TWILIO INC 10-Q

Item 1. Financial Statements TWILIO INC. Condensed Consolidated Balance Sheets (Unaudited) As of March 31, As of December 31, 2024 2023 (In thousands) ASSETS Current assets: Cash and cash equivalents $ 672,595 $ 655,931 Short-term marketable securities 3,154,005 3,356,064 Accounts receivable, net 540,932 562,773 Prepaid expenses and other current assets 310,063 329,204 Total current assets 4,677,595 4,903,972 Property and equipment, net 201,273 209,639 Operating right-of-use assets 68,887 73,959 Equity method investment 568,145 593,582 Intangible assets, net 321,501 350,490 Goodwill 5,243,266 5,243,266 Other long-term assets 208,622 234,799 Total assets $ 11,289,289 $ 11,609,707 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 82,194 $ 119,615 Accrued expenses and other current liabilities 442,133 424,311 Deferred revenue and customer deposits 142,372 144,499 Operating lease liability, current 47,904 49,872 Total current liabilities 714,603 738,297 Operating lease liability, noncurrent 110,267 120,770 Finance lease liability, noncurrent 6,960 9,191 Long-term debt, net 989,356 988,953 Other long-term liabilities 20,373 19,944 Total liabilities 1,841,559 1,877,155 Commitments and contingencies (Note 11) Stockholders' equity: Preferred stock — — Class A common stock 177 182 Additional paid-in capital 14,960,837 14,797,723 Accumulated other comprehensive (loss) income ( 4,941 ) 619 Accumulated deficit ( 5,508,343 ) ( 5,065,972 ) Total stockholders’ equity 9,447,730 9,732,552 Total liabilities and stockholders’ equity $ 11,289,289 $ 11,609,707 See accompanying notes to condensed consolidated financial statements. 3 TWILIO INC. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2024 2023 (In thousands, except share and per share amounts) Revenue $ 1,047,050 $ 1,006,564 Cost of revenue 503,009 515,874 Gross profit 544,041 490,690 Operating expenses: Research and development 251,615 238,595 Sales and marketing 214,018 259,885 General and administrative 111,966 112,568 Restructuring costs 9,946 121,942 Impairment of long-lived assets — 21,784 Total operating expenses 587,545 754,774 Loss from operations ( 43,504 ) ( 264,084 ) Other expenses, net: Share of losses from equity method investment ( 29,575 ) ( 30,419 ) Impairment of strategic investments — ( 46,154 ) Other income, net 27,918 8,985 Total other expenses, net ( 1,657 ) ( 67,588 ) Loss before provision for income taxes ( 45,161 ) ( 331,672 ) Provision for income taxes ( 10,188 ) ( 10,467 ) Net loss attributable to common stockholders $ ( 55,349 ) $ ( 342,139 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.31 ) $ ( 1.84 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 181,017,726 186,403,349 See accompanying notes to condensed consolidated financial statements. 4 TWILIO INC. Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) Three Months Ended March 31, 2024 2023 (In thousands) Net loss $ ( 55,349 ) $ ( 342,139 ) Other comprehensive (loss) income: Unrealized (loss) gain on marketable securities ( 5,193 ) 30,750 Foreign currency translation — 483 Net change in market value of effective foreign currency forward exchange contracts ( 4,505 ) 3,335 Share of other comprehensive income from equity method investment 4,138 14,648 Total other comprehensive (loss) income ( 5,560 ) 49,216 Comprehensive loss attributable to common stockholders $ ( 60,909 ) $ ( 292,923 ) See accompanying notes to condensed consolidated financial statements. 5 TWILIO INC. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) Common Stock Class A Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders' Equity Shares Amount (In thousands, except share amounts) Balance as of December 31, 2023 181,945,771 $ 182 $ 14,797,723 $ 619 $ ( 5,065,972 ) $ 9,732,552 Net loss — — — — ( 55,349 ) ( 55,349 ) Exercises of vested stock options 43,835 — 421 — — 421 Vesting of restricted stock units 1,615,930 1 ( 1 ) — — — Value of equity awards withheld for tax liability ( 26,757 ) — ( 1,918 ) — — ( 1,918 ) Shares of Class A common stock issued and donated to charity 22,102 — 1,295 — — 1,295 Shares returned from escrow ( 696 ) — ( 192 ) — — ( 192 ) Unrealized loss on marketable securities — — — ( 5,193 ) — ( 5,193 ) Repurchases of shares of Class A common stock including related costs ( 6,128,298 ) ( 6 ) — — ( 387,022 ) ( 387,028 ) Net change in market value of effective foreign currency forward exchange contracts — — — ( 4,505 ) — ( 4,505 ) Share of other comprehensive income from equity method investment — — — 4,138 — 4,138 Stock-based compensation — — 161,061 — — 161,061 Stock-based compensation - restructuring — — 2,448 — — 2,448 Balance as of March 31, 2024 177,471,887 $ 177 $ 14,960,837 $ ( 4,941 ) $ ( 5,508,343 ) $ 9,447,730 See accompanying notes to condensed consolidated financial statements. 