Item 1. Financial Statements
Item 1. Financial Statements
TWILIO INC.
Condensed Consolidated Balance Sheets
(Unaudited)
As of September 30, As of December 31,
2023 2022
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 677,917 $ 651,752
Short-term marketable securities 3,179,492 3,503,317
Accounts receivable, net 557,201 547,507
Prepaid expenses and other current assets 326,968 281,510
Total current assets 4,741,578 4,984,086
Property and equipment, net 222,257 263,979
Operating right-of-use assets 79,126 121,341
Equity method investment 623,118 699,911
Intangible assets, net 678,721 849,935
Goodwill 5,243,266 5,284,153
Other long-term assets 269,672 360,899
Total assets $ 11,857,738 $ 12,564,304
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 104,424 $ 124,605
Accrued expenses and other current liabilities 423,812 490,221
Deferred revenue and customer deposits 145,955 139,110
Operating lease liability, current 51,926 54,222
Total current liabilities 726,117 808,158
Operating lease liability, noncurrent 133,881 164,551
Finance lease liability, noncurrent 11,506 21,290
Long-term debt, net 988,555 987,382
Other long-term liabilities 18,298 23,881
Total liabilities 1,878,357 2,005,262
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock — —
Class A and Class B common stock 182 186
Additional paid-in capital 14,610,887 14,055,853
Accumulated other comprehensive loss ( 52,726 ) ( 121,161 )
Accumulated deficit ( 4,578,962 ) ( 3,375,836 )
Total stockholders’ equity 9,979,381 10,559,042
Total liabilities and stockholders’ equity $ 11,857,738 $ 12,564,304
See accompanying notes to condensed consolidated financial statements.
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TWILIO INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
(In thousands, except share and per share amounts)
Revenue $ 1,033,670 $ 983,030 $ 3,077,995 $ 2,801,747
Cost of revenue 517,351 520,955 1,565,231 1,469,312
Gross profit 516,319 462,075 1,512,764 1,332,435
Operating expenses:
Research and development 241,654 284,735 707,145 804,987
Sales and marketing 262,898 328,833 784,383 951,697
General and administrative 114,071 135,331 361,491 392,319
Restructuring costs 3,437 72,451 140,281 72,451
Impairment of long-lived assets 3,162 97,722 34,278 97,722
Total operating expenses 625,222 919,072 2,027,578 2,319,176
Loss from operations ( 108,903 ) ( 456,997 ) ( 514,814 ) ( 986,741 )
Other expenses, net:
Share of losses from equity method investment ( 31,058 ) ( 13,376 ) ( 93,838 ) ( 13,376 )
Impairment of strategic investments — — ( 46,154 ) —
Other income (expenses), net 1 ( 8,374 ) 17,731 ( 23,290 )
Total other expenses, net ( 31,057 ) ( 21,750 ) ( 122,261 ) ( 36,666 )
Loss before provision for income taxes ( 139,960 ) ( 478,747 ) ( 637,075 ) ( 1,023,407 )
Provision for income taxes ( 1,747 ) ( 3,580 ) ( 12,958 ) ( 3,316 )
Net loss attributable to common stockholders $ ( 141,707 ) $ ( 482,327 ) $ ( 650,033 ) $ ( 1,026,723 )
Net loss per share attributable to common stockholders, basic and diluted $ ( 0.78 ) $ ( 2.63 ) $ ( 3.54 ) $ ( 5.63 )
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 181,749,309 183,692,564 183,854,526 182,319,735
See accompanying notes to condensed consolidated financial statements.
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TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
(In thousands)
Net loss $ ( 141,707 ) $ ( 482,327 ) $ ( 650,033 ) $ ( 1,026,723 )
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities 13,921 ( 22,151 ) 53,276 ( 103,999 )
Foreign currency translation 5,018 ( 2,192 ) 5,587 ( 4,646 )
Net change in market value of effective foreign currency
forward exchange contracts ( 8,626 ) ( 19,196 ) ( 7,458 ) ( 34,154 )
Share of other comprehensive (loss) income from equity method
investment ( 2,764 ) ( 4,243 ) 17,030 ( 4,243 )
Total other comprehensive income (loss) 7,549 ( 47,782 ) 68,435 ( 147,042 )
Comprehensive loss attributable to common stockholders $ ( 134,158 ) $ ( 530,109 ) $ ( 581,598 ) $ ( 1,173,765 )
See accompanying notes to condensed consolidated financial statements.
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TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock
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, 2022 176,358,104 $ 174 9,617,605 $ 12 $ 14,055,853 $ ( 121,161 ) $ ( 3,375,836 ) $ 10,559,042
Net loss — — — — — — ( 342,139 ) ( 342,139 )
Exercises of vested stock options 66,968 — 97,199 — 3,264 — — 3,264
Vesting of restricted stock units 1,516,634 2 — — ( 2 ) — — —
Value of equity awards withheld for tax liability ( 36,965 ) — — — ( 2,456 ) — — ( 2,456 )
Conversion of shares of Class B common stock into shares of Class A common stock 97,199 — ( 97,199 ) — — — — —
Shares of Class A common stock issued and donated to charity 22,102 — — — 1,599 — — 1,599
Unrealized gain on marketable securities — — — — — 30,750 — 30,750
Repurchases of shares of Class A common stock including related costs ( 1,902,124 ) ( 2 ) — — — — ( 124,990 ) ( 124,992 )
Foreign currency translation — — — — — 483 — 483
Net change in market value of effective foreign currency forward exchange contracts — — — — — 3,335 — 3,335
Share of other comprehensive income from equity method investment — — — — — 14,648 — 14,648
Stock-based compensation — — — — 164,999 — — 164,999
Stock-based compensation - restructuring — — — — 10,333 — — 10,333
Balance as of March 31, 2023 176,121,918 $ 174 9,617,605 $ 12 $ 14,233,590 $ ( 71,945 ) $ ( 3,842,965 ) $ 10,318,866
Net loss — — — — — — ( 166,187 ) ( 166,187 )
Exercises of vested stock options 33,438 — 30,783 — 1,477 — — 1,477
Vesting of restricted stock units 1,144,112 1 — — ( 1 ) — — —
Value of equity awards withheld for tax liability ( 872 ) — — — ( 53 ) — — ( 53 )
Conversion of shares of Class B common stock into shares of Class A common stock 9,648,388 12 ( 9,648,388 ) ( 12 ) — — — —
