Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.
Overview
We enable businesses of all sizes and across numerous industries to revolutionize how they engage their customers. Our leading customer engagement platform is comprised of a suite of flexible software and communications solutions that allow businesses to deliver seamless, trusted and engaging customer experiences at scale. In order to deliver the personalized experiences through digital communication channels that their customers have come to expect, businesses seek a comprehensive view of their customers across multiple digital touchpoints that reveals what their needs are and which communications methods they prefer. Our platform, which combines our highly customizable communications Application Programming Interfaces (“APIs”) with leading customer data management capabilities, allows businesses to break down data silos and build a comprehensive view of customers to create the exact solutions they need to engage their customers at every step of the customer journey through real-time, relevant, personalized communications over the customers’ preferred communication channels.
With our platform, businesses can personalize every transaction with real-time data, build lasting loyalty, reduce customer acquisition costs and increase customer lifetime value. Our customized software products are designed to address specific use cases, including our customer data platform, virtual contact centers, personalized yet scalable marketing campaigns and advanced account security systems. Our leading communications solutions, including our APIs, are highly customizable and enable developers to embed numerous forms of voice, messaging and email interactions into their customer-facing applications. Our platform is designed to support all of the most important ways people communicate through technology and our global infrastructure is capable of supporting virtually any business at scale.
In the three months ended September 30, 2023 and 2022, our revenue was $1.0 billion and $983.0 million, respectively, and our net loss was $141.7 million and $482.3 million, respectively. In the three months ended September 30, 2023 and 2022, our 10 largest Active Customer Accounts generated an aggregate of 10% and 13% of our total revenue, respectively.
Recent Developments
Business Unit Reorganization. In February 2023, we announced the reorganization (the “Reorganization”) of our business into two business units: Twilio Communications (“Communications”) and Twilio Data & Applications (“Data & Applications”). We believe that this strategic realignment will enable us to better execute on the key priorities for each business unit—accelerating growth for Data & Applications and driving efficiencies for Communications—while accounting for each business unit’s unique economic, customer and product needs. These two business units can execute against their respective financial goals with more focus and independence—but they are also highly complementary. Our Data & Applications business benefits from our underlying communications platform and our substantial active customer base. Our success in Data & Applications also drives more intelligence for our Communications products. Together, they address adjacent needs and related problems for our customers.
In connection with the Reorganization, we changed the organizational structure of our business, including the way we operate the business now and in the future. As such, in February 2023, we began making significant realignments to our internal processes and controls to build a financial reporting process within our enterprise reporting system that will enable consistent, comparable and reliable internal reporting on a business unit level. Concurrently, we were also in the process of determining the measure of profitability to be used by management to assess performance of its newly formed business units.
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In the second quarter of 2023, we completed certain of the realignment efforts and began presenting non-GAAP gross profit by business unit to the Chief Operating Decision Maker (“CODM”) to be used to assess performance and make resource allocation decisions. As such, in the second quarter of 2023, our Chief Executive Officer, who is also our CODM, began regularly reviewing discrete financial information for each business unit. This shift in the way management started operating the business required us to reevaluate our operating segment structure under the applicable accounting guidance. We determined that as of the end of the second quarter we 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 our 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.
Refer to Note 8 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on segment reporting.
Share Repurchase Program. In February 2023, our Board of Directors authorized a share repurchase program pursuant to which we may repurchase up to $1.0 billion in aggregate value of our Class A common stock until the program expires on December 31, 2024. 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. We have discretion in determining the conditions under which shares may be repurchased from time to time.
In the nine months ended September 30, 2023, we repurchased $551.0 million in aggregate value, or 9.2 million shares, of our Class A common stock under this program. As of September 30, 2023, approximately $449.0 million of the originally authorized amount remained available for future repurchases.
Workforce Reduction Plan. In February 2023, we announced a workforce restructuring plan (the “February 2023 Plan”) to eliminate approximately 17% of our workforce. The execution of the February 2023 Plan was substantially complete in the first quarter of 2023. In the three months ended September 30, 2023, the restructuring expenses were not significant. In the nine months ended September 30, 2023, the cumulative restructuring expenses incurred under the February 2023 Plan were $140.3 million and were related to employee severance, benefits, vesting of equity awards and facilitation costs. The estimated remaining expenses related to the February 2023 Plan are not expected to be significant. For additional details refer to Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Sabbatical Program. In February 2023, we announced that we will be sunsetting our employee sabbatical program that we introduced effective July 1, 2022. The sabbatical program was intended to provide our tenured employees with a paid leave of four consecutive weeks after every three years of service. Employees who had accumulated more than three years of service as of the program’s effective date became eligible for their benefit immediately. The discontinuation of this program and the reduction in force under our February 2023 Plan resulted in a $12.0 million cumulative one-time decrease to our accrued sabbatical liability in the first quarter of 2023. As of September 30, 2023, the remaining liability of $8.3 million relates to the accumulated benefits for employees who remain eligible under this program until its expiration. As of December 31, 2022, the accrued sabbatical liability was $30.7 million.
Remote-First Company. In 2022, we announced our decision to become a remote-first company allowing our employees the flexibility to work remotely on a permanent basis. As part of our new operating strategy, we permanently closed several of our offices in 2022 and 2023. These office closures resulted in an impairment of several long-lived assets, including our operating lease assets, leasehold improvements and property and equipment. In the three and nine months ended September 30, 2023, we recorded a total impairment loss of $3.2 million and $34.3 million, respectively, related to our permanent office closures.
Impairment of Strategic Investment. In the first quarter of 2023, we recorded a $46.2 million impairment loss associated with one of our investments from 2021 to reduce its carrying amount to fair value.
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Divestiture of IoT Assets. In the second quarter of 2023, we completed the sale of our IoT net assets for a stock consideration of $15.8 million. The loss on divestiture and related expenses recorded in the nine months ended September 30, 2023 were not significant.