6 TWILIO INC. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) Common Stock Class A Common Stock Class B Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders' Equity Shares Amount Shares Amount (In thousands, except share amounts) Balance as of December 31, 2022 176,358,104 $ 174 9,617,605 $ 12 $ 14,055,853 $ ( 121,161 ) $ ( 3,375,836 ) $ 10,559,042 Net loss — — — — — — ( 342,139 ) ( 342,139 ) Exercises of vested stock options 66,968 — 97,199 — 3,264 — — 3,264 Vesting of restricted stock units 1,516,634 2 — — ( 2 ) — — — Value of equity awards withheld for tax liability ( 36,965 ) — — — ( 2,456 ) — — ( 2,456 ) Conversion of shares of Class B common stock into shares of Class A common stock 97,199 — ( 97,199 ) — — — — — Shares of Class A common stock issued and donated to charity 22,102 — — — 1,599 — — 1,599 Unrealized gain on marketable securities — — — — — 30,750 — 30,750 Repurchases of shares of Class A common stock including related costs ( 1,902,124 ) ( 2 ) — — — — ( 124,990 ) ( 124,992 ) Foreign currency translation — — — — — 483 — 483 Net change in market value of effective foreign currency forward exchange contracts — — — — — 3,335 — 3,335 Share of other comprehensive income from equity method investment — — — — — 14,648 — 14,648 Stock-based compensation — — — — 164,999 — — 164,999 Stock-based compensation - restructuring — — — — 10,333 — — 10,333 Balance as of March 31, 2023 176,121,918 $ 174 9,617,605 $ 12 $ 14,233,590 $ ( 71,945 ) $ ( 3,842,965 ) $ 10,318,866 See accompanying notes to condensed consolidated financial statements. 7 TWILIO INC . Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands) Net loss $ ( 55,349 ) $ ( 342,139 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 53,318 71,393 Non-cash reduction to the right-of-use asset 5,076 8,574 Net amortization of investment premium and discount ( 6,029 ) 3,515 Impairment of long-lived assets — 21,784 Stock-based compensation including restructuring 158,606 170,799 Amortization of deferred commissions 18,829 17,865 Provision for doubtful accounts 6,204 7,220 Share of losses from equity method investment 29,575 30,419 Impairment of strategic investments — 46,154 Other adjustments 4,996 9,746 Changes in operating assets and liabilities: Accounts receivable 15,637 ( 35,215 ) Prepaid expenses and other current assets 16,901 ( 51,438 ) Other long-term assets 6,859 ( 21,481 ) Accounts payable ( 37,762 ) 66 Accrued expenses and other current liabilities ( 12,447 ) ( 19,130 ) Deferred revenue and customer deposits ( 2,127 ) ( 2,611 ) Operating lease liabilities ( 12,470 ) ( 13,651 ) Other long-term liabilities 306 264 Net cash provided by (used in) operating activities 190,123 ( 97,866 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities and other investments ( 435,590 ) ( 136,119 ) Proceeds from sales and maturities of marketable securities 638,185 355,195 Capitalized software development costs ( 11,154 ) ( 9,860 ) Purchases of long-lived and intangible assets ( 1,671 ) ( 6,751 ) Net cash provided by investing activities 189,770 202,465 CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on debt and finance leases ( 4,832 ) ( 7,353 ) Value of equity awards withheld for tax liabilities ( 1,918 ) ( 2,456 ) Repurchases of shares of Class A common stock and related costs ( 356,900 ) ( 114,993 ) Proceeds from exercises of stock options 421 3,264 Net cash used in financing activities ( 363,229 ) ( 121,538 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash — 39 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 16,664 ( 16,900 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 655,931 656,078 CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $ 672,595 $ 639,178 Cash paid for income taxes, net $ 10,761 $ 3,479 Cash paid for interest $ 18,893 $ 18,750 RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS Cash and cash equivalents $ 672,595 $ 634,824 Restricted cash in other current assets — 3,916 Restricted cash in other long-term assets — 438 Total cash, cash equivalents and restricted cash $ 672,595 $ 639,178 See accompanying notes to condensed consolidated financial statements. 