Shares issued under ESPP 579,857 — — — 23,337 — — 23,337
Shares of Class A common stock issued and donated to charity 22,102 — — — 1,047 — — 1,047
Unrealized gain on marketable securities — — — — — 8,605 — 8,605
Repurchases of shares of Class A common stock including related costs ( 6,374,327 ) ( 6 ) — — — — ( 373,141 ) ( 373,147 )
Foreign currency translation — — — — — 86 — 86
Net change in market value of effective foreign currency forward exchange contracts — — — — — ( 2,167 ) — ( 2,167 )
Share of other comprehensive income from equity method investment — — — — — 5,146 — 5,146
Stock-based compensation — — — — 159,253 — — 159,253
Stock-based compensation - restructuring — — — — 296 — — 296
Balance as of June 30, 2023 181,174,616 $ 181 — $ — $ 14,418,946 $ ( 60,275 ) $ ( 4,382,293 ) $ 9,976,559
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TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock
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 June 30, 2023 181,174,616 $ 181 — $ — $ 14,418,946 $ ( 60,275 ) $ ( 4,382,293 ) $ 9,976,559
Net loss — — — — — — ( 141,707 ) ( 141,707 )
Exercises of vested stock options 100,000 — — — 871 — — 871
Vesting of restricted stock units 1,669,596 2 — — ( 2 ) — — —
Value of equity awards withheld for tax liability ( 417 ) — — — ( 27 ) — — ( 27 )
Shares of Class A common stock issued and donated to charity
22,102 — — — 1,339 — — 1,339
Unrealized gain on marketable securities
— — — — — 13,921 — 13,921
Repurchases of shares of Class A common stock including related costs ( 899,799 ) ( 1 ) — — — — ( 54,962 ) ( 54,963 )
Foreign currency translation — — — — — 5,018 — 5,018
Net change in market value of effective foreign currency forward exchange contracts — — — — — ( 8,626 ) — ( 8,626 )
Share of other comprehensive loss from equity method investment — — — — — ( 2,764 ) — ( 2,764 )
Stock-based compensation — — — — 189,293 — — 189,293
Stock-based compensation - restructuring — — — — 467 — — 467
Balance as of September 30, 2023 182,066,098 $ 182 — $ — $ 14,610,887 $ ( 52,726 ) $ ( 4,578,962 ) $ 9,979,381
See accompanying notes to condensed consolidated financial statements.
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TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock
Class A Common Stock
Class B Additional Paid-In Capital Accumulated Other Comprehensive Loss 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 — — — — — — ( 221,627 ) ( 221,627 )
Exercises of vested stock options 180,643 — 193,889 — 11,727 — — 11,727
Vesting of restricted stock units 877,089 1 — — ( 1 ) — — —
Value of equity awards withheld for tax liability ( 5,804 ) — — — ( 1,065 ) — — ( 1,065 )
Conversion of shares of Class B common stock into shares of Class A common stock 215,389 — ( 215,389 ) — — — — —
Shares of Class A common stock issued and donated to charity 22,102 — — — 4,232 — — 4,232
Shares returned from escrow ( 152,239 ) — — — ( 387 ) — — ( 387 )
Unrealized loss on marketable securities — — — — — ( 62,826 ) — ( 62,826 )
Foreign currency translation — — — — — ( 165 ) — ( 165 )
Net change in market value of effective foreign currency forward exchange contracts — — — — — ( 3,852 ) — ( 3,852 )
Stock-based compensation — — — — 159,930 — — 159,930
Balance as of March 31, 2022 171,763,174 $ 169 9,820,605 $ 12 $ 13,343,554 $ ( 84,984 ) $ ( 2,341,318 ) $ 10,917,433
Net loss — — — — — — ( 322,769 ) ( 322,769 )
Exercises of vested stock options 98,111 — 77,732 — 5,649 — — 5,649
Vesting of restricted stock units 1,049,640 1 — — ( 1 ) — — —
Value of equity awards withheld for tax liability ( 38 ) — — — ( 4 ) — — ( 4 )
Conversion of shares of Class B common stock into shares of Class A common stock 80,732 — ( 80,732 ) — — — — —
Shares issued under ESPP 258,221 1 — — 24,317 — — 24,318
Shares of Class A common stock issued and donated to charity 22,102 — — — 2,373 — — 2,373
Unrealized loss on marketable securities — — — — — ( 19,022 ) — ( 19,022 )
Foreign currency translation — — — — — ( 2,289 ) — ( 2,289 )
Net change in market value of effective foreign currency forward exchange contracts — — — — — ( 11,106 ) — ( 11,106 )
Stock-based compensation — — — — 247,412 — — 247,412
Balance as of June 30, 2022 173,271,942 $ 171 9,817,605 $ 12 $ 13,623,300 $ ( 117,401 ) $ ( 2,664,087 ) $ 10,841,995
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TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock
Class A Common Stock
Class B Additional Paid-In Capital Accumulated Other Comprehensive Loss
Accumulated Deficit Total Stockholders' Equity
Shares Amount Shares Amount
(In thousands, except share amounts)
Balance as of June 30, 2022 173,271,942 $ 171 9,817,605 $ 12 $ 13,623,300 $ ( 117,401 ) $ ( 2,664,087 ) $ 10,841,995
Net loss — — — — — — ( 482,327 ) ( 482,327 )
Exercises of vested stock options 38,368 — 35,187 — 2,056 — — 2,056
Vesting of restricted stock units 1,115,248 1 — — ( 1 ) — — —
Value of equity awards withheld for tax liability ( 125 ) — — — ( 11 ) — — ( 11 )
Conversion of shares of Class B common stock into shares of Class A common stock 35,187 — ( 35,187 ) — — — — —
Shares of Class A common stock issued and donated to charity
22,102 — — — 1,911 — — 1,911
Unrealized loss on marketable securities — — — — — ( 22,151 ) — ( 22,151 )
Foreign currency translation — — — — — ( 2,192 ) — ( 2,192 )
Net change in market value of effective foreign currency forward exchange contracts — — — — — ( 19,196 ) — ( 19,196 )
Share of other comprehensive loss from equity method investment — — — — — ( 4,243 ) — ( 4,243 )
Stock-based compensation — — — — 199,772 — — 199,772
Stock-based compensation - restructuring — — — — 15,274 — — 15,274
Balance as of September 30, 2022 174,482,722 $ 172 9,817,605 $ 12 $ 13,842,301 $ ( 165,183 ) $ ( 3,146,414 ) $ 10,530,888
See accompanying notes to condensed consolidated financial statements.
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TWILIO INC .
