What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-27 compared with 2023-02-27 · 487 added, 391 removed, 928 unchanged (49% of the section changed)

53 unchanged sentences

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

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

For a sample of customer agreements, we compared the pricing reflected in the Company’s revenue IT system to the contractually agreed upon pricing with the customer.

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

3 unchanged sentences

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

Santa Clara, California

San Francisco, California

February 27, 2024

31 unchanged sentences

Class A and Class B common stock, $ 0.001 par value per share

Authorized shares 1,100,000,000 as of December 31, 2022 and 2021;

Issued and outstanding shares 185,975,709 and 180,468,099 as of

December 31, 2022 and 2021

Authorized shares 1,003,170,181 and 1,100,000,000 as of December 31, 2023 and 2022;

Issued and outstanding shares 181,945,771 and 185,975,709 as of December 31, 2023 and 2022

Additional paid-in capital 14,797,723 14,055,853

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

Accumulated other comprehensive income (loss) 619 ( 121,161 )

Accumulated deficit ( 5,065,972 ) ( 3,375,836 )

19 unchanged sentences

Share of losses from equity method investment ( 121,897 ) ( 35,315 ) —

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

Impairment of strategic investments ( 46,154 ) — —

Other income (expenses), net 47,863 ( 3,009 ) ( 45,345 )

Total other expenses, net ( 120,188 ) ( 38,324 ) ( 45,345 )

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

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

Loss before provision for income taxes ( 996,729 ) ( 1,243,632 ) ( 960,929 )

Provision for income taxes ( 18,712 ) ( 12,513 ) 11,029

Net loss attributable to common stockholders $ ( 1,015,441 ) $ ( 1,256,145 ) $ ( 949,900 )

7 unchanged sentences

Net loss $ ( 1,015,441 ) $ ( 1,256,145 ) $ ( 949,900 )

Other comprehensive (loss) income:

Unrealized (loss) gain on marketable securities ( 83,049 ) ( 27,215 ) 3,674

Other comprehensive income (loss):

Unrealized gain (loss) on marketable securities

99,742 ( 83,049 ) ( 27,215 )

Foreign currency translation 5,587 ( 5,587 ) ( 266 )

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

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

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

Net change in market value of effective foreign currency

forward exchange contracts 898 556 294

Share of other comprehensive income (loss) from equity method

15,553 ( 14,940 ) —

Total other comprehensive income (loss) 121,780 ( 103,020 ) ( 27,187 )

Comprehensive loss attributable to common stockholders $ ( 893,661 ) $ ( 1,359,165 ) $ ( 977,087 )

See accompanying notes to consolidated financial statements.

Consolidated Statements of Stockholder's Equity

Consolidated Statements of Stockholders’ Equity

Class A Common Stock

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

Class B Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss)

Accumulated Deficit Total Stockholders' Equity

Shares Amount Shares Amount

1 unchanged sentence

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 — — — — — — ( 1,015,441 ) ( 1,015,441 )

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

Exercises of vested stock options 238,474 — 127,982 — 7,344 — — 7,344

Vesting of restricted stock units 5,939,641 7 — — ( 7 ) — — —

1 unchanged sentence

Conversion of shares of Class B common stock into shares of Class A common stock 9,745,587 12 ( 9,745,587 ) ( 12 ) — — — —

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

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

Shares of Class A common stock issued and donated to charity 88,408 — — — 5,346 — — 5,346

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

Shares of Class A common stock issued in acquisition 9,263,140 9 — — 2,532,347 — — 2,532,356

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

Shares of Class A common stock issued in acquisition subject to future vesting 258,554 — — — — — — —

Unrealized gain on marketable securities

— — — — — 99,742 — 99,742

Repurchases of shares of Class A common stock including

related costs

( 11,292,516 ) ( 11 ) — — — — ( 674,695 ) ( 674,706 )

Foreign currency translation — — — — — 5,587 — 5,587

Shares issued under ESPP 906,728 — — — 36,496 — — 36,496

Net change in market value of effective foreign currency forward exchange contracts — — — — — 898 — 898

Share of other comprehensive loss from equity method investment — — — — — 15,553 — 15,553

Stock-based compensation — — — — 682,241 — — 682,241

Stock-based compensation - restructuring — — — — 13,015 — — 13,015

Balance as of December 31, 2023

181,945,771 $ 182 — $ — $ 14,797,723 $ 619 $ ( 5,065,972 ) $ 9,732,552

See accompanying notes to consolidated financial statements.

Consolidated Statements of Stockholder's Equity

Consolidated Statements of Stockholders’ Equity

Class A Common Stock

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

Class B Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss)

Accumulated Deficit Total Stockholders' Equity

Shares Amount Shares Amount

6 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

Consolidated Statements of Stockholder's Equity

Consolidated Statements of Stockholders’ Equity

Class A Common Stock

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

Class B Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss)

Accumulated Deficit Total Stockholders' Equity

Shares Amount Shares Amount

6 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6 unchanged sentences

Net loss $ ( 1,015,441 ) $ ( 1,256,145 ) $ ( 949,900 )

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

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

Depreciation and amortization 284,413 279,127 258,378

1 unchanged sentence

Net amortization of investment premium and discount ( 44 ) 33,165 36,158

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

Impairment of long-lived assets 320,504 97,722 —

Stock-based compensation including restructuring 675,857 798,560 632,285

Amortization of deferred commissions 72,892 57,913 31,541

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

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

Realized and unrealized losses on equity securities 8,043 — —

Provision for doubtful accounts 51,859 35,012 7,210

Value of shares of Class A common stock issued and donated to charity 5,346 9,541 31,169

Share of losses from equity method investment 121,897 35,315 —

Impairment of strategic investments 46,154 — —

Loss on net assets divested 32,277 — —

Loss on extinguishment of debt — — 28,965

5 unchanged sentences

Accounts payable 12,370 30,336 10,191

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

Accrued expenses and other current liabilities ( 51,816 ) 75,430 127,554

Deferred revenue and customer deposits 5,371 ( 2,688 ) 45,634

1 unchanged sentence

Other long-term liabilities 3,474 ( 9,832 ) ( 2,266 )

Net cash (used in) provided by operating activities ( 254,368 ) ( 58,192 ) 32,654