8 Table of Contents TWILIO INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Description of Business Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. Today's leading companies trust Twilio's Customer Engagement Platform to build direct, personalized relationships with their customers everywhere in the world. Twilio enables companies to use communications and data to add intelligence and security to every step of their customers’ journey, from sales to marketing to growth, customer service and many more engagement use cases in a flexible, programmatic way. The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries across North America, South America, Europe, Asia and Australia. 2. Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2024 (“Annual Report”). The condensed consolidated balance sheet as of December 31, 2023, included herein, was derived from the audited financial statements as of that date, but may not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2024 or any future period. (b) Principles of Consolidation The condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. (c) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, revenue allowances and sales credit reserves; recoverability of long-lived and intangible assets; allocation of goodwill to reporting units; impairment assessments of goodwill and indefinite-lived intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under then current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments, therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. 9 Table of Contents (d) Remaining Performance Obligations Revenue allocated to remaining performance obligations for contracts with durations of more than one year was $ 150.6 million as of March 31, 2024, of which 63 % is expected to be recognized over the next 12 months and 91 % is expected to be recognized over the next 24 months. (e) Deferred Revenue and Customer Deposits As of March 31, 2024, and December 31, 2023, the Company recorded $ 142.4 million and $ 144.5 million as its deferred revenue and customer deposits, respectively. During the three months ended March 31, 2024 and 2023, the Company recognized $ 65.4 million and $ 71.3 million of revenue, respectively, that was included in the deferred revenue and customer deposits balances as of the end of the previous year. (f) Concentration of Credit Risk Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company maintains cash, cash equivalents and marketable securities with financial institutions. Certain balances held by such financial institutions exceed insured limits. The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customer deteriorates substantially, operating results could be adversely affected. To reduce credit risk, management performs credit evaluations of the financial condition of significant customers and periodic re-evaluations, as needed, of existing customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. As of March 31, 2024, and December 31, 2023, the allowance for doubtful accounts was $ 37.7 million and $ 42.0 million, respectively, and is recorded in accounts receivable, net, in the accompanying condensed consolidated balance sheets. In the three months ended March 31, 2024 and 2023, no customer organization accounted for more than 10% of the Company’s total revenue. As of March 31, 2024 and December 31, 2023, no customer organization represented more than 10% of the Company’s gross accounts receivable. (g) Restructuring Costs The Company records restructuring expenses when (i) management commits to a restructuring plan, (ii) the restructuring plan identifies all significant actions, (iii) the period of time to complete the restructuring plan indicates that significant changes to the plan are not likely, and (iv) employees who are impacted have been notified of the pending involuntary termination. The Company enacted workforce reduction plans in February 2023, December 2023 and March 2024. In the three months ended March 31, 2024, restructuring charges incurred and cash paid related to these plans were not significant. The estimated remaining expenses related to these plans are not expected to be significant. (h) Recently Adopted Accounting Guidance 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. The guidance will be effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company adopted ASU 2022-03 in the first quarter of 2024 with no material impact to the Company’s condensed consolidated financial statements. 