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net loss $ ( 650,033 ) $ ( 1,026,723 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 218,968 207,880
Non-cash reduction to the right-of-use asset 21,815 38,669
Net amortization of investment premium and discount 4,403 27,900
Impairment of long-lived assets due to office closures 34,278 97,722
Stock-based compensation including restructuring 509,367 606,260
Amortization of deferred commissions 54,428 41,322
Unrealized loss on equity securities 9,750 —
Allowance for doubtful accounts 41,454 21,786
Value of shares of Class A common stock issued and donated to charity 3,985 8,516
Share of losses from equity method investment 93,838 13,376
Loss on net assets divested 32,277 —
Impairment of strategic investments 46,154 —
Other adjustments 11,822 3,166
Changes in operating assets and liabilities:
Accounts receivable ( 69,116 ) ( 121,353 )
Prepaid expenses and other current assets ( 56,506 ) ( 81,071 )
Other long-term assets ( 15,367 ) ( 111,662 )
Accounts payable ( 2,578 ) 11,585
Accrued expenses and other current liabilities ( 59,677 ) 122,408
Deferred revenue and customer deposits 6,827 ( 6,206 )
Operating lease liabilities ( 41,446 ) ( 42,158 )
Other long-term liabilities ( 2,436 ) ( 7,330 )
Net cash provided by (used in) operating activities 192,207 ( 195,913 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired and payments related to prior period acquisitions ( 5,770 ) ( 32,853 )
Divestitures, net of cash divested 38,194 —
Purchases of marketable securities and other investments ( 1,391,975 ) ( 1,650,759 )
Proceeds from sales and maturities of marketable securities 1,764,841 1,065,998
Capitalized software development costs ( 30,526 ) ( 35,905 )
Purchases of long-lived and intangible assets ( 9,019 ) ( 28,634 )
Net cash provided by (used in) investing activities 365,745 ( 682,153 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of costs related to public offerings — ( 35 )
Principal payments on debt and finance leases ( 13,763 ) ( 9,383 )
Value of equity awards withheld for tax liabilities ( 2,536 ) ( 1,080 )
Repurchases of shares of Class A common stock and related costs ( 548,871 ) —
Proceeds from exercises of stock options and shares of Class A common stock issued under ESPP 28,949 43,750
Net cash (used in) provided by financing activities ( 536,221 ) 33,252
Effect of exchange rate changes on cash, cash equivalents and restricted cash 108 146
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 21,839 ( 844,668 )
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 656,078 1,481,831
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $ 677,917 $ 637,163
Cash paid for income taxes, net $ 22,916 $ 5,481
Cash paid for interest $ 38,216 $ 37,500
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents $ 677,917 $ 632,794
Restricted cash in other current assets — 4,357
Restricted cash in other long-term assets — 12
Total cash, cash equivalents and restricted cash $ 677,917 $ 637,163
See accompanying notes to condensed consolidated financial statements.
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TWILIO INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. Today's leading companies trust Twilio's Customer Engagement Platform 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.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2023 (“Annual Report”).
The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited financial statements as of that date, but may not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2023 or any future period.
(b) Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
(c) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, revenue allowances and sales credit reserves; recoverability of long-lived and intangible assets; allocation of goodwill to reporting units; impairment assessments of goodwill and indefinite-lived intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments, therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.
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(d) Remaining Performance Obligations
Revenue allocated to remaining performance obligations for contracts with durations of more than one year was $ 128.8 million as of September 30, 2023, of which 68 % is expected to be recognized over the next 12 months and 96 % is expected to be recognized over the next 24 months.
(e) Deferred Revenue and Customer Deposits
As of September 30, 2023, and December 31, 2022, the Company recorded $ 146.0 million and $ 139.1 million as its deferred revenue and customer deposits, respectively, that are included in deferred revenue and customer deposits and other long-term liabilities in the accompanying condensed consolidated balance sheets. During the three months ended September 30, 2023 and 2022, the Company recognized $ 16.7 million and $ 17.5 million of revenue, respectively, that was included in the deferred revenue and customer deposits balances as of the end of the previous year. During the nine months ended September 30, 2023 and 2022, the Company recognized $ 115.3 million and $ 112.2 million of revenue, respectively, that was included in the deferred revenue and customer deposits balances as of the end of the previous year.
(f) Deferred Sales Commissions
Total net capitalized commission costs as of September 30, 2023, and December 31, 2022, were $ 210.1 million and $ 239.1 million, respectively, and are included in prepaid expenses and other current assets and other long‑term assets in the accompanying condensed consolidated balance sheets.
(g) Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, restricted cash, marketable securities and accounts receivable. The Company maintains cash, restricted cash, cash equivalents and marketable securities with financial institutions. Certain balances held by such financial institutions exceed insured limits.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customer deteriorates substantially, operating results could be adversely affected. To reduce credit risk, management performs credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. As of September 30, 2023, and December 31, 2022, the allowance for doubtful accounts was $ 40.3 million and $ 27.0 million, respectively, and is recorded in accounts receivable, net, in the accompanying condensed consolidated balance sheets.
In the three and nine months ended September 30, 2023 and 2022, no customer organization accounted for more than 10% of the Company’s total revenue.
As of September 30, 2023, and December 31, 2022, no customer organization represented more than 10% of the Company’s gross accounts receivable.
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(h) Significant Accounting Policies
Segment Information
The Company determines its operating and reportable segments in accordance with Accounting Standards Codification 280 - Segment Reporting (“ASC 280”), which requires financial information to be reported based on how the chief operating decision maker (“CODM”), who is the Company's Chief Executive Officer, reviews and manages the business, and establishes criteria for aggregating operating segments into reportable segments. Historically, the Company had one operating and reportable segment. As described in Note 8, in the second quarter of 2023, the Company determined that it operated in and, as such, started reporting its results in two reportable segments.
Goodwill
In connection with changes in the segment reporting structure described in Note 8, in the second quarter of 2023, the Company concluded that it had multiple reporting units. Accordingly, the Company reassigned assets and liabilities to the reporting units based on which reporting units’ operations the assets and liabilities were employed in or were related to. The Company reassigned goodwill to each reporting unit using a relative fair value allocation approach.
There have been no other changes to the Company’s significant accounting policies as described in its Annual Report.
(i) Recently Issued Accounting Guidance, Not yet Adopted
In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update No. 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. The guidance will be effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is evaluating the impact of the adoption of this guidance on its consolidated financial statements.