Divestiture of ValueFirst Business . In the third quarter of 2023, we completed the sale of our ValueFirst business for a total cash sales price of $45.5 million, or $38.2 million in proceeds, net of cash divested. ValueFirst was our enterprise communications platform in India. In the nine months ended September 30, 2023, we recorded a $28.8 million loss on divestiture and an additional $3.3 million in related expenses. For additional details refer to Note 5 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Macroeconomic and Geopolitical Factors. Our results of operations may be significantly affected by several macroeconomic and geopolitical factors, such as changes in global economic conditions, customer demand and spending, inflation, labor market constraints, uncertainty regarding the impacts of fluctuations in foreign exchange rates, world events, and existing and new domestic and foreign laws and regulations, as well as those factors outlined in Part II, Item 1A, “Risk Factors.”
Key Business Metrics
We review a number of operational and financial metrics, including Active Customer Accounts and Dollar-Based Net Expansion Rate, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
The following table summarizes our year-over-year revenue growth and Dollar-Based Net Expansion Rate for the three months ended September 30, 2023 and 2022, and the number of Active Customer Accounts as of September 30, 2023 and 2022.
Three Months Ended
September 30,
2023 2022
Active Customer Accounts (as of end date of period) 306,000 280,000
Total Revenue (in thousands) $ 1,033,670 $ 983,030
Total Revenue Growth 5 % 33 %
Dollar-Based Net Expansion Rate 101 % 122 %
Active Customer Accounts
We define an Active Customer Account at the end of any period as an individual account, as identified by a unique account identifier, for which we have recognized at least $5 of revenue in the last month of the period. A single organization may constitute multiple unique Active Customer Accounts if it has multiple account identifiers, each of which is treated as a separate Active Customer Account. Active Customer Accounts excludes customer accounts from Zipwhip, Inc. Communications Active Customer Accounts and Data & Applications Active Customer Accounts are calculated using the same methodology, but using only revenue recognized from accounts in the respective segment. Because an individual Active Customer Account may be counted as both a Communications Active Customer Account and a Data & Applications Active Customer Account, the sum of the segment-level Active Customer Accounts may exceed our total company Active Customer Accounts.
We believe that the number of Active Customer Accounts, on an aggregate basis and at the segment level, is an important indicator of the growth of our business, the market acceptance of our platform and future revenue trends. We believe that use of our platform by customers at or above the $5 per month threshold is a stronger indicator of potential future engagement than trial usage of our platform or usage at levels below $5 per month. The number of Active Customer Accounts is rounded down to the nearest thousand . In the three months ended September 30, 2023 and 2022, revenue from Active Customer Accounts represented over 99% of total revenue in each period.
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Dollar‑Based Net Expansion Rate
Our Dollar-Based Net Expansion Rate compares the total revenue from all Active Customer Accounts and customer accounts from Zipwhip, Inc. in a quarter to the same quarter in the prior year. To calculate the Dollar-Based Net Expansion Rate, we first identify the cohort of Active Customer Accounts and customer accounts from Zipwhip, Inc. that were Active Customer Accounts or customer accounts from Zipwhip, Inc. in the same quarter of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. When we calculate Dollar-Based Net Expansion Rate for periods longer than one quarter, we use the average of the applicable quarterly Dollar-Based Net Expansion Rates for each of the quarters in such period. Revenue from acquisitions does not impact the Dollar-Based Net Expansion Rate calculation until the quarter following the one-year anniversary of the applicable acquisition, unless the acquisition closing date is the first day of a quarter. As a result, for the quarter ended September 30, 2023, our Dollar-Based Net Expansion Rate excludes the contributions from acquisitions made after July 1, 2022. Revenue from divestitures does not impact the Dollar-Based Net Expansion Rate calculation beginning in the quarter the divestiture closed, unless the divestiture closing date is the last day of a quarter. As a result, for the quarter ended September 30, 2023, our Dollar-Based Net Expansion Rate excludes the contributions from divestitures made after September 30, 2022. Communications Dollar-Based Net Expansion Rate and Data & Applications Dollar-Based Net Expansion Rate are calculated using the same methodology, but using only revenue attributable to the respective segment and Active Customer Accounts and customer accounts from Zipwhip, Inc. for that respective segment. Revenue from customer accounts from Zipwhip, Inc., which we acquired on July 14, 2021, has been included in our Dollar-Based Net Expansion Rate beginning in the quarter ended December 31, 2022.
We believe that measuring Dollar-Based Net Expansion Rate, on an aggregate basis and at the segment level, provides a more meaningful indication of the performance of our efforts to increase revenue from existing customers. Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing Active Customer Accounts and to increase their use of the platform. An important way in which we have historically tracked performance in this area is by measuring the Dollar-Based Net Expansion Rate for Active Customer Accounts. Our Dollar-Based Net Expansion Rate increases when such Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product. Our Dollar-Based Net Expansion Rate decreases when such Active Customer Accounts cease or reduce their usage of a product or when we lower usage prices on a product. As our customers grow their businesses and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of revenue in a quarterly reporting period) that has created a new Active Customer Account, this new Active Customer Account is tied to, and revenue from this new Active Customer Account is included with, the original Active Customer Account for the purposes of calculating this metric.
Key Components of Statements of Operations
Revenue
Revenue. We recognize revenue from our products on either a usage basis or a subscription basis, depending on the nature of the product and the type of customer contract. Our reportable segments contain products that may follow either revenue recognition model.
The majority of the revenue in our Communications segment is derived from usage‑based fees. These fees are earned when customers access our cloud-based platform. Some examples of our usage-based products are Messaging and Voice. For our Messaging products, we primarily charge fees related to the number of text messages sent or received. For our Voice products, we primarily charge fees for minutes of call duration. In the three months ended September 30, 2023 and 2022, we generated 71% and 73% of our revenue, respectively, from usage‑based fees.
We earn monthly subscription-based fees from various products in both Communications and Data & Applications segments. Some examples of our primarily subscription-based products are Segment, Engage, Flex and Email. For our subscription-based products we recognize revenue evenly over the contract term. When our usage-based Communications products are embedded into our subscription-based products, such as into Flex, we charge for those separately on a usage basis and record the revenue into the reportable segment in which the usage-based product resides.