10 Table of Contents (i) Recently Issued Accounting Guidance, Not yet Adopted 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 expects to adopt ASU 2023-07 upon its effective date. The adoption will require certain additional disclosure in the notes to the Company’s 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 expects to adopt ASU 2023-09 upon its effective date. The adoption will require certain additional disclosure in the notes to the Company’s consolidated financial statements. 3. Fair Value Measurements Financial Assets The following tables provide the financial assets measured at fair value on a recurring basis: Amortized Cost or Carrying Value Gross Unrealized Gains Gross Unrealized Losses Less Than 12 Months Gross Unrealized Losses More Than 12 Months Fair Value Hierarchy as of March 31, 2024 Aggregate Fair Value Level 1 Level 2 Level 3 Financial Assets: (In thousands) Cash and cash equivalents: Money market funds $ 447,629 $ — $ — $ — $ 447,629 $ — $ — $ 447,629 Commercial paper 13,036 — — — — 13,036 — 13,036 Total included in cash and cash equivalents 460,665 — — — 447,629 13,036 — 460,665 Marketable securities: Debt securities: U.S. Treasury securities 437,581 331 ( 665 ) ( 549 ) 436,698 — — 436,698 Non-U.S. government securities 68,549 23 ( 20 ) ( 463 ) 68,089 — — 68,089 Corporate debt securities and commercial paper 2,651,283 6,442 ( 9,711 ) ( 2,731 ) 14,690 2,630,593 — 2,645,283 Total debt securities 3,157,413 6,796 ( 10,396 ) ( 3,743 ) 519,477 2,630,593 — 3,150,070 Equity securities 3,935 — — — 3,935 — — 3,935 Total marketable securities 3,161,348 6,796 ( 10,396 ) ( 3,743 ) 523,412 2,630,593 — 3,154,005 Total financial assets $ 3,622,013 $ 6,796 $ ( 10,396 ) $ ( 3,743 ) $ 971,041 $ 2,643,629 $ — $ 3,614,670 11 Table of Contents Amortized Cost or Carrying Value Gross Unrealized Gains Gross Unrealized Losses Less Than 12 Months Gross Unrealized Losses More Than 12 Months Fair Value Hierarchy as of December 31, 2023 Aggregate Fair Value Level 1 Level 2 Level 3 Financial Assets: (In thousands) Cash and cash equivalents: Money market funds $ 408,696 $ — $ — $ — $ 408,696 $ — $ — $ 408,696 Total included in cash and cash equivalents 408,696 — — — 408,696 — — 408,696 Marketable securities: Debt securities: U.S. Treasury securities 410,665 2,162 ( 7 ) ( 1,665 ) 411,155 — — 411,155 Non-U.S. 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 securities 3,358,213 17,583 ( 10,936 ) ( 8,796 ) 515,057 2,841,007 — 3,356,064 Total financial assets $ 3,766,909 $ 17,583 $ ( 10,936 ) $ ( 8,796 ) $ 923,753 $ 2,841,007 $ — $ 3,764,760 The Company’s primary objective when investing excess cash is preservation of capital, hence the Company’s debt securities primarily consist of U.S. Treasury Securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper. Because the Company views its debt securities as available to support current operations, it has classified all available for sale securities as short-term. Interest earned on debt securities was $ 27.2 million and $ 17.2 million in the three months ended March 31, 2024 and 2023, respectively. The interest is recorded as other income, net, in the accompanying condensed consolidated statements of operations. The following table summarizes the contractual maturities of debt securities: As of March 31, As of December 31, 2024 2023 Amortized Cost Aggregate Fair Value Amortized Cost Aggregate Fair Value Financial Assets: (In thousands) Less than one year $ 1,092,477 $ 1,085,126 $ 1,448,256 $ 1,434,149 One to three years 2,064,936 2,064,944 1,905,056 1,917,014 Total $ 3,157,413 $ 3,150,070 $ 3,353,312 $ 3,351,163 Strategic Investments As of March 31, 2024 and December 31, 2023, the Company held strategic investments with a carrying value of $ 31.1 million and $ 30.7 million, respectively, recorded as other long-term assets in the accompanying condensed consolidated balance sheets. The carrying value of these securities is determined under the measurement alternative on a non-recurring basis and adjusted for observable changes in fair value or impairment. There were no impairments or significant adjustments recorded in the three months ended March 31, 2024 related to these investments. During the three months ended March 31, 2023, the Company recorded an impairment loss of $ 46.2 million related to one of these investments in other expenses, net, in the accompanying condensed consolidated statement of operations. Financial Liabilities The Company’s financial liabilities that are measured at fair value on a recurring basis consist of foreign currency derivative liabilities and are classified as Level 2 financial instruments in the fair value hierarchy. As of March 31, 2024 and December 31, 2023, the aggregate fair value of these liabilities and the associated unrealized losses were not significant. 