3. Fair Value Measurements
Financial Assets
The following tables provide the financial assets measured at fair value on a recurring basis:
Amortized
Cost or
Carrying
Value Gross
Unrealized
Gains Gross
Unrealized
Losses Less Than 12 Months Gross
Unrealized
Losses More
Than
12 Months Fair Value Hierarchy as of
September 30, 2023 Aggregate
Fair Value
Level 1 Level 2 Level 3
Financial Assets: (In thousands)
Cash and cash equivalents:
Money market funds $ 418,098 $ — $ — $ — $ 418,098 $ — $ — $ 418,098
Commercial paper 23,311 — — — — 23,311 — 23,311
Total included in cash
and cash equivalents 441,409 — — — 418,098 23,311 — 441,409
Marketable securities:
Debt securities:
U.S. Treasury securities 528,950 20 ( 1,060 ) ( 3,999 ) 523,911 — — 523,911
Non-U.S. government securities
115,923 — — ( 2,897 ) 113,026 — — 113,026
Corporate debt securities and commercial paper 2,577,183 134 ( 9,810 ) ( 31,002 ) 16,690 2,519,815 — 2,536,505
Total debt securities 3,222,056 154 ( 10,870 ) ( 37,898 ) 653,627 2,519,815 — 3,173,442
Equity securities 6,050 — — — 6,050 — — 6,050
Total marketable
securities 3,228,106 154 ( 10,870 ) ( 37,898 ) 659,677 2,519,815 — 3,179,492
Total financial assets $ 3,669,515 $ 154 $ ( 10,870 ) $ ( 37,898 ) $ 1,077,775 $ 2,543,126 $ — $ 3,620,901
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Amortized
Cost or
Carrying
Value Gross
Unrealized
Gains Gross
Unrealized
Losses Less Than 12 Months Gross
Unrealized
Losses More
Than
12 Months Fair Value Hierarchy as of
December 31, 2022 Aggregate
Fair Value
Level 1 Level 2 Level 3
Financial Assets: (In thousands)
Cash and cash equivalents:
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 248,859 — — — 46,610 202,249 — 248,859
Marketable securities:
U.S. Treasury securities 481,463 — ( 1,269 ) ( 11,347 ) 468,847 — — 468,847
Non-U.S. government
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
Debt Securities
The aggregate fair value of the corporate debt securities with unrealized losses was $ 2.3 billion as of September 30, 2023, of which $ 1.2 billion were in an unrealized loss position for more than 12 months and $ 1.1 billion were in an unrealized loss position for less than 12 months. The aggregate fair value of corporate debt securities with unrealized losses was $ 2.7 billion as of December 31, 2022, of which $ 2.0 billion were in an unrealized loss position for more than 12 months and $ 620.5 million were in an unrealized loss position for less than 12 months. Unrealized losses related to other investments as of September 30, 2023 and December 31, 2022 were not significant.
The Company’s primary objective when investing excess cash is preservation of capital, hence the Company’s debt securities primarily consist of U.S. Treasury Securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper. Because the Company views its debt securities as available to support current operations, it has classified all available for sale securities as short-term. As of September 30, 2023, and December 31, 2022, for all debt securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of September 30, 2023 and December 31, 2022, the Company anticipates that it will recover the entire amortized cost basis of such debt securities before maturity.
Interest earned on debt securities was $ 19.3 million and $ 53.2 million in the three and nine months ended September 30, 2023, respectively, and $ 16.3 million and $ 47.5 million in the three and nine months ended September 30, 2022, respectively. The interest is recorded as other income (expenses), net, in the accompanying condensed consolidated statements of operations.
The following table summarizes the contractual maturities of debt securities:
As of September 30, As of December 31,
2023 2022
Amortized
Cost Aggregate
Fair Value Amortized
Cost Aggregate
Fair Value
Financial Assets: (In thousands)
Less than one year $ 1,740,368 $ 1,710,876 $ 1,943,836 $ 1,909,218
One to three years 1,481,688 1,462,566 1,661,372 1,594,099
Total $ 3,222,056 $ 3,173,442 $ 3,605,208 $ 3,503,317
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Equity Securities
The equity securities consist of shares of a publicly traded company that were received as consideration in a divestiture transaction described further in Note 5.
Strategic Investments
As of September 30, 2023 and December 31, 2022, the Company held strategic investments with a carrying value of $ 30.7 million and $ 76.9 million, respectively, recorded as other long-term assets in the accompanying condensed 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 or impairment. In the nine months ended September 30, 2023, the Company remeasured to fair value one of its strategic investments acquired in 2021 due to an assessed impairment. The fair value measurement of the strategic investment is classified as Level 2 in the fair value hierarchy and the primary input used in the fair value measurement was the publicly available stock price of the issuer’s unrestricted security of the same class. The impairment loss of $ 46.2 million is recorded in other expenses, net, in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2023. There were no other impairments or adjustments recorded in the three and nine months ended September 30, 2023 and 2022 related to these securities.
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 September 30, 2023 and December 31, 2022, 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 Senior Notes due 2029 (“2029 Notes”) and its Senior Notes due 2031 (“2031 Notes”). As of September 30, 2023, the fair value of the 2029 Notes and 2031 Notes were $ 419.0 million and $ 407.5 million, respectively. As of December 31, 2022, the fair value of the 2029 Notes and 2031 Notes were $ 410.9 million and $ 399.4 million, respectively.
4. Property and Equipment
Property and equipment consisted of the following:
As of September 30, As of December 31,
2023 2022
(In thousands)
Capitalized internal-use software developments costs $ 285,905 $ 257,983
Data center equipment (1)
105,027 100,207
Leasehold improvements 92,491 91,660
Office equipment 61,578 70,815
Furniture and fixtures 14,570 14,935
Software 14,639 14,675
Total property and equipment 574,210 550,275
Less: accumulated depreciation and amortization (1)
( 351,953 ) ( 286,296 )
Total property and equipment, net $ 222,257 $ 263,979
____________________________________
( 1 ) Data center equipment contains $ 72.4 million in assets held under finance leases as of September 30, 2023 and December 31, 2022. Accumulated depreciation and amortization includes $ 52.4 million and $ 41.2 million of accumulated depreciation for assets held under finance leases as of September 30, 2023 and December 31, 2022, respectively.
Depreciation and amortization expense was $ 23.2 million and $ 18.4 million in the three months ended September 30, 2023 and 2022, respectively, and $ 67.5 million and $ 52.5 million in the nine months ended September 30, 2023 and 2022, respectively.
The Company capitalized $ 14.7 million and $ 19.3 million in internal‑use software development costs in the three months ended September 30, 2023 and 2022, respectively, and $ 43.7 million and $ 51.2 million in the nine months ended September 30, 2023 and 2022, respectively.
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5. Divestitures
In July 2023, the Company completed the sale of its ValueFirst business, which operated an enterprise communications platform in India, for a total cash sales price of $ 45.5 million, or $ 38.2 million in proceeds, net of cash divested. As part of the transaction, the Company divested $ 17.4 million of tangible net assets, $ 17.3 million of intangible assets and $ 34.6 million of goodwill. The sale resulted in a loss of $ 28.8 million, which was recorded in the second quarter of 2023 when the assets and the liabilities were classified as held for sale. The loss was recorded within general and administrative expenses in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2023. The Company also recorded an additional $ 3.3 million of divestiture-related expenses in the same period.