Net cash provided by (used in) operating activities

414,752 ( 254,368 ) ( 58,192 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions, net of cash acquired and other related payments ( 37,410 ) ( 491,522 ) ( 333,591 )

Acquisitions, net of cash acquired and payments related to prior period acquisitions ( 5,770 ) ( 37,410 ) ( 491,522 )

Divestitures, net of cash divested 38,194 — —

Purchases of marketable securities and other investments ( 1,953,003 ) ( 1,938,337 ) ( 3,523,232 )

2 unchanged sentences

Purchases of long-lived and intangible assets ( 11,310 ) ( 34,421 ) ( 46,048 )

Net cash used in investing activities ( 616,452 ) ( 2,489,996 ) ( 845,855 )

Net cash provided by (used in) investing activities 228,603 ( 616,452 ) ( 2,489,996 )

CASH FLOWS FROM FINANCING ACTIVITIES:

5 unchanged sentences

Value of equity awards withheld for tax liabilities ( 2,565 ) ( 1,098 ) ( 10,388 )

Repurchases of shares of Class A common stock and related costs ( 668,751 ) — —

Proceeds from exercises of stock options and shares of Class A common stock issued under ESPP 43,840 59,563 136,160

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

Net cash (used in) provided by financing activities ( 643,610 ) 45,007 3,096,325

Effect of exchange rate changes on cash, cash equivalents and restricted cash 108 60 ( 191 )

4 unchanged sentences

Cash paid for interest $ 38,389 $ 37,500 $ 20,637

NON-CASH INVESTING AND FINANCING ACTIVITIES:

NON-CASH FINANCING ACTIVITIES:

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

24 unchanged sentences

capitalization and useful life of the Company’s capitalized internal-use software development costs;

fair value of acquired intangible assets and goodwill;

fair values of acquired intangible assets and goodwill;

accruals and contingencies.

4 unchanged sentences

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

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

The Company 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.

If the financial condition or results of operations of any significant customer deteriorate substantially, the Company’s operating results could be adversely affected.

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

14 unchanged sentences

Nature of Products and Services

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

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

The Company recognizes revenue from its products on either a usage basis or a subscription basis, depending on the nature of the product and the type of customer contract.

The Company’s reportable segments may contain products that follow either revenue recognition model.

The majority of the revenue in the Communications segment is derived from usage‑based fees.

These fees are earned when customers access the Company’s cloud-based platform and start using the Company’s products.

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

Some examples of the usage-based products are Messaging and Voice.

For the Messaging products, the fees relate to the number of text messages sent or received.

For the Voice products, the fees primarily relate to minutes of call duration.

In the years ended December 31, 2023, 2022 and 2021, the revenue from usage-based fees represented 71 %, 73 % and 72 % of total revenue, respectively.

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

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

Subscription-based fees are derived from various products in both the Communications and Segment segments.

Subscription-based products include products such as Segment, Engage, Flex, Email and others.

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

In the years ended December 31, 2023, 2022 and 2021, the revenue from non-usage-based fees represented 29 %, 27 %, and 28 % of total revenue, respectively.

When usage-based products are embedded into subscription-based products, the Company charges for each product separately and records the respective revenue into the reportable segment in which each product resides.

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

3 unchanged sentences

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

The Company defines U.S.

revenue as revenue from customers with IP addresses or mailing addresses at the time of registration in the United States.

The Company defines international revenue as revenue from customers with IP addresses or mailing addresses at the time of registration outside of the United States.

Remaining Performance Obligations

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

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

Revenue allocated to remaining performance obligations for contracts with durations of more than one year was $ 154.5 million as of December 31, 2022, of which 66 % is expected to be recognized over the next 12 months and 94 % is expected to be recognized over the next 24 months.

Revenue allocated to remaining performance obligations for contracts with durations of greater than one year was $ 144.0 million as of December 31, 2023, of which 67 % is expected to be recognized over the next 12 months and 93 % is expected to be recognized over the next 24 months.

(f) Deferred Revenue and Customer Deposits

1 unchanged sentence

Customer refundable prepayments are recorded as customer deposits.

As of December 31, 2022 and 2021, the Company recorded $ 139.1 million and $ 141.5 million as its deferred revenue and customer deposits, respectively, that are included in deferred revenue and customer deposits and other long-term liabilities in the accompanying consolidated balance sheets.

As of December 31, 2023 and 2022, the Company recorded $ 144.5 million and $ 139.1 million as its deferred revenue and customer deposits, respectively, that are included in deferred revenue and customer deposits in the accompanying consolidated balance sheets.

During the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 120.5 million, $ 124.9 million and $ 70.1 million of revenue, respectively, that was included in the deferred revenue and customer deposits balance as of the end of the previous year.

7 unchanged sentences

(h) Cost of Revenue

Cost of revenue consists primarily of costs of communications services purchased from network service providers.

Cost of revenue also includes fees to support the Company's cloud infrastructure, direct costs of personnel, such as salaries and stock-based compensation for the customer care and support services employees, and non-personnel costs, such as amortization of capitalized internal-use software development costs and amortization of acquired intangibles.

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.

(i) Research and Development Expense

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

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

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

Research and development expenses are generally directly attributable to each segment.

Certain research and development expenses are allocated to segments based on methodologies that best reflect the patterns of consumptions of these costs.

Certain research and development costs are not allocated to segments because they support company-wide processes and are managed on a company-wide level.

(j) Internal-Use Software Development Costs

10 unchanged sentences

Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

The amortization of costs related to the platform applications is included in cost of revenue, while the amortization of costs related to other software applications developed for internal use is included in operating expenses.

The amortization of costs related to the platform applications is included in cost of revenue, while the amortization of costs related to software applications developed for internal use is included in operating expenses.

(k) Advertising Costs

2 unchanged sentences

(l) Restructuring Costs

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

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

(m) Stock-Based Compensation

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

All stock-based compensation to employees is measured on the grant date based on the fair value of the awards on the date of grant.

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

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

The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options and the purchase rights issued under the Company's 2016 Employee Stock Purchase Plan, as amended (the “ESPP”).

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

Forfeitures are recorded in the period in which they occur.

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

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

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

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

These assumptions include:

6 unchanged sentences

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

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

Beginning in July 2021, the expected volatility was derived from the average of the historical volatilities of the Class A common stock of the Company.

