What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-22 · 356 added, 397 removed, 963 unchanged (44% of the section changed)

17 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Evaluation of the sufficiency of audit evidence over revenue recognition

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

As of December 31, 2022, the Company recorded $3.8 billion in revenues, a portion of which related to Programmable Messaging and Programmable Voice APIs.

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

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

As discussed in Note 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 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 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 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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Operating right-of-use assets 121,341 234,584

Equity method investment 699,911 —

Intangible assets, net 849,935 1,050,012

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Finance lease liability, noncurrent 21,290 25,132

Long-term debt 985,907 302,068

Long-term debt, net 987,382 985,907

Other long-term liabilities 23,881 41,290

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Additional paid-in capital 14,055,853 13,169,118

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

Accumulated other comprehensive loss ( 121,161 ) ( 18,141 )

Accumulated deficit ( 3,375,836 ) ( 2,119,691 )

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General and administrative 517,414 472,460 310,607

Restructuring costs 76,636 — —

Impairment of long-lived assets 97,722 — —

Total operating expenses 3,018,885 2,306,297 1,408,562

Loss from operations ( 1,205,308 ) ( 915,584 ) ( 492,901 )

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

Other expenses, net:

Share of losses from equity method investment ( 35,315 ) — —

Other expenses, net ( 3,009 ) ( 45,345 ) ( 11,525 )

Total other expenses, net ( 38,324 ) ( 45,345 ) ( 11,525 )

Loss before (provision for) benefit from income taxes ( 1,243,632 ) ( 960,929 ) ( 504,426 )

(Provision for) benefit from income taxes ( 12,513 ) 11,029 13,447

Net loss attributable to common stockholders $ ( 1,256,145 ) $ ( 949,900 ) $ ( 490,979 )

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Net change in market value of effective foreign currency forward exchange contracts 556 294 —

Share of other comprehensive loss from equity method investment ( 14,940 ) — —

Total other comprehensive (loss) income ( 103,020 ) ( 27,187 ) 3,960

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

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

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 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

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

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

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

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

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

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

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

Equity component from partial settlement of 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

Shares of Class A common stock issued and 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

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

See accompanying notes to consolidated financial statements.

Consolidated Statements of Stockholder's Equity

Class A Common Stock

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

Class B Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders' Equity

Shares Amount Shares Amount

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

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

Exercises of vested 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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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

Shares of Class A common stock issued and 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

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See accompanying notes to consolidated financial statements.

Consolidated Statements of Stockholder's Equity

Class A Common Stock

Class B Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders' Equity

Shares Amount Shares Amount

(In thousands, except share amounts)

Balance as of December 31, 2021 170,625,994 $ 168 9,842,105 $ 12 $ 13,169,118 $ ( 18,141 ) $ ( 2,119,691 ) $ 11,031,466

Net loss — — — — — — ( 1,256,145 ) ( 1,256,145 )

Exercises of vested stock options 373,793 — 392,231 — 22,500 — — 22,500

Vesting of restricted stock units 4,277,266 4 — — ( 4 ) — — —

Value of equity awards withheld for tax liability ( 6,250 ) — — — ( 1,098 ) — — ( 1,098 )

Conversion of shares of Class B common stock into shares of Class A common stock 616,731 — ( 616,731 ) — — — — —

Shares of Class A common stock issued and donated to charity 88,408 — — — 9,541 — — 9,541

Unrealized loss on marketable securities — — — — — ( 83,049 ) — ( 83,049 )

Foreign currency translation — — — — — ( 5,587 ) — ( 5,587 )

Shares returned from escrow ( 152,239 ) — — — ( 387 ) — — ( 387 )

Shares issued under ESPP 534,401 2 — — 37,063 — — 37,065

Net change in market value of effective foreign currency forward exchange contracts — — — — — 556 — 556

Share of other comprehensive loss from equity method investment — — — — — ( 14,940 ) — ( 14,940 )

Stock-based compensation — — — — 804,845 — — 804,845

Stock-based compensation - restructuring — — — — 14,275 — — 14,275

Balance as of December 31, 2022 176,358,104 $ 174 9,617,605 $ 12 $ 14,055,853 $ ( 121,161 ) $ ( 3,375,836 ) $ 10,559,042

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows

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Net loss $ ( 1,256,145 ) $ ( 949,900 ) $ ( 490,979 )

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

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 279,127 258,378 149,660

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Net amortization of investment premium and discount 33,165 36,158 6,789

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

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

Stock-based compensation 632,285 360,936 264,318

Impairment of long-lived assets due to 2022 office closures 97,722 — —

Stock-based compensation including restructuring 798,560 632,285 360,936

Amortization of deferred commissions 57,913 31,541 13,322

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

Allowance for credit losses 35,012 7,210 13,239

Value of shares of Class A common stock donated to charity 9,541 31,169 18,993

Share of losses from equity method investment 35,315 — —

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

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Accounts payable 30,336 10,191 10,060

Accrued expenses and other current liabilities 127,554 88,340 46,154

Accrued expenses and restructuring costs 75,430 127,554 88,340

Deferred revenue and customer deposits ( 2,688 ) 45,634 13,824

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CASH FLOWS FROM FINANCING ACTIVITIES:

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 ) — —

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

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

Proceeds from public offerings, net of underwriters' discounts — 1,766,400 1,408,750

Payments of costs related to public offerings ( 35 ) ( 687 ) ( 637 )

Proceeds from issuance of senior notes due 2029 and 2031, net of issuance costs — 984,723 —

