020, these liabilities were $ 25.6 million and $ 9.6 million, respectively.

Stockholders' Equity

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As of December 31, 2020, 153,496,222 shares of Class A common stock and 10,551,302 shares of Class B common stock were issued and outstanding.

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.

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

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Stock options issued and outstanding 3,351,313 5,625,735

Nonvested restricted stock units issued and outstanding 7,523,882 8,490,517

Unvested restricted stock units issued and outstanding 6,475,700 7,523,882

Class A common stock reserved for Twilio.org 618,857 707,265

1 unchanged sentence

Stock-based awards available for grant under ESPP 6,382,830 4,941,281

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

Class A common stock reserved for the Convertible Notes — 7,569,731

Total 41,478,804 45,310,099

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.

In February 2021, August 2020 and June 2019, the Company completed public equity offerings in which it sold 4,312,500 shares, 5,819,838 shares and 8,064,515 shares, respectively, of its Class A common stock at a public offering price of $ 409.60 , $ 247.00 and $ 124.00 per share, respectively.

The Company received total proceeds of $ 1.8 billion, $ 1.4 billion and $ 979.0 million, respectively, net of underwriting discounts and offering expenses paid by the Company.

Stock-Based Compensation

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The Company’s right of first refusal for outstanding equity awards granted under the 2008 Plan terminated upon completion of the IPO.

Options granted include provisions for early exercisability.

All remaining outstanding stock options granted under the 2008 Plan are vested and exercisable.

2016 Stock Option Plan

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Under the 2016 Plan, the stock options are granted at a price per share not less than 100 % of the fair market value per share of the underlying common stock on the date of grant.

Under both plans, stock options generally expire 10 years from the date of grant and vest over periods determined by the board of directors.

The vesting period for new-hire options and restricted stock units is generally a four year term from the date of grant, at a rate of 25 % after one year , then monthly or quarterly, respectively, on a straight-line basis thereafter.

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.

Equity Awards Assumed in Acquisitions

Segment 2013 Stock Incentive Plan

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.

SendGrid 2009, 2012 and 2017 Stock Incentive Plans

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.

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These shares can be utilized for future equity grants under the Company’s 2016 Plan, to the extent permitted by New York Stock Exchange rules.

Zipwhip 2008 Stock Plan and 2018 Equity Incentive Plan

In connection with its acquisition of Zipwhip, the Company assumed and replaced all stock options and restricted stock units of continuing employees issued under Zipwhip Amended and Restated 2008 Stock Plan and 2018 Equity Incentive Plan (“Zipwhip Plans”) 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 Zipwhip Plans.

Under all plans, stock options generally expire 10 years from the date of grant and vest over periods determined by the board of directors.

The vesting period for stock options and restricted stock units is generally four years from the date of grant.

For existing employees and, effective February 2021, for new-hires the stock options and restricted stock units vest in equal monthly and quarterly installments, respectively, over the service period.

2016 Employee Stock Purchase Plan

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A total of 2,400,000 shares of the Company’s Class A common stock were initially reserved for issuance under the 2016 ESPP.

These available shares automatically increase each January 1, beginning on January 1, 2017, by the lesser of 1,800,000 shares of the common stock, 1 % of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee.

These available shares automatically increase each January 1, beginning on January 1, 2017, by the lesser of 1,800,000 shares of the Company's Class A common stock, 1 % of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee.

On January 1, 2021 and 2020, the shares available for grant under the 2016 ESPP were automatically increased by 1,640,475 shares and 1,384,128 shares, respectively.

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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.

As of December 31, 2021, total unrecognized compensation cost related to the 2016 ESPP was not significant.

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:

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( 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.

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 — —

Outstanding options as of December 31, 2020 555,000 $ 31.72 3.16 $ 170,263

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

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.

As of December 31, 2020, the Company had outstanding 555,000 shares of performance-based stock options with a weighted average exercise price of $ 31.72 and an aggregate intrinsic value of $ 170.3 million.

All performance conditions had been met.

During the year ended December 31, 2021, all of these stock options were exercised.

The aggregate intrinsic value of these stock options exercised was $ 140.2 million.

As of December 31, 2021, no performance-based stock options remain outstanding.

As of December 31, 2021, total unrecognized compensation cost related to all unvested stock options was $ 151.5 million, which will be amortized on a ratable basis over a weighted-average period of 2.2 years.

Restricted Stock Units

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(In thousands)

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

Unvested RSUs as of December 31, 2020 7,523,882 $ 131.76 $ 2,542,858

Granted 3,465,980 328.38

Assumed in acquisition 158,593 273.38

Vested ( 3,493,652 ) 114.70

Forfeited and canceled ( 1,020,510 ) $ 188.76

Nonvested RSUs as of December 31, 2020 7,523,882 $ 131.76 $ 2,542,858

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.