• Risk -free interest rate.

4 unchanged sentences

The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

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

(n) Income Taxes

5 unchanged sentences

The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained.

Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.

Recognized income tax positions are measured at the largest amount that is more than 50% likely of being realized.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

1 unchanged sentence

(o) Foreign Currency

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

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

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

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

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

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

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

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

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

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

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

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

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

dollars at the exchange rate on the balance sheet date.

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

Revenue and expenses are translated at the weighted average exchange rates in effect during the month in which the transactions occur.

Equity transactions are translated using historical exchange rates.

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

(p) Comprehensive Loss

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

(p) Comprehensive Income (Loss)

Comprehensive income (loss) refers to net loss and other revenue, expenses, gains and losses that, under U.S.

GAAP, are recorded as an element of stockholders' equity but are excluded from the calculation of net loss.

(q) Net Loss Per Share Attributable to Common Stockholders

1 unchanged sentence

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

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

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

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

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

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

Shares of Class A common stock are not convertible.

Class A common stock was the only outstanding class of equity securities of the Company as of December 31, 2023.

Each share of Class A common stock is entitled to one vote per share.

Prior to June 28, 2023, the Company also had outstanding equity securities of Class B common stock.

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 certificate of incorporation.

In addition, upon the Conversion, all 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 also has dilutive securities, such as potential or restricted common shares or common stock equivalents, that were excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect was antidilutive in all periods presented.

2 unchanged sentences

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

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

Cash equivalents may consist of cash deposited into money market funds, reverse repurchase agreements and commercial paper.

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

3 unchanged sentences

The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer's ability to pay.

In cases where the Company is aware of circumstances that may impair a specific customer's ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believe will be collected.

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

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

As of December 31, 2023 and 2022, the allowance for doubtful accounts was $ 42.0 million and $ 27.0 million, respectively, and is recorded in accounts receivable, net, in the accompanying consolidated balance sheets.

(t) Costs Related to Public Offerings

8 unchanged sentences

Data center equipment 2 - 4 years

Leasehold improvements 5 years or remaining lease term

Leasehold improvements Shorter of 5 years or the remaining lease term

Office equipment 3 years

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Software 3 years

Assets under financing lease 5 years or remaining lease term

Assets under financing lease Shorter of 5 years or the remaining lease term

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

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

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

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

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

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

Operating lease costs are recognized in operating expenses in the

accompanying consolidated statements of operations on a straight-line basis over the lease term and variable payments are recognized in the period they are incurred.

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

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

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(w) Equity Method Investments

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

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

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

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

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

Equity method investments are originally recorded at cost and are increased or reduced in subsequent periods to reflect the Company’s proportionate share of the investee’s net earnings or losses and other comprehensive income or losses, as those occur.

The Company records the investee losses on a three-month lag and up to the carrying amount of the investment.

Investments are also increased or decreased by contributions made to and distributions received from the investee, basis difference amortization and other-than-temporary impairments, if any.

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

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

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

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

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

Basis differences related to intangible assets with determinable economic lives and liabilities are generally amortized on a straight-line basis over the useful lives of the associated assets and the expected term for the liabilities.

Basis differences related to intangible assets without determinable economic lives are not amortized.

Equity method goodwill is not amortized or tested for impairment.

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

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

(x) Intangible Assets

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

(x) 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 (“CEO”), reviews and manages the business, and establishes criteria for aggregating operating segments into reportable segments.

Prior to 2023, the Company had one operating and reportable segment.

As a result of the restructuring activities in 2023, as described in Note 8, the Company operated in and reported its results in two reportable segments.

(y) Business Combinations

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

Goodwill is measured as the excess of the consideration transferred over the fair value of the net assets acquired on the acquisition date.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement.

The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of the purchase price.

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

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

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

Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill is allocated within the operating segments of the Company to the reporting units.

Prior to 2023, the Company had one reporting unit.

During 2023, as a result of restructuring activities described in Note 8, the Company then had multiple reporting units.

The Company reassigns its assets and liabilities to the reporting units based on which reporting units’ operations the assets and liabilities were employed in or were related to.

Goodwill is reassigned using a relative fair value allocation approach.

The Company has selected November 30 as the date to perform its annual goodwill impairment test.

The goodwill impairment test is performed on a reporting unit level.

In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the respective reporting unit.

If these estimates or their related assumptions change in the future, the Company may be required to record an impairment of goodwill.

The Company has the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

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

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

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

The impairment is limited to the carrying amount of goodwill.

(aa) Intangible Assets

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

Intangible assets with determinable economic lives are carried at cost, less accumulated amortization.

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Domain names Indefinite

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

Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The Company has determined that it operates as one reporting unit and has selected November 30 as the date to perform its annual impairment test.

In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company's business.

If these estimates or their related assumptions change in the future, the Company may be required to record impairment for these assets.

The Company has the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

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

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

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

The impairment is limited to the carrying amount of goodwill.

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

(z) Derivatives and Hedging

(ab) Impairment of Long-Lived Assets

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

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

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

The impairment is allocated to the long-lived assets within the asset group on a pro-rata basis using the relative carrying amounts of the assets.

Values of individual long-lived assets are not reduced in excess of their respective fair values.

In the valuation of an asset or an asset group, management must make assumptions regarding estimated future revenue and cash flows to be derived from the respective asset or asset group, discount rates used and other assumptions.

If these estimates or their related assumptions change in the future, the Company may be required to record impairment of these assets.

(ac) Derivatives and Hedging

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

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

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

The Company uses foreign currency derivative forward contracts, and in the future may also use foreign currency option contacts.

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

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

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

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

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

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

(aa) Impairment of Long-Lived Assets

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

(ab) Business Combinations

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

Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date.

The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of the purchase price.

(ac) Segment Information

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

The Company had no segment managers during the periods presented.

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

(ad) Fair Value of Financial Instruments

(ad) Share Repurchases

The Company elected to record the excess of the repurchase price over the par value of the repurchased shares of its Class A common stock in accumulated deficit, along with the associated transaction costs and excise taxes.

Immediately upon repurchase, the shares are retired and returned to the status of unauthorized and unissued.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law.

The IR Act provides for, among other things, a new U.S.

federal 1% excise tax on certain repurchases of stock by publicly traded U.S.

domestic corporations and certain U.S.

domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.