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

Principal payments on debt and finance leases ( 13,423 ) ( 8,295 ) ( 10,784 )

Value of equity awards withheld for tax liabilities ( 1,098 ) ( 10,388 ) ( 8,778 )

Proceeds from exercises of stock options and shares of Class A common stock issued under ESPP 59,563 136,160 104,760

Net cash provided by financing activities 45,007 3,096,325 1,493,311

Effect of exchange rate changes on cash, cash equivalents and restricted cash 60 ( 191 ) 40

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 547,946 680,150 ( 251,599 )

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

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of year $ 1,481,831 $ 933,885 $ 253,735

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 825,753 ) 547,946 680,150

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 1,481,831 933,885 253,735

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $ 656,078 $ 1,481,831 $ 933,885

Cash paid for income taxes, net $ 7,413 $ 6,147 $ 3,092

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NON-CASH INVESTING AND FINANCING ACTIVITIES:

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

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

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

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

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

Today's leading companies trust Twilio's Customer Engagement Platform (CEP) to build direct, personalized relationships with their customers everywhere in the world.

Twilio enables companies to use communications and data to add intelligence and security to every step of their customers’ journey, from sales to marketing to growth, customer service and many more engagement use cases in a flexible, programmatic way.

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

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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.

To reduce credit risk, management performs credit evaluations of the financial condition of new customers and periodic re-evaluations, as needed, of existing customers.

The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary.

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Nature of Products and Services

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

The majority of the Company's revenue is derived from usage-based fees earned from its communications products when customers access its cloud-based platform.

Platform access is considered a monthly series comprising of one performance obligation and usage-based fees are recognized as revenue in the period in which the usage occurs.

In the years ended December 31, 2022, 2021 and 2020, the revenue from usage-based fees represented 73 %, 72 % and 76 % of total revenue, respectively.

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.

Subscription-based fees are derived from non-usage-based products on the Company’s cloud-based platform, such as Twilio Segment, Twilio Engage, Twilio Flex, as well as from sales of other products such as short codes, customer support, email API and others.

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, 2022, 2021 and 2020, the revenue from non-usage-based fees represented 27 %, 28 %, and 24 % of total revenue, respectively.

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

The Company's arrangements do not contain general rights of return.

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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, 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.

Total net capitalized commission costs as of December 31, 2022 and 2021, were $ 239.1 million and $ 193.4 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 $ 57.9 million, $ 31.5 million and $ 13.3 million in the years ended December 31, 2022, 2021 and 2020, respectively, and is included in sales and marketing expense in the accompanying consolidated statements of operations.

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(i) Research and Development Expense

Research and development expenses consist primarily of personnel costs, cloud infrastructure fees for staging and development, outsourced engineering services, amortization of capitalized internal-use software development costs and an allocation of general overhead expenses.

Research and development expenses consist primarily of personnel costs, cloud infrastructure fees for staging and development of the Company’s products, outsourced engineering services, amortization of capitalized internal-use software development costs and an allocation of general overhead expenses.

The Company capitalizes the portion of its software development costs that meets the criteria for capitalization.

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Advertising costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

(l) Stock-Based Compensation

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

(l) Restructuring Costs

The Company records a charge for restructuring when management commits to a restructuring plan, the restructuring plan identifies all significant actions, the period of time to complete the restructuring plan indicates that significant changes to the plan are not likely and employees who are impacted have been notified of the pending involuntary termination.

(m) Stock-Based Compensation

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

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

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

issued under the ESPP.

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

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 closing 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.

Forfeitures are recorded in the period in which they occur.

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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.

(n) 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.

(m) Foreign Currency Translation

(o) Foreign Currency

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

Accordingly, the subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates.

Revenue and expense accounts are remeasured at the average exchange rate in effect during the year.

Remeasurement adjustments are recognized in the consolidated statements of operations as other income or expense in the year of occurrence.

Revenue and expense accounts are remeasured at the average exchange rate in effect during the month in which the transaction occurs.

Remeasurement adjustments are recognized in the consolidated statements of operations as other expense, net, in the year of occurrence.

Foreign currency transaction gains and losses were insignificant for all periods presented.

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 (loss) income in stockholders' equity.

dollars are recorded as a component of accumulated other comprehensive (loss) income as part of the total 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.

Revenue and expenses are translated at the weighted average exchange rates in effect during the month in which a transaction occurs.

Equity transactions are translated using historical exchange rates.

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

(n) Comprehensive Loss

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

(p) 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

(q) 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.

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.

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

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

1 unchanged sentence

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

The shares are also automatically converted upon reaching the final conversion date of June 28, 2023, as defined in the Company’s amended and restated certificate of incorporation.

Shares of Class A common stock are not convertible.

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 19 to these consolidated financial statements.

(p) Cash and Cash Equivalents

(r) 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 commercial paper.

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

(q) Accounts Receivable and Allowance for Doubtful Accounts

(s) 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.

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

As of December 31, 2022 and 2021, the allowance for doubtful accounts was not significant to the accompanying consolidated financial statements.

(t) 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.

(s) Property and Equipment

(u) Property and Equipment

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

Depreciation is computed using the straight-line method over the estimated useful life of the related asset.

Maintenance and repairs are charged to expenses as incurred.

Maintenance and repairs are expensed as incurred.

The useful lives of property and equipment are as follows:

1 unchanged sentence

Data center equipment 2 - 4 years

Leasehold improvements 5 years or remaining lease term

Office equipment 3 years

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Assets under financing lease 5 years or remaining lease term

Leasehold improvements 5 years or remaining lease term

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

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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 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.