12 Table of Contents The Company’s financial liabilities that are not measured at fair value on a recurring basis are its Senior Notes due 2029 (“2029 Notes”) and its Senior Notes due 2031 (“2031 Notes”). As of March 31, 2024, the fair values of the 2029 Notes and 2031 Notes were $ 449.7 million and $ 437.1 million, respectively. As of December 31, 2023, the fair values of the 2029 Notes and 2031 Notes were $ 462.4 million and $ 452.3 million, respectively. 4. Property and Equipment Property and equipment consisted of the following: As of March 31, As of December 31, 2024 2023 (In thousands) Capitalized internal-use software developments costs $ 310,947 $ 297,655 Data center equipment (1) 104,803 104,543 Leasehold improvements 92,427 92,315 Office equipment 56,833 60,905 Furniture and fixtures 14,558 14,558 Software 14,639 14,639 Total property and equipment 594,207 584,615 Less: accumulated depreciation and amortization (1) ( 392,934 ) ( 374,976 ) Total property and equipment, net $ 201,273 $ 209,639 ____________________________________ ( 1 ) Data center equipment contains $ 72.4 million in assets held under finance leases as of March 31, 2024 and December 31, 2023. Accumulated depreciation and amortization includes $ 59.3 million and $ 55.9 million of accumulated depreciation for assets held under finance leases as of March 31, 2024, and December 31, 2023, respectively. Depreciation and amortization expense was $ 23.8 million and $ 20.1 million in the three months ended March 31, 2024 and 2023, respectively. The Company capitalized $ 16.1 million and $ 14.2 million in internal‑use software development costs in the three months ended March 31, 2024 and 2023, respectively. 5. Segment Reporting As of March 31, 2024, the Company had two operating and reportable segments: Twilio Communications (“Communications”) and Twilio Segment (“Segment”). Twilio Communications : The Communications reportable 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 and Marketing Campaigns. Twilio Segment : The Segment reportable 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. 13 Table of Contents Presented below is the discrete financial information by reportable segment for the three months ended March 31, 2024 and 2023, that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) 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, human resources, finance and accounting expenses. Three Months Ended March 31, 2024 2023 (In thousands) Revenue: Communications $ 972,005 $ 932,948 Segment 75,045 73,616 Total $ 1,047,050 $ 1,006,564 Non-GAAP income (loss) from operations: Communications $ 249,010 $ 180,464 Segment ( 20,994 ) ( 17,217 ) Corporate costs ( 68,406 ) ( 59,460 ) Total $ 159,610 $ 103,787 Reconciliation of non-GAAP income (loss) from operations to loss from operations: Total non-GAAP income (loss) from operations $ 159,610 $ 103,787 Stock-based compensation ( 156,158 ) ( 160,466 ) Amortization of acquired intangibles ( 28,939 ) ( 50,774 ) Acquisition and divestiture related expenses — ( 2,235 ) Loss on net assets held for sale — ( 3,824 ) Payroll taxes related to stock-based compensation ( 6,776 ) ( 5,247 ) Charitable contributions ( 1,295 ) ( 1,599 ) Restructuring costs ( 9,946 ) ( 121,942 ) Impairment of long-lived assets — ( 21,784 ) Loss from operations ( 43,504 ) ( 264,084 ) Other expenses, net ( 1,657 ) ( 67,588 ) Loss before provision for income taxes $ ( 45,161 ) $ ( 331,672 ) 6. Derivatives and Hedging As of March 31, 2024, the Company had outstanding foreign currency forward contracts designated as cash flow hedges with a total sell notional value of $ 206.8 million. The notional value represents the amount that will be sold upon maturity of the forward contract. As of March 31, 2024, these contracts had maturities