Separately, in the second quarter of 2023, the Company sold its Internet of Things (“IoT”) disposal group for stock consideration of $ 15.8 million. The loss on divestiture and related expenses were not significant.
6. Impairment
In February 2023, the Company announced plans to close additional offices during 2023 as part of its previously announced strategy to become a remote-first company. The Company regularly assesses recoverability of all impacted right-of-use (“ROU”) assets and the related leasehold improvements and property and equipment for indicators of impairment. In the three and nine months ended September 30, 2023, the Company recorded a $ 3.2 million and $ 34.3 million impairment, respectively, related to its permanently closed offices. In the three and nine months ended September 30, 2022, the Company recorded a $ 97.7 million impairment in each period related to its permanently closed offices.
No other significant impairments were recorded in the three and nine months ended September 30, 2023 or 2022.
7. Restructuring Activities
In February 2023, the Company announced a workforce reduction plan (the “February 2023 Plan”) that eliminated approximately 17 % of the Company’s workforce. The execution of the February 2023 Plan was substantially complete in the first quarter of 2023. The restructuring charges recorded in the three months ended September 30, 2023 were not significant. The cumulated restructuring charges recorded in the nine months ended September 30, 2023, were $ 140.3 million, which consisted of $ 129.2 million related to employee severance, benefits and facilitation costs, and $ 11.1 million related to vesting of employee stock-based compensation awards. The estimated remaining expenses related to the February 2023 Plan are not expected to be significant.
The following table summarizes the Company’s restructuring liability related to the February 2023 Plan that is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets:
Workforce Reduction Costs Facilitation Costs Total
(In thousands)
Balance as of December 31, 2022 $ — $ — $ —
Restructuring charges 119,562 9,623 129,185
Cash payments ( 107,997 ) ( 9,529 ) ( 117,526 )
Balance as of September 30, 2023 $ 11,565 $ 94 $ 11,659
The remaining restructuring charges related to the restructuring plan effected in September 2022 (the “September 2022 Plan”) that were incurred in 2023, and the remaining liabilities related to the September 2022 Plan as of September 30, 2023 and December 31, 2022, were not significant. In the three and nine months ended September 30, 2022, the Company recorded $ 72.5 million of restructuring charges in its accompanying condensed consolidated statements of operations related to the September 2022 Plan.
8. Reorganization and Segment Reporting
In February 2023, the Company announced a reorganization of its business into two business units, Twilio Communications and Twilio Data & Applications (the “Reorganization”). With the Reorganization, the Company changed the organizational structure of its business, including the way management operates the business.
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The Company’s Chief Executive Officer is its CODM. In the second quarter of 2023, the Company began regularly providing the CODM with discrete financial information for each business unit, as presented below, which required a reevaluation of the Company’s operating and reportable segments in accordance with ASC 280. The Company concluded that as of June 30, 2023, it had two operating and reportable segments: Twilio Communications and Twilio Data & Applications.
Twilio Communications : The Communications segment consists of a variety of application programming interfaces (“APIs”) and software solutions to optimize communications between Twilio customers and their end users. The key products from which the segment derives its revenue are Messaging, Voice and Email.
Twilio Data & Applications : The Data & Applications segment consists of software products that enable businesses to achieve more effective customer engagement by providing the tools necessary for customers to build direct, personalized relationships with their end users. The key products from which the segment derives its revenue are Segment, Engage, Flex and Marketing Campaigns.
Presented below is the discrete financial information by reportable segment for the three and nine months ended September 30, 2023 and 2022, that is regularly reviewed by the CODM for performance assessment and resource allocation decisions. Asset information is not presented below since it is not reviewed by the CODM on a segment by segment basis. Revenue and costs of revenue are generally directly attributable to each segment. Certain costs of revenue are allocated based on methodologies that best reflect the patterns of consumption of these costs. Prior period comparative financial information presented below was restated to conform to the current period presentation.
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In thousands)
Revenue:
Communications $ 906,714 $ 866,193 $ 2,703,079 $ 2,470,350
Data & Applications 126,956 116,837 374,916 331,397
Total $ 1,033,670 $ 983,030 $ 3,077,995 $ 2,801,747
Non-GAAP gross profit:
Communications 451,330 401,236 1,316,541 1,160,683
Data & Applications 101,268 97,897 304,074 279,441
Total $ 552,598 $ 499,133 $ 1,620,615 $ 1,440,124
Reconciliation of non-GAAP gross profit to gross profit:
Total non-GAAP gross profit $ 552,598 $ 499,133 $ 1,620,615 $ 1,440,124
Stock-based compensation ( 7,053 ) ( 6,114 ) ( 18,677 ) ( 14,631 )
Amortization of acquired intangibles ( 29,045 ) ( 30,729 ) ( 88,675 ) ( 92,601 )
Payroll taxes related to stock-based compensation ( 181 ) ( 215 ) ( 499 ) ( 457 )
Gross profit 516,319 462,075 1,512,764 1,332,435
Operating expenses ( 625,222 ) ( 919,072 ) ( 2,027,578 ) ( 2,319,176 )
Other expenses, net ( 31,057 ) ( 21,750 ) ( 122,261 ) ( 36,666 )
Loss before provision for income taxes $ ( 139,960 ) $ ( 478,747 ) $ ( 637,075 ) $ ( 1,023,407 )
Depreciation and amortization expenses included in non-GAAP gross profit for the Communications reportable segment was $ 13.0 million and $ 7.7 million in the three months ended September 30, 2023 and 2022, respectively, and $ 36.1 million and $ 21.4 million in the nine months ended September 30, 2023 and 2022, respectively.
Depreciation and amortization expenses included in non-GAAP gross profit for the Data & Applications reportable segment was $ 3.2 million and $ 1.9 million in the three months ended September 30, 2023 and 2022, respectively, and $ 9.8 million and $ 4.7 million in the nine months ended September 30, 2023 and 2022, respectively.
9. Derivatives and Hedging
As of September 30, 2023, the Company had outstanding foreign currency forward contracts designated as cash flow hedges with a total sell notional value of $ 237.7 million. The notional value represents the amount that will be sold upon maturity of the forward contract. As of September 30, 2023, these contracts had maturities of up to seventeen months .
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Gains and losses associated with these foreign currency forward contracts were as follows:
Condensed Consolidated Statement of Operations and Statement of Comprehensive Loss Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(In thousands)
Losses recognized in OCI Net change in market value of effective foreign currency forward exchange contracts $ ( 8,626 ) $ ( 19,196 ) $ ( 7,458 ) $ ( 34,154 )
(Losses) gains recognized in income due to instruments maturing Cost of revenue $ ( 325 ) $ ( 16,357 ) $ 2,571 $ ( 25,520 )
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 condensed consolidated balance sheets. The Company’s foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. The Company manages its exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring its outstanding positions. As of September 30, 2023, the Company did not have any offsetting arrangements.