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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.

(u) Intangible Assets

(w) Equity Method Investments

Equity investment holdings in which the Company does not have a controlling financial interest but can exercise significant influence over an investee are accounted for under the equity method.

Equity method investments are originally recorded at cost and are subsequently increased or reduced to reflect the Company’s proportionate share of net earnings or losses of the investee as they occur.

The Company records the investee losses up to the carrying amount of the investment plus any advances and loans made to the investee and any financial guarantees made on behalf of the investee.

Investments are also increased or decreased by contributions made to and distributions received from the investee.

All costs directly associated with the acquisition of the investment are included in the carrying amount of the investment.

Profits or losses related to intra-entity sales are eliminated until realized by the Company or the investee.

The Company determines the difference between its purchase price and its proportionate share of the net assets of the investee, which results in an excess basis in the investment.

This excess basis is allocated to the identifiable assets and liabilities of the investee utilizing purchase accounting principles and is used to calculate the amortization of basis differences every reporting period.

Basis differences are generally amortized over the lives of the assets and liabilities that gave rise to the basis differences.

Basis differences related to finite-lived intangible assets are amortized on a straight-line basis.

The Company records its share in earnings and losses of its equity method investee along with adjustments for amortization of basis differences, investee capital transactions and other comprehensive income or loss in its consolidated statements of operations and comprehensive loss, as applicable, on a three-month lag.

Equity method goodwill is not amortized or tested for impairment.

Instead, the Company evaluates its equity method investments for impairment whenever events or changes in circumstance indicate that the carrying amounts of such investments may be in excess of their fair value.

When such indicators exist, the other-than-temporary impairment model is utilized, which considers the severity and duration of a decline in fair value below book value and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for recovery.

If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in the period of such determination.

The authoritative guidance allows a measurement period of up to one year from the date of acquisition of the investment to make adjustments to the preliminary determination and allocation of the excess basis in the investment.

(x) Intangible Assets

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

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Trade names 3 - 5 years

Order backlog 1 year

Patents 20 years

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

(w) Derivatives and Hedging

(z) Derivatives and Hedging

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

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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

(aa) Impairment of Long-Lived Assets

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

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

There were no impairments during the years ended December 31, 2021, 2020 and 2019.

(y) Business Combinations

(ab) Business Combinations

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

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As a result, during the measurement period the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation.

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

(z) Segment Information

Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations.

(ac) Segment Information

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

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

(aa) Fair Value of Financial Instruments

The Company had no segment managers during the periods presented.

Accordingly, the Company has determined that it operates in a single operating and reportable segment.

(ad) Fair Value of Financial Instruments

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

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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 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 fair values of the senior notes due 2029 and 2031 (“2029 Notes” and “2031 Notes,” respectively) 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 does not have a controlling interest nor it can 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.

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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 (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):

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

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, net.

(ae) Recently Adopted Accounting Guidance

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

(“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.

The Company adopted ASU 2021-08 in the first quarter of 2022 with no material impact to its consolidated financial statements.

(af) Recently Issued Accounting Guidance, Not yet Adopted

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurements (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities.

ASU 2022-03 is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted.

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

Fair Value Measurements

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

Losses Fair Value Hierarchy as of

Losses Less Than 12 Months Gross

12 Months Fair Value Hierarchy as of

December 31, 2022 Aggregate

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Money market funds $ 46,610 $ — $ — $ — $ 46,610 $ — $ — $ 46,610

Reverse repurchase

agreements 200,000 — — — — 200,000 — 200,000

Commercial paper 2,249 — — — — 2,249 — 2,249

Total included in cash and cash equivalents 832,624 — — 786,548 46,076 — 832,624

Total included in cash

and cash equivalents 248,859 — — — 46,610 202,249 — 248,859

Marketable securities:

Treasury securities 481,463 — ( 1,269 ) ( 11,347 ) 468,847 — — 468,847

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

Total marketable securities 3,897,272 966 ( 19,808 ) 624,036 3,254,394 — 3,878,430

securities 149,901 — ( 33 ) ( 6,304 ) 143,564 — — 143,564

Corporate debt securities and

commercial paper 2,973,844 307 ( 12,202 ) ( 71,043 ) 5,000 2,885,906 — 2,890,906

Total marketable

securities 3,605,208 307 ( 13,504 ) ( 88,694 ) 617,411 2,885,906 — 3,503,317

Total financial assets $ 3,854,067 $ 307 $ ( 13,504 ) $ ( 88,694 ) $ 664,021 $ 3,088,155 $ — $ 3,752,176

Losses Fair Value Hierarchy as of

Losses Less Than 12 Months Fair Value Hierarchy as of

December 31, 2021 Aggregate

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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

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Total financial assets $ 4,729,896 $ 966 $ ( 19,808 ) $ 1,410,584 $ 3,300,470 $ — $ 4,711,054

The aggregate related fair value of corporate debt securities with unrealized losses is $ 2.66 billion as of December 31, 2022, of which $ 2.04 billion have been in an unrealized loss position for more than 12 months and $ 620.5 million have been in an unrealized loss position for less than 12 months.

Unrealized losses related to other investments as of December 31, 2022, and for all investments as of December 31, 2021 were not significant.

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, 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.

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

As of December 31, 2022 and 2021, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis.

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Interest earned on marketable securities was $ 64.6 million, $ 55.7 million and $ 32.4 million in the years ended December 31, 2022, 2021 and 2020, respectively.