of up to 17 months. Gains and losses associated with these foreign currency forward contracts were not significant. The Company is subject to master netting agreements with certain counterparties of the foreign exchange contracts, under which it is permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is the Company’s policy to present the derivatives at gross in its condensed consolidated balance sheets. The Company’s foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. The Company manages its exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring its outstanding positions. As of March 31, 2024, the Company did not have any offsetting arrangements. 14 Table of Contents 7. Goodwill and Intangible Assets Goodwill As of March 31, 2024 and December 31, 2023, the balance of the Company’s goodwill was $ 5.2 billion, of which $ 4.9 billion relates to the Communications reportable segment and $ 306.1 million relates to the Segment reportable segment. There was no goodwill activity during the three months ended March 31, 2024. Intangible assets Intangible assets consisted of the following: As of March 31, 2024 Cost Accumulated Amortization Net Amortizable intangible assets: (In thousands) Developed technology $ 397,473 $ ( 274,167 ) $ 123,306 Customer relationships 349,074 ( 182,045 ) 167,029 Supplier relationships 49,756 ( 28,586 ) 21,170 Trade names 25,968 ( 24,204 ) 1,764 Order backlog 10,000 ( 10,000 ) — Patent 3,968 ( 951 ) 3,017 Total amortizable intangible assets 836,239 ( 519,953 ) 316,286 Non-amortizable intangible assets: Telecommunication licenses 4,920 — 4,920 Trademarks and other 295 — 295 Total $ 841,454 $ ( 519,953 ) $ 321,501 As of December 31, 2023 Cost Accumulated Amortization Net Amortizable intangible assets: (In thousands) Developed technology $ 397,473 $ ( 259,635 ) $ 137,838 Customer relationships 349,074 ( 170,511 ) 178,563 Supplier relationships 49,756 ( 26,316 ) 23,440 Trade names 25,968 ( 23,600 ) 2,368 Order backlog 10,000 ( 10,000 ) — Patent 3,968 ( 902 ) 3,066 Total amortizable intangible assets 836,239 ( 490,964 ) 345,275 Non-amortizable intangible assets: Telecommunication licenses 4,920 — 4,920 Trademarks and other 295 — 295 Total $ 841,454 $ ( 490,964 ) $ 350,490 Amortization expense was $ 29.0 million and $ 50.8 million for the three months ended March 31, 2024 and 2023, respectively. 15 Table of Contents Total estimated future amortization expense is as follows: As of March 31, 2024 Year Ended December 31, (In thousands) 2024 (remaining nine months) $ 83,053 2025 107,862 2026 42,149 2027 25,330 2028 19,055 Thereafter 38,837 Total $ 316,286 8. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: As of March 31, As of December 31, 2024 2023 (In thousands) Accrued payroll and related $ 51,671 $ 77,593 Accrued bonus and commission 37,587 17,345 Accrued cost of revenue 165,335 155,721 Sales and other taxes payable 66,295 70,913 ESPP contributions 16,880 6,130 Finance lease liability 6,169 8,489 Restructuring liability 12,841 29,086 Share repurchase costs payable 30,989 3,526 Accrued other expense 54,366 55,508 Total accrued expenses and other current liabilities $ 442,133 $ 424,311 9. Long-Term Debt Long-term debt, net, consisted of the following: As of March 31, As of December 31, 2024 2023 (In thousands) 2029 Senior Notes Principal $ 500,000 $ 500,000 Unamortized discount ( 4,088 ) ( 4,274 ) Unamortized issuance costs ( 920 ) ( 962 ) Net carrying amount 494,992 494,764 2031 Senior Notes Principal 500,000 500,000 Unamortized discount ( 4,601 ) ( 4,744 ) Unamortized issuance costs ( 1,035 ) ( 1,067 ) Net carrying amount 494,364 494,189 Total long-term debt, net $ 989,356 $ 988,953 As of March 31, 2024, the Company was in compliance with all of its covenants under the related indentures. 16 Table of Contents 10. Revenue by Geographic Area Revenue by geographic area is based on the IP address or the mailing address of the customer at the time of registration. The following table sets forth revenue by geographic area: Three Months Ended March 31, 2024 2023 Revenue by geographic area: (In thousands) United States $ 686,527 $ 662,092 International 360,523 344,472 Total $ 1,047,050 $ 1,006,564 Percentage of revenue by geographic area: United States 66 % 66 % International 34 % 34 % 11. Commitments and Contingencies (a) Lease and Other Commitments The Company has entered into various non-cancelable operating lease agreements for its facilities. In the three months ended March 31, 2024, the Company did not enter into any significant new lease agreements. The Company has non-cancelable contractual commitments with its cloud infrastructure provider, network service providers and other vendors. In the three months ended March 31, 2024, the Company did not enter into any significant non-cancelable contractual commitments. (b) Legal Matters 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 condensed consolidated statements of operations. (c) Indemnification Agreements 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. 