10. Goodwill and Intangible Assets
Goodwill
As described in Note 8, in the second quarter of 2023, the Company concluded it had two operating and reportable segments. In connection with the shift from one operating and reportable segment to two operating and reportable segments, the Company reevaluated its reporting unit structure and determined that it had multiple reporting units. As such, during the second quarter of 2023, the Company reallocated goodwill to its newly formed reporting units.
The Company estimates the fair value of its reporting units using a weighting of fair values derived from an income and a market approach. Estimating the fair value by these methods involves the use of a number of key assumptions including forecasted revenues and related growth rates, forecasted operating cash flows, the discount rate, and the selection of relevant market multiples of comparable publicly-traded companies with similar characteristics to the reporting unit. Under the income approach, the Company determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on the Company’s best estimates of forecasted economic and market conditions over the period including growth rates and expected changes in operating cash flows. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of current and forward 12-month revenue or adjusted EBITDA, as applicable, derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.
While these assumptions reflect management’s best estimates of future performance at the time, these estimates are inherently complex and uncertain and the Company’s actual results could differ materially from these estimates.
In connection with the goodwill reallocation, the Company assessed goodwill for impairment immediately before and immediately after the change in the reporting unit structure and related goodwill reallocation. Both assessments concluded that the fair value of the reporting units were above their respective carrying amounts.
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The following table presents the goodwill allocated to the Company’s reportable segments as of September 30, 2023 and December 31, 2022, and the changes during the period:
Twilio
Communications Twilio
Data & Applications Total
(In thousands)
Balance as of December 31, 2022 $ — $ — $ 5,284,153
Foreign currency adjustments 26
Reallocation to segments in the second quarter of 2023 (1)
4,321,130 963,049 —
Foreign currency adjustments 251 — 251
Goodwill divested (2)
( 41,164 ) — ( 41,164 )
Balance as of September 30, 2023 $ 4,280,217 $ 963,049 $ 5,243,266
____________________________________
( 1 ) Represents reallocation of goodwill as a result of changes in segment structure in the second quarter of 2023.
(2) Represents goodwill related to the divestitures of IoT and ValueFirst. See Note 5 for further details.
Intangible assets
Intangible assets consisted of the following:
As of September 30, 2023
Cost Accumulated Amortization Net
Amortizable intangible assets: (In thousands)
Developed technology $ 778,609 $ ( 408,446 ) $ 370,163
Customer relationships 523,074 ( 252,195 ) 270,879
Supplier relationships 49,756 ( 24,046 ) 25,710
Trade names 25,968 ( 22,330 ) 3,638
Order backlog 10,000 ( 10,000 ) —
Patent 3,968 ( 852 ) 3,116
Total amortizable intangible assets 1,391,375 ( 717,869 ) 673,506
Non-amortizable intangible assets:
Telecommunication licenses 4,920 — 4,920
Trademarks and other 295 — 295
Total $ 1,396,590 $ ( 717,869 ) $ 678,721
As of December 31, 2022
Cost Accumulated Amortization Net
Amortizable intangible assets: (In thousands)
Developed technology $ 795,753 $ ( 335,893 ) $ 459,860
Customer relationships 538,466 ( 204,241 ) 334,225
Supplier relationships 56,922 ( 19,846 ) 37,076
Trade names 30,342 ( 20,106 ) 10,236
Order backlog 10,000 ( 10,000 ) —
Patent 4,028 ( 705 ) 3,323
Total amortizable intangible assets 1,435,511 ( 590,791 ) 844,720
Non-amortizable intangible assets:
Telecommunication licenses 4,920 — 4,920
Trademarks and other 295 — 295
Total $ 1,440,726 $ ( 590,791 ) $ 849,935
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Amortization expense was $ 48.9 million and $ 51.7 million for the three months ended September 30, 2023 and 2022, respectively, and $ 150.0 million and $ 155.4 million for the nine months ended September 30, 2023 and 2022, respectively.
Total estimated future amortization expense is as follows:
As of September 30, 2023
Year Ended December 31, (In thousands)
2023 (remaining three months) $ 48,922
2024 191,486
2025 187,912
2026 117,416
2027 69,871
Thereafter 57,899
Total $ 673,506
11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
As of September 30, As of December 31,
2023 2022
(In thousands)
Accrued payroll and related $ 67,660 $ 79,703
Accrued bonus and commission 15,877 35,449
Accrued cost of revenue 158,234 161,455
Sales and other taxes payable 76,975 92,319
ESPP contributions 11,400 8,499
Finance lease liability 8,546 11,871
Restructuring liability 11,659 1,066
Employee sabbatical benefit accrual (1)
8,343 30,683
Accrued other expense 65,118 69,176
Total accrued expenses and other current liabilities $ 423,812 $ 490,221
____________________________________
( 1 ) In February 2023, the Company announced that it will sunset its employee sabbatical program. The accrued liability as of September 30, 2023 represents the accumulated benefit balance for the employees who remain eligible under this program through its termination date.
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12. Long-Term Debt
Long-term debt, net, consisted of the following:
As of September 30, As of December 31,
2023 2022
(In thousands)
2029 Senior Notes
Principal $ 500,000 $ 500,000
Unamortized discount ( 4,458 ) ( 5,001 )
Unamortized issuance costs ( 1,003 ) ( 1,126 )
Net carrying amount 494,539 493,873
2031 Senior Notes
Principal 500,000 500,000
Unamortized discount ( 4,885 ) ( 5,299 )
Unamortized issuance costs ( 1,099 ) ( 1,192 )
Net carrying amount 494,016 493,509
Total long-term debt, net $ 988,555 $ 987,382
As of September 30, 2023, the Company was in compliance with all of its covenants under the related indentures.
13. Revenue by Geographic Area
Revenue by geographic area is based on the IP address or the mailing address at the time of registration. The following table sets forth revenue by geographic area:
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Revenue by geographic area: (In thousands)
United States $ 688,121 $ 650,531 $ 2,042,857 $ 1,837,325
International 345,549 332,499 1,035,138 964,422
Total $ 1,033,670 $ 983,030 $ 3,077,995 $ 2,801,747
Percentage of revenue by geographic area:
United States 67 % 66 % 66 % 66 %
International 33 % 34 % 34 % 34 %
Long-lived assets outside of the United States were $ 43.3 million and $ 54.5 million as of September 30, 2023, and December 31, 2022, respectively.
14. Commitments and Contingencies
(a) Lease and Other Commitments
The Company has entered into various non-cancelable operating lease agreements for its facilities. In the three and nine months ended September 30, 2023, the Company did not enter into any significant new lease agreements.