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

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

The following table summarizes the contractual maturities of marketable securities:

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Strategic Investments

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 or other adjustments recorded in the years ended December 31, 2021 and 2020 related to these securities.

As of December 31, 2022 and 2021, the Company held strategic investments with an aggregate carrying value of $ 76.9 million and $ 68.3 million, respectively, recorded as other long-term assets in the accompanying consolidated balance sheets.

The carrying value of these securities is determined under the measurement alternative on a non-recurring basis and adjusted for observable changes in fair value.

There were no impairments or other significant adjustments related to these securities recorded in the three years ended December 31, 2022, 2021 and 2020.

Financial Liabilities

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.

As of December 31, 2022 and 2021, the aggregate fair value of these liabilities and the associated unrealized losses were not significant.

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

As of December 31, 2022, the fair value of the 2029 Notes and 2031 Notes were $ 410.9 million and $ 399.4 million, respectively.

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

Property and Equipment

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(In thousands)

Capitalized internal-use software development costs $ 198,589 $ 142,489

Capitalized internal-use software developments costs $ 257,983 $ 198,589

Data center equipment (1)

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( 1 ) Data center equipment contains $ 72.4 million and $ 63.0 million in assets held under finance leases as of December 31, 2022 and 2021, 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.

Accumulated depreciation and amortization contains $ 41.2 million and $ 26.8 million of accumulated depreciation for assets held under finance leases as of December 31, 2022 and 2021, respectively.

Depreciation and amortization expense was $ 71.7 million , $ 59.6 million and $ 51.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company capitalized $ 65.4 million, $ 63.1 million and $ 47.1 million in internal‑use software development costs in the years ended December 31, 2022, 2021 and 2020, respectively.

In the second quarter of 2022, the Company announced its decision to become a remote-first company whereby employees would have the flexibility to work remotely on a permanent basis.

As part of the new operating strategy, in the third quarter of 2022, the Company permanently closed several of its offices which triggered a reassessment of long-lived asset groupings and a test for impairment.

The Company determined that the carrying amounts of the impacted ROU assets and the associated leasehold improvements and property and equipment exceeded their respective fair values.

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

In the year ended December 31, 2022, the Company recorded a $ 97.7 million impairment expense in its accompanying consolidated statement of operations related to these office closures.

No other significant impairments were recorded during the years ended 2022, 2021 or 2020.

Restructuring Activities

During the third quarter of 2022, the compensation and talent management committee of the Company’s board of directors approved a restructuring plan that was designed to reduce operating costs, improve operating margins and shift the Company’s selling capacity to accelerate software sales (the “September Plan”).

The September Plan eliminated approximately 11 % of the Company’s workforce.

The Company recorded restructuring charges of $ 76.6 million for the year ended December 31, 2022, which consisted of $62.3 million related to employee transition, notice period, severance payments, employee benefits and facilitation costs;

and $ 14.3 million related to vesting of the employee stock-based compensation awards.

The execution of the September Plan was substantially completed as of December 31, 2022.

However, potential employment position eliminations in certain jurisdictions outside of the United States are subject to extended consultation periods mandated by the local jurisdictions.

The Company will record the restructuring charges related to the eliminated positions in those jurisdictions upon finalization of the respective consultation periods.

The estimated remaining expenses are not expected to be significant but the actual amounts may differ materially from expectations.

The following table summarizes the Company’s restructuring liability that is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheet:

Workforce Reduction Costs Facilitation Costs Total

(In thousands)

Balance as of December 31, 2021 $ — $ — $ —

Restructuring charges 60,553 1,808 62,361

Cash payments ( 60,053 ) ( 1,242 ) ( 61,295 )

Balance as of December 31, 2022 $ 500 $ 566 $ 1,066

The $ 14.3 million expense related to vesting of the employee stock-based compensation awards is recorded in the additional-paid-in capital in the accompanying consolidated statement of stockholders’ equity.

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.

As of December 31, 2022, the Company had outstanding foreign currency forward contracts designated as cash flow hedges with a total sell notional value of $ 219.8 million.

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

As of December 31, 2022, these contracts had maturities of up to 6 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,

Consolidated Statement of Operations and Statement of Comprehensive Loss Year Ended

(In thousands)

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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.

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

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

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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.

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.

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

As of December 31, 2022, the Company had 30 leased properties with remaining lease terms from 0.1 years to 7.0 years, some of which include options to extend the leases for up to 5.0 years.

As a result of the 2022 office closures described in Note 5, the Company impaired several of its office leases that will no longer be used to support its ongoing operations.

In the year ended December 31, 2022, the Company recorded $ 97.7 million impairment expense related to these office closures, of which $ 72.8 million related to the affected ROU assets.

The remaining impairment expense related to the associated assets in the property, plant and equipment categories.

For the years ended December 31, 2022, 2021 and 2020, the Company did not have significant sublease income related to any of its subleased office leases.

Operating lease costs recorded in the accompanying consolidated statements of operations were $ 57.8 million, $ 61.0 million and $ 49.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Lease costs associated with short-term leases, variable leases and finance leases were not significant.

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

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Business Combinations

2022 Acquisitions

During 2022, the Company completed a business combination for an aggregate accounting purchase price of $ 32.7 million, of which $ 25.7 million was allocated to goodwill and $ 8.2 million was allocated to intangible assets.

2021 Acquisitions

Zipwhip, Inc.

2 unchanged sentences

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..

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

Vesting of these shares is 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.