The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased.

The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase.

However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year.

In addition, certain exceptions apply to the excise tax.

(ae) Fair Value of Financial Instruments

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

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

Unrealized gains and

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

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

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

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

(ae) Recently Adopted Accounting Guidance

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

(“ASU”) 2021-08, “Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, ” which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers.” At the acquisition date, an acquirer should account for the related revenue contracts as if it had originated the contracts.

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

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

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

(af) Recently Issued Accounting Guidance, Not yet Adopted

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

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

(“ASU”) 2022-03, “Fair Value Measurements (Topic 820):

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

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

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

The Company will adopt ASU 2022-03 in the first quarter of 2024 with no material impact to the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ,” which is intended to improve reportable segment disclosures.

The ASU expands segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss.

It also requires disclosure of the amount and description of the composition of other segment items and interim disclosures of a reportable segment's profit or loss and assets.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with retrospective application required.

Early adoption is permitted.

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

In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, ” which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation and modifies other income tax related disclosures.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and may be applied on a prospective basis.

Early adoption is permitted.

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

Fair Value Measurements

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Money market funds $ 408,696 $ — $ — $ — $ 408,696 $ — $ — $ 408,696

Reverse repurchase

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

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

Total included in cash

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Marketable securities:

Debt securities:

Treasury securities 410,665 2,162 ( 7 ) ( 1,665 ) 411,155 — — 411,155

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

government securities

83,576 55 ( 111 ) ( 1,209 ) 82,311 — — 82,311

Corporate debt securities and commercial paper 2,859,071 15,366 ( 10,818 ) ( 5,922 ) 16,690 2,841,007 — 2,857,697

Total debt securities 3,353,312 17,583 ( 10,936 ) ( 8,796 ) 510,156 2,841,007 — 3,351,163

Equity securities 4,901 — — — 4,901 — — 4,901

Total marketable

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Total financial assets $ 3,766,909 $ 17,583 $ ( 10,936 ) $ ( 8,796 ) $ 923,753 $ 2,841,007 $ — $ 3,764,760

Losses Less Than 12 Months Fair Value Hierarchy as of

Losses Less Than 12 Months Gross

12 Months Fair Value Hierarchy as of

December 31, 2022 Aggregate

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

Reverse repurchase agreements 200,000 — — — — 200,000 — 200,000

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

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

Total included in cash

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

Marketable securities:

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

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

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

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

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

Corporate debt securities and

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

Total marketable

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

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

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

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

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

Debt Securities

The aggregate fair value of corporate debt securities with unrealized losses is $ 1.5 billion as of December 31, 2023, of which $ 415.2 million have been in an unrealized loss position for more than 12 months and $ 1.1 billion have been 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 December 31, 2023 and 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 marketable securities as available to support current operations, it has classified all available for sale securities as short-term.

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

In addition, as of December 31, 2022 and 2021, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity.

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 December 31, 2023 and 2022, for all securities that were in

unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis.

In addition, as of December 31, 2023 and 2022, the Company anticipates that it will recover the entire amortized cost basis of such debt securities before maturity.

Interest earned on marketable securities was $ 77.7 million, $ 64.6 million and $ 55.7 million in the years ended December 31, 2023, 2022 and 2021, respectively.

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

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

The following table summarizes the contractual maturities of marketable securities:

As of December 31, 2022 As of December 31, 2021

As of December 31,

Cost Aggregate

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Total $ 3,353,312 $ 3,351,163 $ 3,605,208 $ 3,503,317

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 December 31, 2023 and 2022, the Company held strategic investments with an aggregate carrying value of $ 30.7 million and $ 76.9 million, respectively, recorded as other long-term assets in the accompanying consolidated balance sheets.

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

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

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 year ended December 31, 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 consolidated statement of operations for the year ended December 31, 2023.

There were no other impairments or adjustments recorded in the three years ended December 31, 2023, 2022 and 2021, related to these securities.

Financial Liabilities

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Property and Equipment

Property and equipment consisted of the following:

Property and equipment consist of the following:

As of December 31,

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____________________________________

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

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

( 1 ) Data center equipment includes $ 72.4 million in assets held under finance leases as of December 31, 2023 and 2022.

Accumulated depreciation and amortization includes $ 55.9 million and $ 41.2 million of accumulated depreciation for assets held under finance leases as of December 31, 2023 and 2022, respectively.

Depreciation and amortization expense was $ 89.9 million, $ 71.7 million and $ 59.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company capitalized $ 57.2 million, $ 65.4 million and $ 63.1 million in internal‑use software development costs in the years ended December 31, 2023, 2022 and 2021, respectively.

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

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

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

In July 2023, the Company sold 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 is recorded within general and administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, 2023.

The Company also recorded an additional $ 3.3 million of divestiture-related expenses in the same period.

Separately, in June 2023, the Company sold its Internet of Things (“IoT”) asset group for stock consideration of $ 15.8 million.

The loss on divestiture and related expenses were not significant.

Operating right-of-use assets

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

As part of the new operating strategy, the Company permanently closed several of its offices in 2023 and 2022, which required the Company to reassess its operating right-of-use (“ROU”) assets and the associated leasehold improvements and property and equipment for impairment.

The Company determined that the carrying amounts of these assets exceeded their respective fair values.

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

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

The Company regularly assesses recoverability of all impacted ROU assets and the related long-lived asset categories for indicators of impairment.

In the years ended December 31, 2023 and 2022, the Company recorded $ 34.8 million and $ 97.7 million of impairment, respectively, related to its permanently closed offices.

The impairment is recorded in the impairment of long-lived assets line item in the accompanying consolidated statements of operations for the years ended December 31, 2023 and 2022.

Intangible assets

In the fourth quarter of 2023, the Company identified a change in its Segment reportable segment’s performance which it deemed to be an indicator that the carrying amounts of certain long-lived assets within the segment may not be recoverable.

The Company performed a recoverability assessment and a fair value measurement of the impacted asset group and concluded that the asset group was impaired.

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

The impairment was allocated to the assets within the impacted asset group reducing the respective carrying amounts of the assets as of the December 1, 2023, measurement date, as follows:

Total Impairment Allocation

(In thousands)

Developed technology

Customer relationships

Total impairment

The impairment is recorded within the impairment of long-lived assets line item in the accompanying consolidated statement of operations for the year ended December 31, 2023.