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Customers gain access to our products and solutions either through an e-commerce self-service sign-up format which requires an upfront prepayment via credit card that is drawn down as they use our products or for our larger customers, including enterprise customers, through a negotiated contract established for at least 12 months that typically contains minimum revenue commitments and may contain more favorable pricing. Customers on such contracts are typically either invoiced monthly in arrears for products used or invoiced in advance at the start of the term.
Amounts that have been charged via credit card or invoiced are recorded in revenue, deferred revenue or customer deposits, depending on whether the revenue recognition criteria have been met. Our deferred revenue and customer deposits liability balance is not a meaningful indicator of our future revenue at any point in time because the number of contracts with our invoiced customers that contain terms requiring any form of prepayment is not significant.
We define U.S. revenue as revenue from customers with IP addresses or mailing addresses at the time of registration in the United States. We define international revenue as revenue from customers with IP addresses or mailing addresses at the time of registration outside of the United States.
Cost of Revenue and Gross Margin
Cost of Revenue . Cost of revenue consists primarily of fees paid to network service providers. Cost of revenue also includes cloud infrastructure fees, direct costs of personnel, such as salaries and stock‑based compensation for our customer support employees, and other non‑personnel costs, such as depreciation and amortization expense related to data centers and hosting equipment, amortization of capitalized internal-use software development costs and acquired intangible assets. Costs of revenue are generally directly attributable to each segment. Certain costs of revenue are allocated to segments based on methodologies that best reflect the patterns of consumptions of these costs.
Our arrangements with network service providers require us to pay fees based on the volume of phone calls initiated or text messages sent, as well as the number of telephone numbers acquired by us to service our customers. Our arrangements with our cloud infrastructure provider require us to pay fees based on our server capacity consumption.
Gross Margin. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin has been and will continue to be affected by a number of factors, including the timing and extent of our investments in our operations; our product mix; our ability to manage our network service provider and cloud infrastructure‑related fees, including A2P SMS fees; the mix of U.S. revenue compared to international revenue; changes in foreign exchange rates; the timing of amortization of capitalized software development costs and acquired intangibles; and the extent to which we periodically choose to adjust prices of our products.
Operating Expenses
The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, sales commissions and bonuses and stock‑based compensation. We also incur other non‑personnel costs related to our general overhead expenses.
Research and Development. Research and development expenses consist primarily of personnel costs, outsourced engineering services, cloud infrastructure fees for staging and development of our products, depreciation, amortization of capitalized internal-use software development costs and an allocation of our general overhead expenses. We capitalize the portion of our software development costs that meets the criteria for capitalization.
We are focusing our research and development investment in the highest impact product areas for our future. We are investing strategically in alignment with our focus on building a trusted, leading customer engagement platform.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, including commissions and bonuses to our sales employees. Sales and marketing expenses also include expenditures related to advertising, marketing, brand awareness activities, costs related to our SIGNAL customer and developer conferences, credit card processing fees, professional services fees, depreciation, amortization of acquired intangible assets and an allocation of our general overhead expenses.
We focus our sales and marketing efforts on generating awareness of our company, platform and products, creating sales leads and establishing and promoting our brand, both domestically and internationally.
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General and Administrative. General and administrative expenses consist primarily of personnel costs for our accounting, finance, legal, human resources and administrative support personnel. General and administrative expenses also include costs related to business acquisitions and dispositions, legal and other professional services fees, certain taxes, depreciation and amortization, charitable contributions and an allocation of our general overhead expenses.
We expect that we will incur costs associated with supporting the growth of our business. We may also incur higher than usual losses related to deterioration of quality of certain financial assets caused by macroeconomic conditions.
Restructuring Costs. Restructuring costs consist primarily of personnel costs, such as employee severance payments, benefits and certain facilitation costs, associated with our workforce reductions, which are described in Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Restructuring costs also include stock-based compensation expense related to vesting of stock-based awards of the impacted employees.
Impairment of Long-Lived Assets. Impairment of long-lived assets consists primarily of impairment charges allocated to the carrying amount of certain operating right-of-use assets and the associated leasehold improvements and property and equipment when the carrying amounts exceed their respective fair values.
Other Expenses, Net
Our other expenses, net consist primarily of our share of losses from our equity method investment; impairment charges and gains and losses related to our strategic investments and marketable securities; and debt-related costs.
Provision for Income Taxes
Our provision for income taxes consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business.
The primary difference between our effective tax rate and the federal statutory rate relates to the valuation allowance the Company established on the federal, state and certain foreign net operating losses and credits.
Non-GAAP Financial Measures
We use the following non‑GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non‑GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period‑to‑period comparisons of results of operations and assists in comparisons with other companies, many of which use similar non‑GAAP financial information to supplement their results of operations reported in accordance with generally accepted accounting principles (“GAAP”). Non‑GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP and may be different from similarly‑titled non‑GAAP measures used by other companies. Whenever we use a non‑GAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with GAAP. The users of our consolidated financial statements are encouraged to review the related GAAP financial measures and the reconciliation of these non‑GAAP financial measures to their most directly comparable GAAP financial measures.