This transaction also included $ 19.1 million of additional cash consideration for certain employees, which is vesting as these employees are providing services in the post-acquisition period.

This amount is recorded in the operating expenses over the 3 year vesting period.

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.

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(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.

These awards continue vesting as Zipwhip 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:

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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:

The following table presents the purchase price allocation on the acquisition close date, as adjusted:

(In thousands)

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Total intangible assets acquired $ 244,500

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

Goodwill is not deductible for tax purposes.

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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.

For the years ended December 31, 2022 and 2021, Zipwhip contributed net operating revenue of $ 139.5 million and $ 55.4 million, respectively, which is reflected in the accompanying consolidated statements 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.

1 unchanged sentence

Costs incurred related to the acquisition were not significant.

Other Fiscal 2021 Acquisitions

Other 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

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 $ 415.9 million in cash, as adjusted.

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 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 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 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 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:

(In thousands)

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 $ 2,987,200

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

(In thousands)

Cash and cash equivalents $ 93,170

Accounts receivable and other current assets 90,635

Property and equipment, net 5,081

Operating right-of-use asset 53,630

Intangible assets (1)

Other assets 4,869

Goodwill 2,299,016

Accounts payable and other liabilities ( 24,263 )

Deferred revenue ( 50,005 )

Operating lease liability ( 58,206 )

Deferred tax liability ( 21,728 )

Total purchase price $ 2,987,200

____________________________________

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

Equity Method Investment

In May 2022, the Company acquired 44.6 % equity interests in Syniverse Corporation (“Syniverse”) for $ 750.0 million in cash.

The Company determined that it does not have a controlling financial interest in Syniverse but does exercise significant influence and therefore, the investment was accounted for under the equity method.

The Company estimated that on the investment closing date there was an excess investment basis of $ 530.7 million related to its proportionate share of the identifiable intangible assets and $ 41.3 million related to the associated deferred tax liability.

The equity method goodwill was estimated at $ 623.8 million.

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

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

The following table presents the estimated basis differences attributable to the identifiable intangible assets as of the date of investment and their respective useful lives:

Total Estimated

2 unchanged sentences

Customer relationships 439,152 9

Order backlog 10,000 1

Trade names 5,000 5

Total intangible assets acquired $ 595,000

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

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

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

Goodwill is not deductible for tax purposes.

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

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

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

Most of the net tangible assets were valued at their respective carrying amounts as of the acquisition date, as the Company believes that these amounts approximate their current fair values, except for operating right-of-use assets, which were reduced 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, 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.

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 Acquisitions

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.

Trademarks 28,822 Indefinite

Total basis difference attributable to the identifiable intangible assets $ 530,741

As of December 31, 2022, the Company held 44.5 % equity interests in Syniverse and the carrying amount of its equity method investment recorded in the accompanying consolidated balance sheet was $ 700.0 million.

As of December 31, 2022, the Company’s net excess investment basis was $ 508.9 million related to its proportionate share of the identifiable intangible assets of the investee, $ 41.3 million related to the associated deferred tax liability and $ 623.8 million related to the equity method goodwill.

The Company has elected to report its portion of equity method investee’s results of operations and other comprehensive income on a 90-day lag.

The Company recorded its share of losses from its equity method investment of $ 35.3 million in its accompanying consolidated statement of operations for the year ended December 31, 2022.

The adjustment consisted of the Company’s proportionate share of the investee’s net operating results and the amortization of the basis difference for the period from the transaction closing date of May 13, 2022, through September 30, 2022.

The Company also recorded $ 14.9 million of its proportionate share of the investee’s other comprehensive loss in the accompanying consolidated statement of other comprehensive loss for the same period.

In conjunction with this investment, the Company and Syniverse entered into a wholesale agreement, pursuant to which Syniverse will process, route and deliver application-to-person messages originating and/or terminating between the Company’s customers and mobile network operators.

The value of the transactions that occurred between the Company and Syniverse were $ 89.6 million for the period from the investment closing date on May 13, 2022 through December 31, 2022.

These transactions were recorded as cost of revenue in the accompanying consolidated statements of operations.

Goodwill and Intangible Assets

Goodwill balance as of December 31, 2021 and 2020, was as follows:

The goodwill balance as of December 31, 2022 and 2021 was as follows:

(In thousands)

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Goodwill additions related to 2021 acquisitions 663,599

Measurement period adjustments ( 5,170 )

Measurement period and other adjustments 4,173

Balance as of December 31, 2021 $ 5,263,166

Goodwill additions related to 2022 acquisitions 25,748

Measurement period adjustments 4,173

Measurement period and other adjustments ( 4,761 )

Balance as of December 31, 2022 $ 5,284,153

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Intangible assets consisted of the following:

December 31, 2021

Gross Accumulated

Amortization Net

As of December 31, 2022

Cost Accumulated Amortization Net

Amortizable intangible assets:

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Total $ 1,440,726 $ ( 590,791 ) $ 849,935

December 31, 2020

Gross Accumulated

Amortization Net

As of December 31, 2021

Cost Accumulated Amortization Net

Amortizable intangible assets:

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Total estimated future amortization expense is as follows:

As of December 31, 2022

Year Ended December 31, (In thousands)

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Sales and other taxes payable 92,319 61,975

ESPP contributions 10,284 6,272

Finance lease liability, current 12,370 9,062

Finance lease liability 11,871 12,370

Employee sabbatical benefit accrual 30,683 —

Accrued other expense 78,741 81,709

Total accrued expenses and other current liabilities $ 490,221 $ 417,503

Notes Payable

Long-term debt consisted of the following:

Long-Term Debt

Long-term debt, net, consisted of the following:

As of December 31,

(In thousands)

2029 and 2031 Senior Notes

2029 Senior Notes

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Net carrying amount 493,509 492,894

Convertible Senior Notes and Capped Call Transactions

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

Total long-term debt, net $ 987,382 $ 985,907

2029 and 2031 Senior Notes

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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:

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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:

The Notes are general 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 unsecured and unsubordinated liabilities.