The Company used a relief-from-royalty method to estimate the fair values of the developed technology and the trade name and a distributor method to estimate the fair value of customer relationships.

The trade name intangible asset was not impaired.

No other significant impairments were recorded during the years ended 2023, 2022 or 2021.

Restructuring Activities

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

In February 2023, the Company announced a workforce reduction plan (the “February 2023 Plan”) that was designed to reduce operating costs, improve operating margins and accelerate profitability.

The February 2023 Plan eliminated approximately 17 % of the Company’s workforce.

The execution of the February 2023 Plan was substantially completed in the first quarter of 2023.

For the year ended December 31, 2023, restructuring charges related to the February 2023 Plan were $ 141.1 million, which consisted of $ 130.0 million related to employee severance, benefits and facilitation costs, and $ 11.1 million related to vesting of employee stock based compensation awards.

Furthermore, the restructuring charges consisted of $ 108.9 million related to the Communications reportable segment, $ 9.4 million related to the Segment reportable segment and $ 22.8 million included in corporate costs.

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 consolidated balance sheets:

Workforce Reduction Costs Facilitation Costs Total

(In thousands)

Balance as of December 31, 2022 $ — $ — $ —

Restructuring charges 120,711 9,289 130,000

Cash payments ( 111,852 ) ( 8,895 ) ( 120,747 )

Balance as of December 31, 2023 $ 8,859 $ 394 $ 9,253

The $ 11.1 million expenses related to vesting of the employee stock-based compensation awards is recorded in the additional-paid-in capital in the accompanying consolidated statement of stockholders’ equity.

In December 2023, the Company announced a workforce restructuring plan that was designed to streamline operations and accelerate the Company’s path to profitable growth (the “December 2023 Plan”).

The December 2023 Plan eliminated approximately 5 % of the Company’s workforce.

Restructuring charges related to the December 2023 Plan were not significant.

In September 2022, the Company announced a workforce restructuring plan that was designed to reduce operating costs and improve operating margins (the “September 2022 Plan”).

The September 2022 Plan eliminated approximately 11 % of the Company’s workforce.

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

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

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

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

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

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

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

In the year ended December 31, 2022, related to the September 2022 Plan, the Company recorded $ 76.6 million of restructuring charges, including a $ 14.3 million expense related to vesting of the employee stock-based compensation awards, in its accompanying consolidated statement of operations.

The restructuring charges consisted of $ 67.4 million related to the Communications reportable segment, $ 1.6 million related to the Segment reportable segment and $ 7.6 million included in corporate costs.

The following table summarizes the Company’s restructuring liability related to the September 2022 Plan that is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheet as of December 31, 2022:

Workforce Reduction Costs Facilitation Costs Total

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

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

September 2022 Plan restructuring charges incurred in 2023 were not significant.

No amounts were outstanding as of December 31, 2023 related to this plan.

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 operated the business.

In the second quarter of 2023, the Company concluded that it had two operating and reportable segments:

Twilio Communications (“Communications”) and Twilio Data & Applications (“Data & Applications”).

In the fourth quarter of 2023, the Company further reorganized its business by shifting certain components of the business between its operating segments.

This reorganization did not impact the segment structure of the business.

The impact on the reporting unit structure is described in Note 12.

After the reorganization, the Company’s Data & Applications segment consisted of its Segment and Engage products and, therefore, the reportable segment was renamed from Data & Applications to Twilio Segment (“Segment”).

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 Segment :

The Segment 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 and Engage.

Discrete financial information reviewed by the CODM

In January 2024, the Company’s newly appointed CEO, who is also the CODM, began reviewing segment operating results using non-GAAP income from operations as the measure of segment profitability.

Presented below is the discrete financial information by reportable segment for the years ended December 31, 2023, 2022, and 2021, that reflects management’s current view of the business for performance assessment and resource allocation decisions.

Prior period amounts were reclassified to conform to the current period’s presentation.

Asset information is not presented below since it is not reviewed by the CODM on a segment by segment basis.

Revenue, costs of revenue and operating expenses are generally directly attributable to each segment.

Certain costs of revenue and operating expenses are allocated based on methodologies that best reflect the patterns of consumption of these costs.

Corporate costs consist of costs that support company-wide processes and are managed on the company-wide level, and include costs related to corporate governance and communication, global brand awareness, information security, and certain legal, finance and accounting expenses.

2023 2022 2021

(In thousands)

Communications $ 3,858,693 $ 3,550,087 $ 2,640,874

Segment 295,252 276,234 200,965

Total $ 4,153,945 $ 3,826,321 $ 2,841,839

Non-GAAP income (loss) from operations:

Communications $ 841,990 $ 318,680 $ 276,496

Segment ( 72,430 ) ( 29,695 ) ( 13,006 )

Corporate costs

( 236,552 ) ( 293,475 ) ( 260,970 )

Total $ 533,008 $ ( 4,490 ) $ 2,520

Reconciliation of non-GAAP income (loss) from operations to loss from operations:

Total non-GAAP income (loss) from operations

$ 533,008 $ ( 4,490 ) $ 2,520

Stock-based compensation ( 662,842 ) ( 784,285 ) ( 632,285 )

Amortization of acquired intangibles ( 192,307 ) ( 206,181 ) ( 198,784 )

Acquisition and divestiture related expenses

( 5,555 ) ( 2,621 ) ( 7,449 )

Loss on net assets divested

( 32,277 ) — —

Payroll taxes related to stock-based compensation

( 12,985 ) ( 23,832 ) ( 48,417 )

Charitable contributions

( 17,346 ) ( 9,541 ) ( 31,169 )

Restructuring costs

( 165,733 ) ( 76,636 ) —

Impairment of long-lived assets

( 320,504 ) ( 97,722 ) —

Loss from operations

( 876,541 ) ( 1,205,308 ) ( 915,584 )

Other expenses (income), net ( 120,188 ) ( 38,324 ) ( 45,345 )

Loss before (provision for) benefit from income taxes

$ ( 996,729 ) $ ( 1,243,632 ) $ ( 960,929 )

Depreciation and amortization expenses included in non-GAAP income from operations for the Communications reportable segment was $ 74.1 million, $ 61.9 million and $ 53.5 million in the years ended December 31, 2023, 2022 and 2021, respectively.