17 Table of Contents As of March 31, 2024, and December 31, 2023, no amounts were accrued related to any outstanding indemnification agreements. (d) Other Taxes The Company conducts operations in multiple tax jurisdictions within and outside of the United States. In many of these jurisdictions, non-income-based taxes, such as sales, use, telecommunications and other local taxes are assessed on the Company’s operations. The Company carries reserves for certain of its non-income-based tax exposures in certain jurisdictions when it is both probable that a liability was incurred and the amount of the exposure could be reasonably estimated. These reserves are based on estimates which include several key assumptions including, but not limited to, the taxability of the Company’s services, the jurisdictions in which its management believes it had nexus and the sourcing of revenues to those jurisdictions. The Company continues to remain in discussions with certain jurisdictions regarding its prior sales and other taxes that it may owe. In the event any of these jurisdictions disagree with management’s assumptions and analysis, the assessment of the Company’s tax exposure could differ materially from management’s current estimates. As of March 31, 2024, the liabilities recorded for the non-income-based taxes were $ 18.2 million for domestic jurisdictions and $ 20.0 million for jurisdictions outside of the United States. As of December 31, 2023, these liabilities were $ 18.0 million and $ 22.2 million, respectively. 12. Stockholders' Equity Preferred Stock As of March 31, 2024, and December 31, 2023, the Company had authorized 100,000,000 shares of preferred stock, par value $ 0.001 , of which no shares were issued and outstanding. Common Stock As of March 31, 2024, the Company had authorized 1,000,000,000 shares of Class A common stock and 3,170,181 shares of Class B common stock, each with a par value of $ 0.001 per share. As of March 31, 2024, 177,471,887 shares of Class A common stock and no shares of Class B common stock 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 with a 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. The Company had reserved shares of common stock for issuance as follows: As of March 31, As of December 31, 2024 2023 Stock options issued and outstanding 1,584,426 1,722,861 Unvested restricted stock units issued and outstanding 16,173,773 18,755,538 Shares of Class A common stock reserved for Twilio.org 419,939 442,041 Stock-based awards available for grant under 2016 Plan 30,471,471 19,869,260 Shares of Class A common stock reserved for issuance pursuant to ESPP 10,341,701 8,541,701 Total 58,991,310 49,331,401 18 Table of Contents Share Repurchase Programs In February 2023, the board of directors of the Company authorized a repurchase of up to $ 1.0 billion in aggregate value of its outstanding Class A common stock through a share repurchase program. In March 2024, the board of directors of the Company authorized a second share repurchase program for an additional $ 2.0 billion in aggregate value of its outstanding Class A common stock. Repurchases under these programs can be made through open market, private transactions or other means, in compliance with applicable federal securities laws, and could include repurchases pursuant to Rule 10b5-1 trading plans. The Company has discretion in determining the conditions under which shares may be repurchased from time to time. The programs each expire on December 31, 2024. In the three months ended March 31, 2024 and 2023, the Company repurchased 6.1 million and 1.9 million shares of its Class A common stock, respectively, for an aggregate purchase price of $ 384.3 million and $ 125.0 million, respectively. As of March 31, 2024, approximately $ 1.9 billion of the aggregate amount authorized under the stock repurchase programs remained available for future repurchases. 