In certain circumstances involving a change of control event, the Company will be required to make an offer to repurchase the Notes of the applicable series at a repurchase price equal to 101 % of the principal amount of the Notes of such series to be repurchased, plus accrued and unpaid interest, if any, to the applicable repurchase date.

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

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

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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.

As of December 31, 2022, the Company was in compliance with all of its 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.

In June 2021 the Company fully redeemed the remaining outstanding principal amount of its convertible senior notes due 2023 (“Convertible Notes”) pursuant to the notice of redemption it issued in May 2021.

During 2021, 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.

The aggregate value of all redemption transactions in the year ended December 31, 2021, was $ 1.7 billion.

Of the $ 1.7 billion, $ 1.4 billion and $ 335.7 million were allocated to the equity and liability components, respectively, as required by the applicable accounting guidance.

The Company utilized the effective interest rate method 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.

The extinguishment of these Convertible Notes resulted in a $ 29.0 million loss that is included in other expenses, net, in the accompanying consolidated statement of operations for the year ended December 31, 2021.

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 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.

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 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 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.

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

As of December 31,

(In thousands)

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

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

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

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.

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

Concurrently with the redemption of the Convertible Notes, the Company settled these capped calls in June 2021 for gross cash consideration of $ 229.8 million received by the Company, which the Company 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.

The gain was recorded in other expenses, net, in the accompanying consolidated statement of operations for the year ended December 31, 2021.

In the year ended December 31, 2020, holders of Convertible Notes submitted $ 206.3 million aggregate principal amount of the Convertible Notes for conversion and the Company issued 2,902,434 shares of its Class A common stock and $ 2.0 million of cash to settle such conversion.

Of the $ 894.6 million aggregate value of these transactions, $ 701.9 million and $ 192.7 million were allocated to the equity and liability components, respectively.

The extinguishment of these Convertible Notes resulted in a $ 12.9 million loss that is included in other expenses, net, in the accompanying consolidated statement of operations for the year ended December 31, 2020.

Supplemental Balance Sheet Information

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

Year Ended December 31,

As of December 31,

2022 2021 2020

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Balance, end of period $ 33,124 $ 18,577 $ 16,783

Revenue by Geographic Area

Revenue by Geographic Area and Groups of Similar Products

Revenue by geographic area is based on the IP address or the mailing address at the time of registration.

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International 34 % 32 % 27 %

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

____________________

(1) During 2022, the Company identified a misclassification of some of its United States customers for the fourth quarter of 2021, which impacted the reported United States versus international revenue split for the year ended December 31, 2021.

The Company has updated the amounts herein to accurately reflect the revenue split by geographic area.

No other amounts were impacted by this misclassification.

Long-lived assets outside of the United States were $ 54.5 million and $ 41.0 million as of December 31, 2022 and 2021, respectively.

The following table sets forth revenue by groups of similar products:

Year Ended December 31,

2022 2021 2020

Revenue by groups of similar products:

(In thousands)

Communications:

Programmable Messaging $ 2,066,300 $ 1,416,265 $ 820,887

Programmable Voice 474,790 428,484 345,042

Email 333,500 277,400 218,700

Other 376,650 289,131 213,800

Total communications 3,251,240 2,411,280 1,598,429

Software 441,477 325,943 98,363

Other 133,604 104,616 64,984

Total $ 3,826,321 $ 2,841,839 $ 1,761,776

Twilio Communications includes a variety of APIs and software solutions to optimize communications between Twilio customers and their end users.

This is primarily concentrated within the Messaging, Voice and Email communication channels.

Twilio Software applications include Twilio Segment, Twilio Engage, Twilio Flex and Marketing Campaigns.

These products enable businesses to achieve more effective customer engagement by providing the tools necessary for customers to build direct, personalized relationships with their end users.

Other includes other miscellaneous products and services, including enterprise and support plans.

Commitments and Contingencies

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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.

Refer to Note 8 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.

In the year ended December 31, 2022, the Company entered into several such agreements with terms up to four years for a total purchase commitment of $ 936.2 million.

Future minimum payments under these noncancellable purchase commitments are summarized in the table below.

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

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Total payments $ 848,447

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

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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 raised numerous defenses to the assessments including that its services are not telecommunications services, application of the taxes to the Company’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 trial is expected to be held in the summer of 2023.

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.

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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.

The Company’s tax reserves are further discussed in Note 16(d) to 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.

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.

The Company carries reserves for certain of its 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.

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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.

For example, as described in Note 13(b), the Company is currently involved in legal proceedings with the City and County of San Francisco challenging their assessment of the Company’s estimated tax liability for a specific period.

The $ 38.8 million assessment of taxes, including interest and penalties, that the Company paid as required in 2020, net of the $ 11.5 million reserve the Company had accrued for the same period, was recorded as a deposit in other assets in the accompanying consolidated balance sheets.

As of December 31, 2022, the liabilities recorded for the non-income-based taxes were $ 29.1 million for domestic jurisdictions and $ 20.6 million for jurisdictions outside of the United States.