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Non‑GAAP Gross Profit and Non‑GAAP Gross Margin
For the periods presented, we define non‑GAAP gross profit and non‑GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below:
Three Months Ended
September 30,
2023 2022
Reconciliation: (In thousands)
GAAP gross profit $ 516,319 $ 462,075
GAAP gross margin 50 % 47 %
Non-GAAP adjustments:
Stock-based compensation 7,053 6,114
Amortization of acquired intangibles 29,045 30,729
Payroll taxes related to stock-based compensation 181 215
Non-GAAP gross profit $ 552,598 $ 499,133
Non-GAAP gross margin 53 % 51 %
Non‑GAAP Operating Expenses
For the periods presented, we define non‑GAAP operating expenses (including categories of operating expenses) as GAAP operating expenses (and categories of operating expenses) adjusted to exclude, as applicable, certain expenses as presented in the table below:
Three Months Ended
September 30,
2023 2022
Reconciliation: (In thousands)
GAAP operating expenses $ 625,222 $ 919,072
Non-GAAP adjustments:
Stock-based compensation (177,954) (187,507)
Amortization of acquired intangibles (19,827) (20,920)
Acquisition and divestiture related expenses (183) (121)
Payroll taxes related to stock-based compensation (3,156) (4,210)
Charitable contribution (1,339) (1,911)
Restructuring costs (3,437) (72,451)
Impairment of long-lived assets (3,162) (97,722)
Non-GAAP operating expenses $ 416,164 $ 534,230
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Non‑GAAP Income (Loss) from Operations and Non‑GAAP Operating Margin
For the periods presented, we define non‑GAAP income (loss) from operations and non‑GAAP operating margin as GAAP income (loss) from operations and GAAP operating margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below:
Three Months Ended
September 30,
2023 2022
Reconciliation: (In thousands)
GAAP loss from operations $ (108,903) $ (456,997)
GAAP operating margin (11) % (46) %
Non-GAAP adjustments:
Stock-based compensation 185,007 193,621
Amortization of acquired intangibles 48,872 51,649
Acquisition and divestiture related expenses 183 121
Payroll taxes related to stock-based compensation 3,337 4,425
Charitable contribution 1,339 1,911
Restructuring costs 3,437 72,451
Impairment of long-lived assets 3,162 97,722
Non-GAAP income (loss) from operations $ 136,434 $ (35,097)
Non-GAAP operating margin 13 % (4) %
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Results of Operations
The following table sets forth our results of operations for the periods presented. The period-to-period comparisons of our historical results are not indicative of the results that may be expected in the future.
Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
Condensed Consolidated Statements of Operations Data: (In thousands, except share and per share amounts)
Revenue $ 1,033,670 $ 983,030 $ 3,077,995 $ 2,801,747
Cost of revenue (1) (2)
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 (1) (2)
241,654 284,735 707,145 804,987
Sales and marketing (1) (2)
262,898 328,833 784,383 951,697
General and administrative (1) (2)
114,071 135,331 361,491 392,319
Restructuring costs (1)
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
__________________________________
(1) Includes stock-based compensation expense as follows:
Three Months Ended Nine Months Ended
September 30, 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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(2) Includes amortization of acquired intangibles as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
(In thousands)
Cost of revenue $ 29,045 $ 30,729 $ 88,675 $ 92,601
Research and development 420 420 1,260 1,260
Sales and marketing 19,407 20,500 59,901 61,412
General and administrative — — — 7
Total $ 48,872 $ 51,649 $ 149,836 $ 155,280
The following table sets forth our results of operations for each of the periods presented as a percentage of our total revenue:
Three Months Ended Nine Months Ended
September 30, September 30,
2023 2022 2023 2022
Condensed Consolidated Statements of Operations, as a percentage of revenue: **
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 50 53 51 52
Gross profit 50 47 49 48
Operating expenses:
Research and development 23 29 23 29
Sales and marketing 25 33 25 34
General and administrative 11 14 12 14
Restructuring costs * 7 5 3
Impairment of long-lived assets * 10 1 3
Total operating expenses 60 93 66 83
Loss from operations (11) (46) (17) (35)
Other expenses, net
Share of losses from equity method investment (3) (1) (3) *
Impairment of strategic investments — — (1) —
Other income (expenses), net * (1) 1 (1)
Total other expenses, net (3) (2) (4) (1)
Loss before provision for income taxes
(14) (49) (21) (37)
Provision for income taxes
* * — *
Net loss attributable to common stockholders (14 %) (49 %) (21 %) (37 %)
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* Less than 0.5% of revenue.
** Columns may not add up to 100% due to rounding.
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Comparison of the Three Months Ended September 30, 2023 and 2022
Revenue
Three Months Ended
September 30,
2023 2022 Change
(Dollars in thousands)
Twilio Communications $ 906,714 $ 866,193 $ 40,521 5 %
Twilio Data & Applications 126,956 116,837 10,119 9 %
Consolidated total revenue $ 1,033,670 $ 983,030 $ 50,640 5 %
In the three months ended September 30, 2023, Communications revenue increased by $40.5 million, or 5%, compared to the same period last year. This increase was primarily attributable to a 10% increase in the number of Communications Active Customer Accounts from over 264,000 as of September 30, 2022 to over 291,000 as of September 30, 2023, as well as the increased usage of our products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 101%. These increases were offset by a decrease of $28.5 million related to revenue from our ValueFirst and IoT businesses, which we divested during 2023.
In the three months ended September 30, 2023, Data & Applications revenue increased by $10.1 million, or 9%, compared to the same period last year. This increase was primarily attributable to a 6% increase in the number of Data & Applications Active Customer Accounts from over 31,000 as of September 30, 2022 to over 33,000 as of September 30, 2023 1 . Our Data & Applications Dollar‑Based Net Expansion Rate was 96% for the three months ended September 30, 2023 due to higher contraction and customer churn compared to the same period last year.
In the three months ended September 30, 2023, consolidated total revenue increased by $50.6 million, or 5%, compared to the same period last year. This increase was primarily attributable to a 9% increase in the number of Active Customer Accounts from over 280,000 as of September 30, 2022 to over 306,000 as of September 30, 2023, as well as the increased usage of our products by our existing customers, as reflected in our Dollar‑Based Net Expansion Rate of 101%.
In the three months ended September 30, 2023, U.S. revenue and international revenue represented $688.1 million, or 67%, and $345.5 million, or 33%, respectively, of total revenue. In the three months ended September 30, 2022, U.S. revenue and international revenue represented $650.5 million, or 66%, and $332.5 million, or 34%, respectively, of total revenue.