Unvested RSUs as of December 31, 2021 6,475,700 $ 237.22 $ 1,705,311

As of December 31, 2021, the Company had outstanding 24,697 restricted stock awards (“RSAs”) that were held in escrow with future vesting conditions.

The aggregate intrinsic value of these awards was not significant.

As of December 31, 2021, total unrecognized compensation cost related to unvested RSUs and RSAs was $ 1.4 billion, which will be amortized over a weighted-average period of 3.1 years.

As of December 31, 2021, the unrecognized compensation cost related to Class A common stock subject to future vesting conditions is $ 60.1 million, which will be amortized over a term of 2.0 years.

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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,

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Stock options issued and outstanding 3,351,313 5,625,735 7,705,848

Nonvested restricted stock units issued and outstanding 7,523,882 8,490,517 8,262,902

Restricted stock units issued and outstanding 6,475,700 7,523,882 8,490,517

Class A common stock reserved for Twilio.org 618,857 707,265 795,673

Class A common stock committed under ESPP 147,947 103,703 207,792

Convertible senior notes (1)

Convertible Notes (1)

— 4,847,578 3,150,647

Class A common stock in escrow 75,506 75,612 —

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

Unvested shares subject to repurchase — — 1,250

Class A common stock in escrow and restricted stock awards subject to future vesting 235,054 268,030 —

Total 10,904,377 19,151,805 20,350,477

____________________________________

(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.

(1) The Convertible Notes were fully redeemed in 2021 and were no longer outstanding as of December 31, 2021.

As of December 31, 2020, the Company expected to settle the principal amount of the notes in shares of its Class A common stock, and as such used the if-converted method to calculate 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 these notes in cash and any excess in shares of the Company's Class A common stock.

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

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

The following table presents domestic and foreign components of loss before income taxes for the periods presented:

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Loss before provision for income taxes $ ( 960,929 ) $ ( 504,426 ) $ ( 362,216 )

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

Benefit for income taxes consists of the following:

Year Ended December 31,

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(In thousands)

Federal $ 122 $ — $ —

State 420 272 198

5 unchanged sentences

Total ( 19,845 ) ( 18,934 ) ( 58,035 )

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

Income tax benefit $ ( 11,029 ) $ ( 13,447 ) $ ( 55,153 )

The following table presents a reconciliation of the statutory federal tax rate and the Company's effective tax rate:

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As of December 31,

2020 2019 2018

Deferred tax assets:

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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.

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

The valuation allowance increased by approximately $ 459.0 million and $ 421.9 million during the years ended December 31, 2021 and 2020, respectively.

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The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision.

As of December 31, 2020, the Company has accumulated $ 0.3 million in both interest and penalties related to uncertain tax positions.

As of December 31, 2021 and 2020, such amounts are not significant.

The Company does not anticipate any significant changes within 12 months of December 31, 2021, in its uncertain tax positions that would be material to the consolidated financial statements taken as a whole because nearly all of the unrecognized tax benefit has been offset by a deferred tax asset, which has been reduced by a valuation allowance.

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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.

There is no impact on the Company’s effective tax rate for years ended December 31, 2021 and 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 Zipwhip 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, 2021, the Company released a total of $ 15.9 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 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.

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Federal and State net deferred tax assets.

The provision for income taxes recorded in the years ended December 31, 2020 and 2019, consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business.

The provision for income taxes recorded in the years ended December 31, 2021 and 2020, consists primarily of income taxes, withholding taxes in foreign jurisdictions in which the Company conducts business and the tax benefit related to the release of valuation allowance from acquisitions.

The Company’s U.S.

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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.

As described in Note 13(a), the Company was a party to a certain Framework Agreement, as amended, and a Subscription Agreement pursuant to which the Company intended to purchase up to $ 750.0 million in common stock of MBAC, subject to certain terms and conditions.

In February 2022, Syniverse, MBAC and the Merger Sub mutually terminated the Merger Agreement and the related proposed Merger.

The parties agreed to this termination because t he rate of MBAC shareholder redemptions for the proposed transaction would have exceeded the minimum cash condition for closing, which occurred as a result of the recent changes in market conditions.

Consequently, the Company will not be purchasing any shares of common stock of, or making any investments in, MBAC.

Notwithstanding the above, the Framework Agreement between the Company, Syniverse and Carlyle remains in full force and effect.

Pursuant to the terms and subject to the closing conditions set forth in the Framework Agreement, the parties are pursuing the alternative transaction, whereby the Company will make a minority investment of $ 500.0 million to $ 750.0 million in Syniverse and the parties (or their applicable subsidiaries) will enter into a wholesale agreement.

The transaction is expected to close in 2022.

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