As of December 31, 2021, these liabilities were $ 25.4 million and $ 17.7 million, respectively.

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Preferred Stock

As of December 31, 2021 and 2020, the Company had authorized 100,000,000 shares of preferred stock, par value $ 0.001 , of which no shares were issued and outstanding.

As of December 31, 2021 and 2020, the Company had authorized 1,000,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each par value $ 0.001 per share.

As of December 31, 2022, and December 31, 2021, the Company had authorized 100,000,000 shares of preferred stock, par value $ 0.001 , of which no shares were issued and outstanding.

As of December 31, 2022, and December 31, 2021, the Company had authorized 1,000,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each par value of $ 0.001 per share.

As of December 31, 2022, 176,358,104 shares of Class A common stock and 9,617,605 shares of Class B common stock were issued and outstanding.

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Stock-based awards available for grant under ESPP 7,648,429 6,382,830

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

Total 45,722,653 41,478,804

Public Equity Offerings

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.

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

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

Stock-Based Compensation

2008 Stock Option Plan

The Company maintained a stock plan, the 2008 Stock Option Plan, as amended and restated (the “2008 Plan”), which allowed the Company to grant incentive (“ISO”), non‑statutory (“NSO”) stock options and restricted stock units (“RSU”) to its employees, directors and consultants to participate in the Company’s future performance through stock‑based awards at the discretion of the board of directors.

Under the 2008 Plan, options to purchase the Company’s common stock could not be granted at a price less than fair value in the case of ISOs and NSOs.

Fair value was determined by the board of directors, in good faith, with input from valuation consultants.

On June 22, 2016, the plan was terminated in connection with the Company’s IPO.

Accordingly, no shares are available for future issuance under the 2008 Plan.

The 2008 Plan continues to govern outstanding equity awards granted thereunder.

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

The Company maintained a stock plan, the 2008 Stock Option Plan, as amended and restated (the “2008 Plan”), which allowed the Company to grant incentive (“ISO”) and non‑statutory (“NSO”) stock options and restricted stock units (“RSU”) to its employees, directors and consultants to participate in the Company’s future performance through stock‑based awards at the discretion of the Company’s board of directors.

On June 22, 2016, the 2008 Plan and the Company’s right of refusal for outstanding equity awards granted under this plan were terminated in connection with the Company’s initial public offering (“IPO”), and, accordingly, no shares were available for issuance under this plan since the IPO.

Stock options granted under this plan generally expire 10 years from the date of the grant and as such, this plan continues to govern outstanding equity awards granted thereunder.

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

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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.

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.

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

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

The assumed equity awards continue to vest and are governed by the provisions of their respective plans.

Additionally, the Company assumed shares of SendGrid common stock that were reserved and available for issuance under SendGrid's 2017 Equity Incentive Plan, on an as converted basis.

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.

These shares were utilized for equity grants under the Company’s 2016 Plan in the post-acquisition period, to the extent permitted by New York Stock Exchange rules.

Segment 2013 Stock Incentive Plan

The assumed equity awards continue to vest and are governed by the provisions of the Segment Plan.

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.

In connection with its acquisition of Zipwhip, the Company assumed and replaced all stock options and restricted stock units of the 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 continue to vest and are 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.

For existing employees and, effective in 2022, 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

The Company’s Employee Stock Purchase Plan (“2016 ESPP”), as amended, initially became effective on June 21, 2016.

The Company’s 2016 ESPP initially became effective on June 21, 2016.

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

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On January 1, 2022 and 2021, the shares available for grant under the 2016 ESPP were automatically increased by 1,800,000 shares and 1,640,475 shares, respectively.

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

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

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

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

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

As of December 31, 2022, 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:

Stock-options and restricted stock units and awards activity under the Company’s equity incentive plans was as follows:

Stock Options

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Granted 167,150 85.17

Assumed in acquisition 83,539 49.26

Exercised ( 766,024 ) 29.32

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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.

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.

As of December 31, 2022, total unrecognized compensation cost related to all unvested stock options was $ 50.4 million, which will be amortized on a straight-line basis over a weighted-average period of 1.9 years.

Restricted Stock Units

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Unvested RSUs as of December 31, 2022 15,414,997 $ 130.97 $ 754,718

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

In March 2022, the Company granted 919,289 shares of performance-based restricted stock units (“PSU”) to certain of its executive employees.

These awards, including subsequent forfeitures, if any, are included in the table above.

The PSUs were granted with a grant date fair value per share of $ 157.44 and an aggregate grant date fair value of $ 144.7 million.

The Company estimated the fair value of these awards based on the closing price of its Class A common stock on the date of grant.

Each PSU award consisted of three tranches that vest separately over distinct service periods if its respective performance targets, as defined in the grant agreements, are achieved in the respective period.

The final vesting is determined by the Company’s Compensation Committee subsequent to the completion of the vesting period.

The vesting of the first tranche is based on achievement of revenue growth targets with respect to the year ended December 31, 2022.

The vesting of the second and third tranches is based on both (a) revenue growth targets and (b) profitability targets achievement with respect to each of the years ended 2023 and 2024.

If performance targets are not achieved, the related tranche will be forfeited.

Vesting of these performance-based restricted stock unit awards can range up to 100 % above the target based on levels of performance and is recorded in stock-based compensation expense in the year during which each tranche vests.

As of December 31, 2022, the Company had outstanding 16,547 restricted stock awards (“RSAs”) that were held in escrow subject to vesting.