1 In our Quarterly Report on Form 10-Q for the three months ended June 30, 2023 (the “Q2’23 10-Q”), we disclosed that we had over 27,000 Data & Applications Active Customer Accounts as of June 30, 2023, an increase of 4% compared to over 26,000 Data & Applications Active Customer Accounts as of June 30, 2022. Due to an inadvertent exclusion of certain accounts, the number of Data & Applications Active Customer Accounts as of June 30, 2023 and June 30, 2022 was understated. Including the inadvertently excluded accounts, we had over 33,000 Data & Applications Active Customer Accounts as of June 30, 2023, an increase of 6% compared to over 31,000 Data & Applications Active Customer Accounts as of June 30, 2022.
Our consolidated Active Customer Accounts as of June 30, 2023 and June 30, 2022, and our Data & Applications Dollar-Based Net Expansion Rate for the three and six months ended June 30, 2023, in each case as disclosed in our Q2’23 10-Q, were not affected by the above understatement.
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Cost of Revenue and Gross Margin
Three Months Ended
September 30,
2023 2022 Change
(Dollars in thousands)
Twilio Communications
Cost of revenue $ 473,683 $ 485,067 $ (11,384) (2) %
Gross margin 48 % 44 %
Twilio Data & Applications
Cost of revenue 43,668 35,888 $ 7,780 22 %
Gross margin 66 % 69 %
Consolidated total
Cost of revenue $ 517,351 $ 520,955 $ (3,604) (1) %
Gross margin 50 % 47 %
In the three months ended September 30, 2023, Communications cost of revenue decreased by $11.4 million, or 2%, compared to the same period last year. Fluctuations in cost of revenue categories were not significant either individually or in the aggregate.
In the three months ended September 30, 2023, Data & Applications cost of revenue increased by $7.8 million, or 22%, compared to the same period last year. The increase was primarily attributable to a $4.5 million increase in hosting fees, a $1.3 million increase in stock-based compensation, and a $1.2 million increase in amortization of capitalized internal-use software development costs.
In the three months ended September 30, 2023, Communications gross margin percentage increased compared to the same period last year. This increase was primarily driven by a 300 basis point increase due to the network service providers’ costs increasing at a lower rate relative to revenue, net of the impact of hedging instruments, as a result of a higher proportion of revenue being derived from the United States, where margins are higher. The increase was also partially driven by a 70 basis point increase due to the divestiture of our ValueFirst and IoT businesses during the first half of 2023, which historically had lower gross margins than Communications as a whole.
In the three months ended September 30, 2023, Data & Applications gross margin percentage decreased compared to the same period last year. This decrease was primarily driven by a 350 basis point decrease due to an increase in hosting costs, a 110 basis point decrease due to an increase in stock-based compensation, and a 100 basis point decrease due to an increase in amortization of capitalized internal-use software development costs, partially offset by a 9% increase in total revenue, as discussed in the Revenue section above.
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Operating Expenses
Three Months Ended
September 30,
2023 2022 Change
(Dollars in thousands)
Research and development $ 241,654 $ 284,735 $ (43,081) (15) %
Sales and marketing 262,898 328,833 (65,935) (20) %
General and administrative 114,071 135,331 (21,260) (16) %
Restructuring costs 3,437 72,451 (69,014) (95) %
Impairment of long-lived assets 3,162 97,722 (94,560) (97) %
Total operating expenses $ 625,222 $ 919,072 $ (293,850) (32) %
In the three months ended September 30, 2023, research and development expenses decreased by $43.1 million, or 15%, compared to the same period last year. The decrease was primarily attributable to a $46.5 million decrease in total personnel costs compared to the prior period, which was primarily attributable to the restructuring of our workforce in September 2022 and February 2023, which contributed to a 25% decrease in average research and development headcount during the period, and to the sunsetting of our employee sabbatical program in the three months ended March 31, 2023. This decrease was partially offset by increases in other operating expense categories that were not significant either individually or in the aggregate.
In the three months ended September 30, 2023, sales and marketing expenses decreased by $65.9 million, or 20%, compared to the same period last year. The decrease was primarily attributable to a $63.1 million decrease in total personnel costs compared to the prior period, which was primarily attributable to the restructuring of our workforce in September 2022 and February 2023, which contributed to a 31% decrease in average sales and marketing headcount during the period, and to the sunsetting of our employee sabbatical program in the three months ended March 31, 2023. The impacts of other operating expense categories were not significant either individually or in the aggregate.
In the three months ended September 30, 2023, general and administrative expenses decreased by $21.3 million, or 16%, compared to the same period last year. The decrease was primarily attributable to a $21.2 million decrease in total personnel costs compared to the prior period, which was primarily attributable to the restructuring of our workforce in September 2022 and February 2023, which contributed to a 39% decrease in average general and administrative headcount during the period, and to the sunsetting of our employee sabbatical program in the three months ended March 31, 2023. The impacts of other operating expense categories were not significant either individually or in the aggregate.
In the three months ended September 30, 2023, restructuring costs decreased by $69.0 million, or 95%, compared to the same period last year. The decrease is due to costs incurred in the prior period related to the workforce reduction effected during September 2022. For further detail refer to Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
In the three months ended September 30, 2023, impairment of long-lived assets decreased $94.6 million, or 97%, compared to the same period last year. The decrease is due to a larger number of office closures that occurred in the three months ended September 30, 2022, which was the first period in which we incurred such charges. For further detail refer to Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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Segment Results of Operations
Our CODM evaluates the performance of our Communications and Data & Applications segments based on several factors, of which the primary financial measures are total revenue and non-GAAP gross profit, o ur segment profitability measure. The following table presents the non-GAAP gross profit measure for each segment, as presented to our CODM for the three months ended September 30, 2023:
Three Months Ended
September 30,
2023
2022
Change
(Dollars in thousands)
Twilio Communications $ 451,330 $ 401,236 $ 50,094 12 %
Twilio Data & Applications 101,268 97,897 3,371 3 %
Consolidated total non-GAAP gross profit $ 552,598 $ 499,133 $ 53,465 11 %
In the three months ended September 30, 2023, Communications non-GAAP gross profit increased by $50.1 million, or 12%, compared to the same period last year. The increase in Communications non-GAAP gross profit was primarily driven by the same factors impacting Communications revenue and Communications cost of revenue, as described in the Revenue and Cost of Revenue and Gross Margin sections above, adjusted for a $1.8 million net decrease, in aggregate, in stock-based compensation, payroll taxes related to stock-based compensation and amortization of acquired intangibles.