Amortization of deferred commissions included in non-GAAP income from operations for the Communications reportable segment was $ 60.0 million, $ 47.7 million and $ 27.8 million in the years ended December 31, 2023, 2022 and 2021, respectively.

Depreciation and amortization expenses included in non-GAAP loss from operations for the Segment reportable segment was $ 13.7 million, $ 6.1 million and $ 2.6 million in the years ended December 31, 2023, 2022 and 2021, respectively.

Amortization of deferred commissions included in non-GAAP loss from operations for the Segment reportable segment was $ 12.9 million, $ 10.3 million and $ 3.7 million in the years ended December 31, 2023, 2022 and 2021, respectively.

Derivatives and Hedging

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

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

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

Consolidated Statement of Operations and Statement of Comprehensive Loss Year Ended

As of December 31, 2023, these contracts had maturities of up to 1.4 years.

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

Condensed Consolidated Statement of Operations and Statement of Comprehensive Loss Year Ended

2023 2022 2021

(In thousands)

Gains recognized in OCI Net change in market value of effective foreign currency forward exchange contracts $ 556 $ 294

Losses recognized in income due to instruments maturing Cost of revenue $ 34,862 $ 7,545

Gains recognized in OCI

Net change in market value of effective foreign currency forward exchange contracts $ 898 $ 556 $ 294

Gains (losses) recognized in income due to instruments maturing

Cost of revenue $ 2,099 $ ( 34,862 ) $ ( 7,545 )

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

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

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

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

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

As of December 31, 2023, the Company had various leased properties with remaining lease terms from 0.3 years to 5.8 years, some of which include options to extend the leases for up to 4.0 years.

As a result of the office closures described in Note 6, the Company impaired several of its ROU assets related to office leases that will no longer be used to support its ongoing operations.

In the years ended December 31, 2023 and 2022, the Company recorded $ 34.8 million and $ 97.7 million impairment expense, respectively, related to these office closures, of which $ 24.8 million and $ 72.8 million, respectively, related to the affected ROU assets.

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

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

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

Year Ended December 31,

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

Operating cash flows paid for amounts included in operating lease liabilities (in thousands) $ 65,494 $ 64,473

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Weighted average discount rate 4.5 % 4.5 %

Maturities of operating lease liabilities were as follows:

Maturities of operating lease liabilities are as follows:

As of December 31, 2023

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Long-term operating lease obligations $ 120,770

Business Combinations

2022 Acquisitions

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

2021 Acquisitions

Zipwhip, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

These awards continue vesting as Zipwhip employees provide services in the post-acquisition period.

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

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

(In thousands)

Fair value of Class A common stock transferred $ 419,197

Cash consideration 418,073

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

Total purchase price $ 838,781

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

(In thousands)

Cash and cash equivalents $ 21,610

Accounts receivable and other current assets 11,481

Property and equipment, net 2,950

Operating right-of-use asset 23,545

Intangible assets (1)

Other assets 370

Goodwill 600,574

Accounts payable and other liabilities ( 20,239 )

Deferred revenue ( 4,526 )

Operating lease liability, noncurrent ( 23,169 )

Deferred tax liability ( 18,315 )

Total purchase price $ 838,781

____________________________________

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

Total Estimated

(In thousands) (In years)

Developed technology $ 56,800 7

Customer relationships 147,700 10

Supplier relationships 39,600 5

Trade names 400 5

Total intangible assets acquired $ 244,500

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

Goodwill is not deductible for tax purposes.

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

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

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

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

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

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

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

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

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

Costs incurred related to the acquisition were not significant.

Other 2021 Acquisitions

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

Equity Method Investment

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The equity method goodwill was estimated at $ 623.8 million.

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

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

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As of December 31, 2023, the Company’s net excess investment basis was $ 451.6 million related to its proportionate share of the identifiable intangible assets of the investee, $ 41.2 million related to the associated deferred tax liability and $ 623.8 million related to the equity method goodwill.

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

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

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

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

As of December 31, 2022, the Company held 44.5 % equity interests in Syniverse and the carrying amount of its equity method investment recorded in the accompanying consolidated balance sheet was $ 699.9 million.

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

In the years ended December 31, 2023 and 2022, the Company recorded its proportionate share of the investee's net operating results and the amortization of the basis difference of $ 121.9 million and $ 35.3 million, respectively, as part of other expenses, net in the accompanying consolidated statements of operations.

The Company also recorded $ 15.6 million of its proportionate share of the investee’s other comprehensive income for the year ended December 31, 2023 and $ 14.9 million of its proportionate share of the investee’s other comprehensive loss for the year ended December 31, 2022 in the accompanying

consolidated statements of other comprehensive income (loss).

Results of operations and other comprehensive income (loss) were recorded on a 90-day lag.

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

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

The values of the transactions that occurred between the Company and Syniverse were $ 143.7 million for the year ended December 31, 2023 and $ 89.6 million for the period from the investment closing date on May 13, 2022 through December 31, 2022.

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

Goodwill and Intangible Assets

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

The business reorganization activities described in Note 8 impacted the Company’s reporting unit structure and, as a result, in 2023 the Company had multiple reporting units.

These changes required the Company to reallocate goodwill to its newly formed reporting units and test the goodwill for impairment on the reporting unit level immediately before and immediately after each reorganization.

The Company engaged a third-party expert to assist in the valuation analysis.

The Company concluded that its goodwill was not impaired immediately before and immediately after the reorganizations.

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 various assumptions that the Company believes are reasonable under then current circumstances.

Under the income approach, the Company determines the fair value of a reporting unit based on the present value of estimated future cash flows using the cash flow projections prepared by management.

The market approach estimates the fair value based on market multiples of 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.

The following table presents the goodwill allocated to the Company’s reportable segments as of December 31, 2023 and 2022, and the changes during the period:

Communications Twilio

Segment Total

(In thousands)

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

Goodwill additions related to 2022 acquisitions 25,748

Measurement period and other adjustments ( 4,761 )

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 )

Reallocation to segments in the fourth quarter of 2023 (1)

656,964 ( 656,964 ) —

Balance as of December 31, 2023

$ 4,937,181 $ 306,085 $ 5,243,266

____________________________________

( 1 ) Represents reallocation of goodwill as a result of the reorganization activities, as described in Note 8.