The aggregate intrinsic value of these awards was not significant.

As of December 31, 2022, total unrecognized compensation cost related to unvested RSUs and RSAs was $ 1.9 billion, which will be amortized over a weighted-average period of 2.9 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.

As of December 31, 2022, the unrecognized compensation cost related to Class A common stock subject to vesting was $ 11.4 million, which will be amortized over a term of 1.5 years.

Valuation Assumptions

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Dividend rate — %

The Company uses the Black-Scholes option pricing model to measure the fair value of its purchase rights issued under the 2016 ESPP:

Year Ended December 31,

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2022 2021 2020

Fair value of common stock $ 50.81 - $ 99.68

$ 297.20 - $ 310.80

$ 183.40 - $ 278.50

Expected term (in years) 0.50 0.50

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0.1 % - 0.2 %

1.6 % - 2.4 %

Dividend rate — %

Stock-Based Compensation Expense

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

The Company recorded stock-based compensation expense as follows:

Year Ended December 31,

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General and administrative 148,194 146,188 76,301

Restructuring costs 14,275 — —

Total $ 798,560 $ 632,285 $ 361,911

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Stock options issued and outstanding 2,277,379 3,351,313 5,625,735

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

Unvested restricted stock units issued and outstanding 15,414,997 6,475,700 7,523,882

Class A common stock reserved for Twilio.org 530,449 618,857 707,265

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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 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 Convertible Notes.

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 $ ( 1,243,632 ) $ ( 960,929 ) $ ( 504,426 )

Benefit for income taxes consists of the following:

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

Year Ended December 31,

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Total ( 12,965 ) ( 19,845 ) ( 18,934 )

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

Provision for (benefit from) income taxes $ 12,513 $ ( 11,029 ) $ ( 13,447 )

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

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2022 2021 2020

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

Tax at federal statutory rate 21 % 21 % 21 %

State tax, net of federal benefit 3 8 12

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Research and development credits 159,604 148,282

Charitable contributions 15,219 8,229

Capped call — 4,475

Debt issuance cost — 230

Depreciable property 3,675 —

Intangibles 135,500 135,500

Capitalized research and development expenses 219,176 —

Lease liability 60,795 71,651

Unrealized losses on marketable securities 32,108 4,602

Other 36,830 28,859

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Acquired intangibles ( 202,778 ) ( 251,034 )

Property and equipment — ( 85 )

Convertible debt — ( 9,495 )

Right-of-use asset ( 35,734 ) ( 64,277 )

Deferred commissions ( 59,675 ) ( 47,897 )

Other — ( 2,876 )

Net deferred tax liability $ ( 3,782 ) $ ( 17,938 )

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

The following table summarizes the Company’s tax carryforwards, carryovers and credits:

December 31, 2022 Expiration Date

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(In thousands)

Federal net operating loss carryforwards $ 320,167 Various dates beginning in 2029

Federal tax credits $ 136,000 Various dates beginning in 2036

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

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

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

At present, the Company does not believe that it is more likely than not that the federal, state and foreign 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 valuation allowance has been established.

The valuation allowance increased by approximately $ 220.5 million and $ 459.0 million during the years ended December 31, 2022 and 2021, respectively.

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Gross increases for tax positions of prior years 3,250 3,496 4,259

Gross decrease for tax positions of prior years ( 10,693 ) ( 931 ) ( 395 )

Gross decreases for tax positions of prior years ( 705 ) ( 10,693 ) ( 931 )

Gross increases for tax positions of current year 4,081 39,394 138,813

Lapse of statute of limitations ( 1,040 ) — —

Unrecognized tax benefit, end of year $ 228,966 $ 223,380 $ 191,183

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As of December 31, 2022, 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.

The Company does not anticipate any significant changes within 12 months of December 31, 2022, in its uncertain tax positions that would be material to its 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.

The Company files U.S.

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As of December 31, 2022, the tax years 2008 through the current period remain open to examination by the major jurisdictions in which the Company is subject to tax.

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

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

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

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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.

valuation allowance.

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

Federal and State net deferred tax assets.

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

valuation allowance.

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

Federal and State net deferred tax assets.

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 provision for and benefit from income taxes recorded in the years ended December 31, 2022 and 2021, respectively, consist 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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deferred tax assets.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the right to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S.

and foreign research and development expenditures to be amortized over 5 and 15 tax years, respectively.

The Company’s provision for income taxes for the year ended December 31, 2022 included $ 7.5 million due to this required capitalization of research and development expenditures.

Subsequent Events

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.

On February 13, 2023, the Company committed to a workforce reduction plan that, in addition to the September Plan, is intended to reduce operating costs, improve operating margins, and accelerate profitability (the “February Plan”).

The February Plan included the elimination of approximately 17 % of the Company’s workforce.

The Company estimates that it will incur approximately $ 100.0 million to $ 135.0 million in charges in connection with the February Plan, consisting of cash expenditures for employee transition, notice period and severance payments, employee benefits and related facilitation costs.

The Company expects that the majority of the restructuring charges related to the February Plan will be incurred in the first quarter of 2023 and that the execution of the February Plan, including cash payments, will be substantially complete by the end of the second quarter of 2023.

Potential position eliminations in each country are subject to local laws and consultation requirements, which may extend this process beyond the second quarter of 2023 in certain countries.

The charges that the Company expects to incur are subject to a number of assumptions, including local law requirements in various jurisdictions, and therefore, actual expenses may differ materially from the estimates disclosed above.

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