In the three months ended September 30, 2023, Data & Applications non-GAAP gross profit increased by $3.4 million, or 3%, compared to the same period last year. The increase in Data & Applications non-GAAP gross profit was primarily driven by the same factors impacting Data & Applications revenue and Data & Applications cost of revenue, as described in the Revenue and Cost of Revenue and Gross Margin sections above, adjusted for a $1.0 million net increase, in aggregate, in stock-based compensation, payroll taxes related to stock-based compensation and amortization of acquired intangibles.
Comparison of the Nine Months Ended September 30, 2023 and 2022
Revenue
Nine Months Ended
September 30,
2023 2022 Change
(Dollars in thousands)
Twilio Communications $ 2,703,079 $ 2,470,350 $ 232,729 9%
Twilio Data & Applications 374,916 331,397 43,519 13%
Consolidated total revenue $ 3,077,995 $ 2,801,747 $ 276,248 10%
In the nine months ended September 30, 2023, Communications revenue increased by $232.7 million, or 9%, compared to the same period last year. This increase was primarily attributable to a 10% increase in the number of Communications Active Customer Accounts from over 264,000 as of September 30, 2022 to over 291,000 as of September 30, 2023, as well as the increased usage of our products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 103%. These increases were partially offset by a decrease of $29.9 million related to revenue from our ValueFirst and IoT businesses, which we divested during 2023.
In the nine months ended September 30, 2023, Data & Applications revenue increased by $43.5 million, or 13%, compared to the same period last year. This increase was attributable to a 6% increase in the number of Data & Applications Active Customer Accounts from over 31,000 as of September 30, 2022 to over 33,000 as of September 30, 2023 2 . Our Data & Applications Dollar‑Based Net Expansion Rate was 100% for the nine months ended September 30, 2023.
2 In our Q2’23 10-Q, we disclosed that we had over 27,000 Data & Applications Active Customer Accounts as of June 30, 2023, an increase of 4% compared to over 26,000 Data & Applications Active Customer Accounts as of June 30, 2022. Due to an inadvertent exclusion of certain accounts, the number of Data & Applications Active Customer Accounts as of June 30, 2023 and June 30, 2022 was understated. Including the inadvertently excluded accounts, we had over 33,000 Data & Applications Active Customer Accounts as of June 30, 2023, an increase of 6% compared to over 31,000 Data & Applications Active Customer Accounts as of June 30, 2022.
Our consolidated Active Customer Accounts as of June 30, 2023 and June 30, 2022, and our Data & Applications Dollar-Based Net Expansion Rate for the three and six months ended June 30, 2023, in each case as disclosed in our Q2’23 10-Q, were not affected by the above understatement.
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In the nine months ended September 30, 2023, consolidated total revenue increased by $276.2 million, or 10%, compared to the same period last year. This increase was primarily attributable to a 9% increase in the number of Active Customer Accounts from over 280,000 as of September 30, 2022 to over 306,000 as of September 30, 2023, as well as the increased usage of our products by our existing customers, as reflected in our Dollar‑Based Net Expansion Rate of 103%.
In the nine months ended September 30, 2023, U.S. revenue and international revenue represented $2.0 billion, or 66%, and $1.0 billion, or 34%, respectively, of total revenue. In the nine months ended September 30, 2022, U.S. revenue and international revenue represented $1.8 billion, or 66%, and $964.4 million, or 34%, respectively, of total revenue.
Cost of Revenue and Gross Margin
Nine Months Ended
September 30,
2023 2022 Change
(Dollars in thousands)
Twilio Communications
Cost of revenue $ 1,442,536 $ 1,367,852 $ 74,684 5 %
Gross margin 47 % 45 %
Twilio Data & Applications
Cost of revenue 122,695 101,460 $ 21,235 21 %
Gross margin 67 % 69 %
Consolidated total
Cost of revenue $ 1,565,231 $ 1,469,312 $ 95,919 7 %
Gross margin 49 % 48 %
In the nine months ended September 30, 2023, Communications cost of revenue increased by $74.7 million, or 5%, compared to the same period last year. This increase was primarily attributable to a $62.3 million increase in network service providers’ costs, net of the impact of hedging instruments, which support the growth in usage of our products driven by the growth of Communications Active Customer Accounts and the increased usage of our products by our existing customers.
In the nine months ended September 30, 2023, Data & Applications cost of revenue increased by $21.2 million, or 21%, compared to the same period last year. The increase was primarily driven by an $8.1 million increase in hosting fees, a $5.4 million increase in support and professional service fees, and a $4.9 million increase in amortization of capitalized internal-use software development costs.
In the nine months ended September 30, 2023, Communications gross margin percentage increased compared to the same period last year. This increase was primarily driven by a 170 basis point increase due to the network service providers’ costs increasing at a lower rate relative to revenue, net of the impact of hedging instruments. This is due to a higher proportion of revenue being derived from the United States, where margins are higher. The increase was also partially driven by a 30 basis point increase due to the divestiture of our ValueFirst and IoT businesses during the first half of 2023, which historically had lower gross margins than Communications as a whole.
In the nine months ended September 30, 2023, Data & Applications gross margin percentage decreased compared to the same period last year. This decrease was primarily driven by a 220 basis point decrease due to an increase in hosting fees, a 140 basis point decrease due to an increase in support and professional service fees, and a 130 basis point decrease due to an increase in amortization of capitalized internal-use software development costs, partially offset by a 13% increase in total revenue, as discussed in the Revenue section above.