The Company has non-cancelable contractual commitments with its cloud infrastructure provider, network service providers and other vendors. In the three and nine months ended September 30, 2023, the Company entered into several such agreements with terms up to four years for a total purchase commitment of $ 24.3 million and $ 91.2 million, respectively.
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(b) Legal Matters
In 2020, the City and County of San Francisco (“San Francisco”) assessed the Company for additional Telephone Users Tax (“TUT”) and Access Line Tax on certain of the Company’s services for the years 2009 through 2018. The assessments totaled $ 38.8 million, including interest and penalties. The Company paid the assessments under protest in the third quarter of 2020.
On May 27, 2021, the Company filed a lawsuit against San Francisco in San Francisco Superior Court challenging the assessments. The Company raised numerous defenses to the assessments including that its services are not telecommunications services, application of the taxes to 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 previously set trial date remains vacated, and the parties have finalized a settlement agreement that was approved by San Francisco’s Board of Supervisors on November 7, 2023 and is currently before the Mayor for approval.
In the event the settlement is not formally approved and further litigation is necessary, the Company believes it has strong arguments against the assessments; however, litigation is uncertain and there is no assurance that the Company will prevail in court. Should the Company lose on one or more of its arguments, it could incur additional losses associated with taxes, interest, and penalties that together, in aggregate, could be material. The Company regularly assesses the likelihood of adverse outcomes resulting from tax disputes such as this and examines all open years to determine the necessity and adequacy of any tax reserves. The Company’s tax reserves are further discussed in Note 14(d) of these condensed 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. The Company has received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend the Company, its partners and its customers by determining the scope, enforceability and validity of third‑party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
Legal fees and other costs related to litigation and other legal proceedings are expensed as incurred and are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.
(c) Indemnification Agreements
The Company has signed indemnification agreements with all of its board members and executive officers. The agreements indemnify the board members and executive officers from claims and expenses on actions brought against the individuals separately or jointly with the Company for certain indemnifiable events. Indemnifiable events generally mean any event or occurrence related to the fact that the board member or the executive officer was or is acting in his or her capacity as a board member or an executive officer for the Company or was or is acting or representing the interests of the Company.
In the ordinary course of business and in connection with its financing and business combinations transactions, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to business partners, customers and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties and other liabilities relating to or arising from the Company’s various products, or its acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments. The terms of such obligations may vary.
As of September 30, 2023, and December 31, 2022, no amounts were accrued related to any outstanding indemnification agreements.
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(d) Other Taxes
The Company conducts operations in multiple tax jurisdictions within and outside of the United States. In many of these jurisdictions, non-income-based taxes, such as sales, use, telecommunications and other local taxes are assessed on the Company’s operations. 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.
The Company continues to remain in discussions with certain jurisdictions regarding its prior sales and other taxes that it may owe. In the event any of these jurisdictions disagree with management’s assumptions and analysis, the assessment of the Company’s tax exposure could differ materially from management’s current estimates. For example, as described in Note 14(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 condensed consolidated balance sheets.
As of September 30, 2023, the liabilities recorded for the non-income-based taxes were $ 32.2 million for domestic jurisdictions and $ 19.2 million for jurisdictions outside of the United States. As of December 31, 2022, these liabilities were $ 29.1 million and $ 20.6 million, respectively.
15. Stockholders' Equity
Preferred Stock
As of September 30, 2023, and December 31, 2022, the Company had authorized 100,000,000 shares of preferred stock, par value $ 0.001 , of which no shares were issued and outstanding.
Common Stock
As of September 30, 2023, the Company had authorized 1,000,000,000 shares of Class A common stock and 3,170,181 shares of Class B common stock, each with a par value of $ 0.001 per share. As of December 31, 2022, 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 with a par value of $ 0.001 per share. As of September 30, 2023, 182,066,098 shares of Class A common stock and no shares of Class B common stock were issued and outstanding. 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.
On June 28, 2023, each outstanding share of the Company’s Class B common stock automatically converted (the “Conversion”) into one share of the Company’s Class A common stock pursuant to the terms of the Company’s amended and restated certificate of incorporation. In addition, upon the Conversion, outstanding stock options that were exercisable for shares of Class B common stock prior to the Conversion became exercisable for shares of Class A common stock. The Company filed a Certificate of Retirement with the Secretary of State of the State of Delaware effecting the retirement of all of the shares of its Class B common stock that were issued but not outstanding following the Conversion.
The Company had reserved shares of common stock for issuance as follows:
As of September 30, As of December 31,
2023 2022
Stock options issued and outstanding 1,778,852 2,277,379
Unvested restricted stock units issued and outstanding 20,263,588 15,414,997
Shares of Class A common stock reserved for Twilio.org 464,143 530,449
Stock-based awards available for grant under 2016 Plan 20,480,221 19,851,399
Shares of Class A common stock reserved for issuance pursuant to ESPP 8,868,572 7,648,429
Total 51,855,376 45,722,653
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Share Repurchase Program
In February 2023, the Board of Directors of the Company authorized the repurchase of up to $ 1.0 billion in aggregate value of its outstanding Class A common stock through a share repurchase program. Repurchases under this program can be made through open market, private transactions or other means, in compliance with applicable federal securities laws, and could include repurchases pursuant to Rule 10b5-1 trading plans. The Company has discretion in determining the conditions under which shares may be repurchased from time to time. The program expires on December 31, 2024.
In the three and nine months ended September 30, 2023, the Company repurchased 0.9 million and 9.2 million shares of its Class A common stock, respectively, for an aggregate purchase price of $ 56.0 million and $ 551.0 million, respectively. As of September 30, 2023, approximately $ 449.0 million of the originally authorized amount remained available for future repurchases.
16. Stock-Based Compensation
The Company’s 2016 Stock Option and Incentive Plan (the “2016 Plan”) provides for granting stock options, restricted stock units, restricted stock awards, stock appreciation rights, unrestricted stock awards, performance share awards, dividend equivalent rights and cash-based awards to its employees, directors and consultants. Certain of the Company’s outstanding equity awards were granted under equity incentive plans that are no longer active but continue to govern the outstanding equity awards granted thereunder.
In addition, pursuant to the Company’s 2016 Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of the Company’s Class A common stock at a discount of 15 % through payroll deductions of their eligible compensation. The ESPP provides for separate six-month offering periods beginning in May and November of each year.