(2) Represents goodwill related to the divestitures of the ValueFirst business and IoT asset group, as described in Note 5.

Intangible assets

Intangible assets consisted of the following:

Intangible assets consist of the following:

As of December 31, 2023

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Developed technology *

$ 397,473 $ ( 259,635 ) $ 137,838

Customer relationships **

349,074 ( 170,511 ) 178,563

Supplier relationships 49,756 ( 26,316 ) 23,440

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Total $ 841,454 $ ( 490,964 ) $ 350,490

____________________________________

* As a result of the impairment described in Note 6, the developed technology cost basis and the related accumulated amortization decreased by $ 381.1 million and $ 171.8 million, respectively.

** As a result of the impairment described in Note 6, the customer relationship cost basis and the related accumulated amortization decreased by $ 174.0 million and $ 97.6 million, respectively.

As of December 31, 2022

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Amortization expense was $ 192.5 million, $ 206.4 million and $ 198.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.

In the year ended December 31, 2023, the Company recorded an impairment charge related to certain of its intangible assets, as described in Note 6.

Total estimated future amortization expense is as follows:

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Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

Accrued expenses and other current liabilities consist of the following:

As of December 31,

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Sales and other taxes payable 70,913 92,319

ESPP contributions 6,130 8,499

Finance lease liability 8,489 11,871

Restructuring liability 29,086 1,066

Employee sabbatical benefit accrual (1)

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Total accrued expenses and other current liabilities $ 424,311 $ 490,221

____________________________________

( 1 ) In February 2023, the Company announced that it will sunset its employee sabbatical program.

The accrued liability as of December 31, 2023 represents the accumulated benefit balance for the employees who remain eligible under this program through its termination date.

Long-Term Debt

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

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

As of December 31,

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As of December 31, 2023, the Company was in compliance with all of its covenants under the Indenture.

Convertible Senior Notes and Capped Call Transactions

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

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

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

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

The Company utilized the effective interest rate method to determine the fair value of the liability component.

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

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

No sinking fund was provided for these Convertible Notes.

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

Concurrently with the redemption of the Convertible Notes, the Company settled these capped calls in June 2021 for gross cash consideration of $ 229.8 million received by the Company, which the Company recorded in additional paid-in-capital, net of $ 1.4 million in transaction costs and a $ 3.2 million realized gain.

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

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

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

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

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

Supplemental Balance Sheet Information

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International 34 % 34 % 32 %

____________________

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

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

No other amounts were impacted by this misclassification.

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

The following table sets forth long-lived assets by geographic area:

As of December 31,

Long-lived assets by geographic area:

(In thousands)

United States $ 99,368 $ 178,624

International 39,644 54,473

Total $ 139,012 $ 233,097

Percentage of long-lived assets by geographic area:

United States 71 % 77 %

International 29 % 23 %

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

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(In thousands)

Communications:

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

Programmable Voice 474,790 428,484 345,042

Email 333,500 277,400 218,700

Other 376,650 289,131 213,800

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

Software 441,477 325,943 98,363

Twilio Communications:

$ 2,184,752 $ 2,066,300 $ 1,416,265

511,728 474,790 428,484

Email and Marketing Campaigns

440,185 399,314 330,627

Other 722,028 609,683 465,498

Total Twilio Communications

3,858,693 3,550,087 2,640,874

Twilio Segment

295,252 276,234 200,965

Total $ 4,153,945 $ 3,826,321 $ 2,841,839

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

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

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

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

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

____________________________________

( 1 ) Prior year amounts were reclassified to conform to the current year presentation.

The current year presentation follows the

Company’s reportable segment structure, as described further in Note 8.

Commitments and Contingencies

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

Refer to Note 8 to these consolidated financial statements for additional detail on the Company's operating lease commitments.

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

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

Refer to Note 10 for additional detail on the Company's operating lease commitments.

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

In the year ended December 31, 2023, the Company entered into several such agreements with terms of up to three years for a total purchase commitment of $ 103.8 million.

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

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

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

December 31, 2023

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(b) Legal Matters

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

From time to time, the Company may be subject to legal actions, claims, and government investigations or inquiries arising in the ordinary course of business.

These matters may include, but are not limited to, matters involving privacy, data protection, data security, intellectual property, competition, telecommunications, consumer protection, taxation, securities, employment, and contractual rights.

While the Company currently believes that the final outcomes of these matters will not have a material adverse effect on its business, 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.

The Company accrues for contingencies when the Company believes that a loss is probable and that it can reasonably estimate the amount of any such loss.

To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred and the amount of such additional loss would be material, the Company will either disclose the estimated additional loss or state that such an estimate cannot be made.

Significant judgment is required to determine the probability of a loss and to estimate the amount of any probable loss.

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 consolidated statements of operations.

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.

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

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

The Company is seeking refunds of the taxes

paid, waivers of interest and penalties, cost of suit and reasonable attorneys’ fees, and other legal and equitable relief as the court deems appropriate.

The trial is expected to be held in the summer of 2023.

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

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 16(d) to these consolidated financial statements.

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

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.

The parties agreed to a settlement agreement that was approved by San Francisco’s Board of Supervisors and Mayor on November 7, 2023 and November 9, 2023, respectively, pursuant to which San Francisco paid the Company $ 18.0 million in November 2023 in settlement of the Company’s claims.

The related impacts to the consolidated balance sheet as of December 31, 2023 and statement of operations for the year ended December 31, 2023 were not significant.

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 our 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.

In the ordinary course of business and in connection with its financing and business combination 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 products or its acts or omissions.

The Company has also signed indemnification agreements with all of its board members and executive officers and certain employees that may require the Company to indemnify them for certain events in connection with their services to the Company or its direct or indirect subsidiaries.

As of December 31, 2023 and 2022, no amounts were accrued related to any outstanding indemnification agreements.

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

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

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

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

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

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

As of December 31, 2023, the liabilities recorded for the non-income-based taxes were $ 18.0 million for domestic jurisdictions and $ 22.2 million for jurisdictions outside of the United States.

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Preferred Stock

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

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

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

As of December 31, 2023 and 2022, the Company had authorized 100,000,000 shares of preferred stock, par value $ 0.001 , of which no shares were issued and outstanding.