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Operating Expenses
Nine Months Ended
September 30,
2023 2022 Change
(Dollars in thousands)
Research and development $ 707,145 $ 804,987 $ (97,842) (12) %
Sales and marketing 784,383 951,697 (167,314) (18) %
General and administrative 361,491 392,319 (30,828) (8) %
Restructuring costs 140,281 72,451 67,830 94 %
Impairment of long-lived assets 34,278 97,722 (63,444) (65) %
Total operating expenses $ 2,027,578 $ 2,319,176 $ (291,598) (13) %
In the nine months ended September 30, 2023, research and development expenses decreased by $97.8 million, or 12%, compared to the same period last year. The decrease was primarily attributable to a $99.5 million decrease in total personnel costs compared to the prior period, which was primarily attributable to the restructuring of our workforce in September 2022 and February 2023, which contributed to a 10% decrease in average research and development headcount during the period, and to the sunsetting of our employee sabbatical program in the three months ended March 31, 2023.
In the nine months ended September 30, 2023, sales and marketing expenses decreased by $167.3 million, or 18%, compared to the same period last year. The decrease was primarily attributable a $142.6 million decrease in total personnel costs compared to the prior period, which was primarily attributable to the restructuring of our workforce in September 2022 and February 2023, which contributed to a 19% decrease in average sales and marketing headcount during the period, and to the sunsetting of our employee sabbatical program in the three months ended March 31, 2023. The lower sales and marketing expenses were also partially due to a $17.4 million decrease in advertising expenses.
In the nine months ended September 30, 2023, general and administrative expenses decreased by $30.8 million, or 8%, compared to the same period last year. The decrease was primarily attributable to a $59.4 million decrease in total personnel costs compared to the prior period, which was primarily attributable to the restructuring of our workforce in September 2022 and February 2023, which contributed to a 27% decrease in average general and administrative headcount during the period, and to the sunsetting of our employee sabbatical program in the three months ended March 31, 2023. This decrease was partially offset by a $32.3 million loss on divestiture related to the sale of our ValueFirst business and our IoT assets and liabilities. For further detail on the divestitures, refer to Note 5 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
In the nine months ended September 30, 2023, restructuring costs increased by $67.8 million, or 94%, as compared to the same period last year. The increase was primarily a result of our February 2023 Plan, which had a more substantial impact than our September 2022 restructuring plan in the comparable period. For further detail refer to Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
In the nine months ended September 30, 2023, impairment of long-lived assets decreased by $63.4 million, or 65%, as compared to the same period last year. The decrease was primarily driven by a larger number of office closures that occurred in 2022 when our remote-first policy was initially enacted. For further detail refer to Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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Other Expenses, net
Nine Months Ended
September 30,
2023 2022 Change
(Dollars in thousands)
Share of losses from equity method investment $ 93,838 $ 13,376 $ 80,462 602 %
Impairment of strategic investments 46,154 — $ 46,154 100 %
Other (income) expenses, net
(17,731) 23,290 $ (41,021) (176) %
Total other expenses, net $ 122,261 $ 36,666 $ 85,595 233 %
In the nine months ended September 30, 2023, other expenses, net increased by $85.6 million, or 233%, compared to the same period last year. The increase is primarily related to an increase of $80.5 million in our share of losses from our equity method investment.
Segment Results of Operations
The following table presents the results for non-GAAP gross profit for each of our Communications and Data & Applications segments for the nine months ended September 30, 2023:
Nine Months Ended
September 30,
2023
2022
Change
(Dollars in thousands)
Twilio Communications $ 1,316,541 $ 1,160,683 $ 155,858 13 %
Twilio Data & Applications 304,074 279,441 24,633 9 %
Consolidated total non-GAAP gross profit $ 1,620,615 $ 1,440,124 $ 180,491 13 %
In the nine months ended September 30, 2023, Communications non-GAAP gross profit increased by $155.9 million, or 13%, compared to the same period last year. The increase in Communications non-GAAP gross profit was primarily driven by the same factors impacting Communications revenue and cost of revenue in the nine months ending September 30, 2023, as described above, adjusted for a $2.2 million net decrease, in aggregate, in stock-based compensation, payroll taxes related to stock-based compensation and amortization of acquired intangibles.
In the nine months ended September 30, 2023, Data & Applications non-GAAP gross profit increased by $24.6 million, or 9%, compared to the same period last year. The increase in Data & Applications non-GAAP gross profit was primarily driven by the same factors impacting Data & Applications revenue and cost of revenue in the nine months ending September 30, 2023, as described above, adjusted for a $2.3 million net increase, in aggregate, in stock-based compensation, payroll taxes related to stock-based compensation and amortization of acquired intangibles.
Liquidity and Capital Resources
As of September 30, 2023, we had cash and cash equivalents of $677.9 million and short-term marketable securities of $3.2 billion. In any given period, cash and cash equivalents may consist of money market funds, reverse repurchase agreements and commercial paper. Short-term marketable securities consist primarily of U.S. treasury securities, non-U.S. government securities, high credit quality corporate debt securities and commercial paper. The cash and cash equivalents and short-term marketable securities are held for working capital purposes.
Our principal sources of liquidity have been (i) the net proceeds of $979.0 million, $1.4 billion and $1.8 billion, net of underwriting discounts and offering expenses paid by us, from our public equity offerings in June 2019, August 2020 and February 2021, respectively; (ii) the aggregate net proceeds of approximately $984.7 million, after deducting purchaser discounts and debt issuance costs paid by us, from the issuance of our 2029 Notes and 2031 Notes in March 2021 (each, as defined below); (iii) the net proceeds of $228.4 million, after deducting transaction costs paid by us, from settlement of our capped call arrangements in June 2021; and (iv) the payments received from customers using our products.
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Our primary uses of cash include operating costs, such as personnel-related costs, network service provider costs, cloud infrastructure costs, facility-related spending, as well as, from time to time, acquisitions, investments and share repurchases. Our principal contractual and other commitments consist of obligations under our 2029 Notes and 2031 Notes, our operating leases for office space that we occupy, sublease or hold to sublease, and contractual commitments to our cloud infrastructure and network service providers. Refer to Note 12 and Note 14(a) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for discussions of our obligations and commitments related to leases, debt and other purchase obligations.
We may, from time to time, consider acquisitions of, or investments in, complementary businesses, products, services, capital infrastructure or technologies which might affect our liquidity requirements, cause us to secure additional financing or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all.