As of September 30, 2023, total unrecognized compensation cost related to all outstanding equity awards was as follows:
As of September 30, 2023
Unrecognized Compensation Cost Weighted-average remaining period
(In thousands) (In years)
Unvested stock options $ 18,058 1.6
Unvested restricted stock units and awards 1,678,691 2.9
ESPP 1,296 0.1
Shares of Class A common stock in escrow subject to future vesting 1,114 0.8
Total $ 1,699,159
Stock-Based Compensation Expense
The Company recorded total stock-based compensation expense as follows:
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
(In thousands)
Cost of revenue $ 7,053 $ 6,114 $ 18,677 $ 14,631
Research and development 94,085 90,787 246,754 279,680
Sales and marketing 51,345 58,747 142,343 184,825
General and administrative 32,524 37,973 90,497 111,850
Restructuring costs 467 15,274 11,096 15,274
Total $ 185,474 $ 208,895 $ 509,367 $ 606,260
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17. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented:
Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Net loss attributable to common stockholders (in thousands) $ ( 141,707 ) $ ( 482,327 ) $ ( 650,033 ) $ ( 1,026,723 )
Weighted-average shares used to compute net loss per share attributable to
common stockholders, basic and diluted 181,749,309 183,692,564 183,854,526 182,319,735
Net loss per share attributable to common stockholders, basic and diluted $ ( 0.78 ) $ ( 2.63 ) $ ( 3.54 ) $ ( 5.63 )
The following outstanding shares of common stock equivalents were excluded from the calculation of the diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive:
As of September 30,
2023 2022
Stock options issued and outstanding 1,778,852 2,488,072
Unvested restricted stock units issued and outstanding 20,263,588 14,970,869
Shares of Class A common stock reserved for Twilio.org 464,143 552,551
Shares of Class A common stock committed under ESPP 350,270 191,558
Shares of Class A common stock in escrow 31,503 31,503
Shares of Class A common stock in escrow and restricted stock awards subject to future vesting 3,771 56,237
Total 22,892,127 18,290,790
18. Income Taxes
The Company computes its provision for income taxes for interim periods using an estimated annual effective tax rate based on anticipated annual pretax income or loss. The estimated annual effective tax rate is applied to the Company’s year to date income or loss, and is adjusted for discrete items recorded in the period. The primary difference between the Company’s effective tax rate and the federal statutory rate is the full valuation allowance the Company has established on its federal, state and certain foreign net operating losses and credits. The Company recorded an income tax provision of $ 1.7 million and $ 13.0 million for the three and nine months ended September 30, 2023, respectively, and an income tax provision of $ 3.6 million and $ 3.3 million for the three and nine months ended September 30, 2022, respectively.
The provision for income taxes recorded in the three and nine months ended September 30, 2023, consists primarily of income taxes and withholding taxes, partially offset by an income tax benefit from the release of tax liabilities related to uncertain tax positions for which the statute of limitation had lapsed. The provision for income taxes recorded in the three and nine months ended September 30, 2022 consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business, partially offset by an income tax benefit from the reversal of U.S. deferred tax liabilities related to the acquired intangibles from business combinations.
The Company is subject to taxation in the U.S. and various other state and foreign jurisdictions. Because the Company has net operating loss carryforwards for U.S. federal and state jurisdictions, the statute of limitations is open for all tax years.
19. Related Party Transactions
In May 2022, the Company and Syniverse Corporation (“Syniverse”), an equity method investee, entered into a wholesale agreement pursuant to which Syniverse would process, route and deliver application-to-person messages originating and/or terminating between the Company’s customers and mobile network operators. For the three and nine months ended September 30, 2023, the value of the transactions that occurred between the Company and Syniverse were $ 40.1 million and $ 110.2 million, respectively. The value of the transactions that occurred between the Company and Syniverse were $ 32.1 million for the three months ended September 30, 2022, and $ 54.1 million for the period from the investment closing date in May 2022 through September 30, 2022. These transactions were recorded as cost of revenue in the accompanying condensed consolidated statements of operations.
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Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
• the impact of macroeconomic uncertainties and significant market volatility in the global economy on our customers, partners, employees and business;
• our future financial performance, including expectations regarding our revenue, cost of revenue, gross profit, gross margin and operating expenses, our ability to generate positive cash flow and ability to achieve and sustain profitability on GAAP and non-GAAP bases, and the assumptions underlying such expectations;
• the benefits and efficiencies we expect to derive from recent workforce reductions and other cost-saving initiatives, including reducing our global office footprint and stock-based compensation expense;
• our business unit reorganization, including its expected costs and benefits, related accounting determinations and the shift in our segment reporting structure, and changes to our leadership structure;
• our expectations regarding our Data & Applications business, including new product releases, increased investment and go-to-market focus to capture market share, and increased revenue growth;
• our expectations regarding our Communications business, including anticipated efficiencies and strategy for streamlining the customer experience, including increased focus on self-service capabilities;
• our ability to retain and increase revenue from existing customers and attract new customers, including enterprises and international organizations;
• our ability to maintain reliable service levels for our customers;
• our anticipated investments in sales and marketing, research and development and additional systems and processes to support our growth;
• our ability to compete effectively in an intensely competitive market, including our ability to set optimal prices for our products and adapt and respond effectively to rising costs, rapidly changing technology and evolving customer needs, requirements, and preferences;
• potential harm caused by compromises in security, data and infrastructure, including cybersecurity protections;
• our ability to comply with modified or new industry standards, laws and regulations applying to our business;
• our ability to make progress on our environmental, social and governance (“ESG”) programs, goals and commitments;
• our ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on our platform;
• investments and costs required to prevent, detect and remediate potential cybersecurity threats, incidents and breaches of ours or our customers’ systems or information;
• our ability to optimize our network service provider coverage and connectivity;
• our ability to work closely with email inbox service providers to maintain deliverability rates;
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• the impact and expected results from changes in our relationships with our larger customers;
• our ability to form and expand partnerships with technology partners and consulting partners;
• anticipated technology trends, such as the use of and demand for cloud communications and customer engagement tools;
• our ability to leverage generative artificial intelligence (“AI”) and machine learning (“ML”) and develop and deliver products that incorporate generative AI and ML;
• our ability to successfully enter into new markets and manage our international expansion;
• the sufficiency of our cash and cash equivalents to meet our liquidity needs;
• our expectations regarding our share repurchase program;
• our ability to maintain, protect and enhance our intellectual property;
• our ability to successfully defend litigation brought against us;
• our ability to service the interest on our 3.625% senior notes due 2029 (“2029 Notes”) and on our 3.875% notes due 2031 (“2031 Notes,” and together with the 2029 Notes, the “Notes”), and repay such Notes;
• our customers’ and other platform users’ violation of our policies or other misuse of our platform; and
• our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions, divestitures or investments, and our expectations regarding the impact of the recent divestitures of our Internet of Things (“IoT”) and ValueFirst businesses.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, results of operations and financial condition. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described below in Part II, Item 1A, “Risk Factors,” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
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PART I - FINANCIAL INFORMATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.