As of December 31, 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 par value of $ 0.001 per share.

As of December 31, 2023, 181,945,771 shares of Class A common stock and no shares of Class B common stock were issued and outstanding.

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 par value of $ 0.001 per share.

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

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Unvested restricted stock units issued and outstanding 18,755,538 15,414,997

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

Shares of Class A common stock reserved for Twilio.org 442,041 530,449

Stock-based awards available for grant under 2016 Plan 19,869,260 19,851,399

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

Shares of Class A common stock reserved for issuance pursuant to ESPP 8,541,701 7,648,429

Total 49,331,401 45,722,653

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 the 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.

During the year ended December 31, 2023, the Company repurchased 11.3 million shares of its Class A common stock for an aggregate purchase price of $ 672.1 million.

As of December 31, 2023, approximately $ 327.9 million of the originally authorized amount remained available for future repurchases.

Public Equity Offerings

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

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

In February 2021, the Company completed a public equity offering in which it sold 4,312,500 shares of its Class A common stock at a public offering price of $ 409.60 per share.

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

Stock-Based Compensation

2008 Stock Option Plan

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

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

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

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

In connection with the Company’s initial public offering on June 22, 2016, the 2008 Stock Option Plan, as amended and restated (the “2008 Plan”), was terminated and, accordingly, no shares were available for issuance after the termination.

As of December 31, 2023 and 2022, all remaining outstanding stock options granted under the 2008 Plan were vested and exercisable and continue to be governed by the provisions of this plan.

2016 Stock Option Plan

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SendGrid 2009, 2012 and 2017 Stock Incentive Plans

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

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

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Segment 2013 Stock Incentive Plan

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

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

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

Zipwhip 2008 Stock Plan and 2018 Equity Incentive Plan

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

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

The assumed equity awards continue to vest and are governed by the provisions of the Zipwhip Plans.

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2016 Employee Stock Purchase Plan

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

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

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

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

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

On each of January 1, 2023 and 2022, the shares available for grant under the 2016 ESPP were automatically increased by 1,800,000 shares.

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

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As of December 31, 2023, total unrecognized compensation cost related to the 2016 ESPP was not significant.

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

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

Stock Options

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Outstanding options as of December 31, 2022 2,277,379 $ 75.54 5.32 $ 39,167

Granted 167,150 85.17

Exercised ( 366,456 ) $ 20.18

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

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

As of December 31, 2023, total unrecognized compensation cost related to all unvested stock options was not significant.

Restricted Stock Units

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

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

These awards activity is included in the table above.

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

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

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

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

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

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

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

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

The vesting of the second and third tranches was based on both (a) revenue growth targets and (b) profitability targets achievement with respect to each of the years ended December 31, 2023 and 2024.

If performance targets are not achieved, the related tranches are forfeited.

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

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

The aggregate intrinsic value of these awards was not significant.

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

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

As of December 31, 2023, total unrecognized compensation cost related to unvested RSUs was $ 1.5 billion, which will be amortized over a weighted-average period of 2.7 years.

Valuation Assumptions

The fair value of employee stock options was estimated on the date of grant using the following assumptions in the Black-Scholes option pricing model:

The Company did no t grant stock options in the year ended December 31, 2023.

The Company used the following assumptions in the Black-Scholes option pricing model to estimate the fair value of the employee stock options:

Year Ended December 31,

Employee Stock Options:

2022 2021 2020

Fair value of common stock $ 85.17

$ 268.55 - $ 409.21

$ 108.37 - $ 301.72

Expected term (in years) 6.02

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42.9 % - 61.5 %

51.9 % - 65.1 %

Risk-free interest rate 3.3 %

0.1 % - 1.4 %

Dividend rate — %

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

The Company used the following assumptions in the Black-Scholes option pricing model to estimate the fair value of the purchase rights issued under the 2016 ESPP:

Year Ended December 31,

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Unvested restricted stock units issued and outstanding 18,755,538 15,414,997 6,475,700

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

Class A common stock committed under ESPP 766,334 147,947 103,703

Convertible Notes (1)

— — 4,847,578

Class A common stock in escrow 31,503 75,506 75,612

Class A common stock in escrow and restricted stock awards subject to future vesting 56,237 235,054 268,030

Shares of Class A common stock reserved for Twilio.org 442,041 530,449 618,857

Shares of Class A common stock committed under ESPP 426,199 766,334 147,947

Shares of Class A common stock in escrow 31,503 31,503 75,506

Shares of Class A common stock in escrow and restricted stock awards subject to future vesting 3,771 56,237 235,054

Total 21,381,913 19,076,899 10,904,377

____________________________________

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

As of December 31, 2020, the Company expected to settle the principal amount of the notes in shares of its Class A common stock, and as such used the if-converted method to calculate any potential dilutive effect of the debt settlement on diluted net income per share, if applicable.

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

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International ( 180,640 ) ( 222,424 ) ( 223,569 )

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

Loss before (provision for) benefit from income taxes

$ ( 996,729 ) $ ( 1,243,632 ) $ ( 960,929 )

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

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Foreign rate differential 1 ( 2 ) ( 1 )

Permanent book vs.

tax differences — — ( 1 )

Change in valuation allowance ( 23 ) ( 17 ) ( 46 )

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Net operating loss carryforwards $ 983,652 $ 959,864

Accrued and prepaid expenses 47,986 24,831

Accruals and reserves 52,750 47,986

Stock-based compensation 29,572 37,981

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Unrealized losses on marketable securities — 32,108

Investments and other basis differences 51,368 11,952

Other 31,852 24,878

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Deferred commissions ( 50,703 ) ( 59,675 )

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

Net deferred tax asset (liability)

$ 15,171 $ ( 3,782 )

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

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

In connection with the Zipwhip acquisition, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets and, accordingly, during the year ended December 31, 2021, the Company released a total of $ 15.9 million of its U.S.

valuation allowance.

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

Federal and State net deferred tax assets.

The provision for and benefit from income taxes recorded in the years ended December 31, 2023 and 2022, respectively, consist primarily of income taxes, withholding taxes in foreign jurisdictions in which the Company conducts business and the tax benefit related to the release of valuation allowance from acquisitions.

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deferred tax assets.

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

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

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

Subsequent Events

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

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

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

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

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data