We believe that our cash, cash equivalents and marketable securities balances, as well as the cash flows generated by our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditure needs, including authorized share repurchases, for the next 12 months and beyond. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part II, Item 1A, “Risk Factors.” We may be required to seek additional equity or debt financing in order to meet these future capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected. Additionally, cash from operations could also be affected by various risks and uncertainties in connection with the impact of an economic downturn or recession, significant market volatility in the global economy, timing and ability to collect payments from our customers and other risks detailed in Part II, Item 1A, “Risk Factors.”
Share Repurchase Program
In February 2023, our Board of Directors authorized a share repurchase program pursuant to which we may repurchase up to $1.0 billion in aggregate value of our Class A common stock. Repurchases under the program will 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. We have 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, we purchased $56.0 million in aggregate value, or 0.9 million shares, and $551.0 million in aggregate value, or 9.2 million shares, respectively, of our Class A common stock on the open market under this program. As of September 30, 2023, approximately $449.0 million of the originally authorized amount remains available for future repurchases.
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2029 Notes and 2031 Notes
In March 2021, we issued and sold $1.0 billion aggregate principal amount of senior notes, consisting of $500.0 million principal amount of 3.625% notes due 2029 (the “2029 Notes”) and $500.0 million principal amount of 3.875% notes due 2031 (the “2031 Notes,” and together with the 2029 Notes, the “Notes”). The Notes are described in detail in Note 13 to our Annual Report on Form 10-K filed with the SEC on February 27, 2023.
Cash Flows
The following table summarizes our cash flows:
Nine Months Ended
September 30,
2023 2022
(In thousands)
Cash provided by (used in) operating activities
$ 192,207 $ (195,913)
Cash provided by (used in) investing activities 365,745 (682,153)
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 Flows from Operating Activities
In the nine months ended September 30, 2023, cash provided by operating activities consisted primarily of our net loss of $650.0 million adjusted for non-cash items, including $509.4 million of stock-based compensation expense which included the impact of our February 2023 Plan, $219.0 million of depreciation and amortization expense, $93.8 million of our share of losses from an equity method investment, $54.4 million of amortization of deferred commissions, $46.2 million of impairment of an investment that we acquired in 2021, $34.3 million of impairment of operating lease assets and other long-lived assets, $32.3 million loss on net assets divested, $21.8 million of non-cash reduction in our operating right-of-use asset, and $240.3 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $125.6 million primarily due to revenue growth, timing of cash receipts and prepayments and certain operating expenses. Accounts payable and other current liabilities decreased $62.3 million primarily driven by a $22.3 million decrease in the sabbatical benefit accrual as a result of lower headcount and sunsetting of the program, and a decrease in personnel-related accruals due to lower headcount. Operating lease liabilities decreased $41.4 million due to payments made against our operating lease obligations. Other long-term assets increased $15.4 million primarily due to an increase in the sales commissions balances related to the growth of our business. The loss on net assets divested, the impairment of operating lease assets and other long lived assets, and the details of the February 2023 Plan are described further in Note 5, Note 6, and Note 7, respectively, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
In the nine months ended September 30, 2022, cash used in operating activities consisted primarily of our net loss of $1.0 billion adjusted for non-cash items, including $606.3 million of stock-based compensation expense, $207.9 million of depreciation and amortization expense, $100.7 million of impairment of operating lease assets and other long-lived assets, $38.7 million of non-cash reduction in our operating right-of-use asset, $41.3 million of amortization of deferred commissions, $27.9 million of net amortization of investment premium and discount, and $235.8 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $202.4 million primarily due to revenue growth, timing of cash receipts and pre-payments of our cloud infrastructure fees and certain operating expenses. Accounts payable and other current liabilities increased $134.0 million primarily due to increases in transaction volumes, the impacts from our September 2022 restructuring plan and the sabbatical employee benefit, which was introduced during 2022. Operating lease liabilities decreased $42.2 million due to payments made against our operating lease obligations. Other long-term assets increased $111.7 million primarily due to an increase in the sales commissions balances related to the growth of our business.
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Cash Flows from Investing Activities
In the nine months ended September 30, 2023, cash provided by investing activities was $365.7 million primarily consisting of $372.9 million of proceeds from sales and maturities of marketable securities, net of purchases of marketable securities and other investments, and $38.2 million of proceeds from divestitures, net of cash divested, partially offset by $30.5 million related to capitalized software development costs and $9.0 million related to purchases of long-lived assets.
In the nine months ended September 30, 2022, cash used in investing activities was $682.2 million primarily consisting of $584.8 million of purchases of marketable securities and other investments, net of maturities and sales, $32.9 million of net cash paid to acquire other businesses, $35.9 million related to capitalized software development costs and $28.6 million related to purchases of long-lived assets.
Cash Flows from Financing Activities
In the nine months ended September 30, 2023, cash used in financing activities was $536.2 million primarily consisting of $548.9 million of cash paid to repurchase 9.2 million shares of our Class A common stock in the open market, including related costs, and $13.8 million in principal payments on debt and finance leases, offset by $28.9 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan.
In the nine months ended September 30, 2022, cash provided by financing activities was $33.3 million primarily consisting of $43.8 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan, offset by $9.4 million in principal payments on debt and finance leases.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
There have been no changes to our critical accounting policies as described in our Annual Report on Form 10-K filed with the SEC on February 27, 2023.
Recent Accounting Pronouncements Not Yet Adopted
Refer to Note 2 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements not yet adopted.
Available Information
Our filings are available to be viewed and downloaded free of charge through our investor relations website after we file them with the SEC. Our filings include our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, our Proxy Statement for our annual meeting of stockholders, Current Reports on Form 8-K and other filings with the SEC. Our investor relations website is located at http://investors.twilio.com. The SEC also maintains a website that contains periodic and current reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. Further corporate governance information, including our corporate governance guidelines and code of business conduct and ethics, is also available on our investor relations website under the heading “Governance.” The contents of our websites are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
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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.