13. Stock-Based Compensation The Company’s 2016 Stock Option and Incentive Plan (the “2016 Plan”) provides for granting stock options, restricted stock units, restricted stock awards, stock appreciation rights, unrestricted stock awards, performance share awards, dividend equivalent rights and cash-based awards to its employees, directors and consultants. Certain of the Company’s outstanding equity awards were granted under equity incentive plans that are no longer active but continue to govern the outstanding equity awards granted thereunder. In addition, pursuant to the Company’s 2016 Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of the Company’s Class A common stock at a discount of 15 % through payroll deductions of their eligible compensation. The ESPP provides for separate six-month offering periods beginning in May and November of each year. As of March 31, 2024, total unrecognized compensation cost related to unvested restricted stock units was $ 1.2 billion, which will be amortized over a weighted-average period of 2.6 years. As of March 31, 2024, total unrecognized compensation cost related to unvested stock options, the ESPP, and shares of Class A common stock in escrow subject to future vesting was not significant. Stock-Based Compensation Expense The Company recorded total stock-based compensation expense as follows: Three Months Ended March 31, 2024 2023 (In thousands) Cost of revenue $ 5,891 $ 5,290 Research and development 81,349 78,093 Sales and marketing 34,655 48,129 General and administrative 34,263 28,954 Restructuring costs 2,448 10,333 Total $ 158,606 $ 170,799 19 Table of Contents 14. Net Loss Per Share Attributable to Common Stockholders The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented: Three Months Ended March 31, 2024 2023 Net loss attributable to common stockholders (in thousands) $ ( 55,349 ) $ ( 342,139 ) Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 181,017,726 186,403,349 Net loss per share attributable to common stockholders, basic and diluted $ ( 0.31 ) $ ( 1.84 ) The following outstanding shares of common stock equivalents were excluded from the calculation of the diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive: As of March 31, 2024 2023 Stock options issued and outstanding 1,584,426 2,007,636 Unvested restricted stock units issued and outstanding 16,173,773 13,487,645 Shares of Class A common stock reserved for Twilio.org 419,939 508,347 Shares of Class A common stock committed under ESPP 396,611 742,303 Shares of Class A common stock in escrow — 31,503 Shares of Class A common stock in escrow and restricted stock awards subject to future vesting 3,771 15,936 Total 18,578,520 16,793,370 15. Income Taxes The Company computes its provision for income taxes for interim periods using an estimated annual effective tax rate based on anticipated annual pretax income or loss. The estimated annual effective tax rate is applied to the Company’s year-to- date income or loss, and is adjusted for discrete items recorded in the period. The primary difference between the Company’s effective tax rate and the federal statutory rate is the full valuation allowance the Company has established on its federal, state and certain foreign net operating losses and credits. The Company recorded an income tax provision of $ 10.2 million and $ 10.5 million for the three months ended March 31, 2024 and 2023, respectively. The provision for income taxes recorded in the three months ended March 31, 2024 consists primarily of federal, state and foreign income taxes, withholding taxes in foreign jurisdictions in which the Company conducts business, and income tax expense from a foreign audit settlement. The provision for income taxes recorded in the three months ended March 31, 2023 consists primarily of federal, state and foreign income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business, partially offset by an income tax benefit from the release of tax liabilities related to uncertain tax positions for which the statute of limitation had lapsed. The Company is subject to taxation in the U.S. and various other state and foreign jurisdictions. Because the Company has net operating loss carryforwards for U.S. federal and state jurisdictions, the statute of limitations is open for all tax years. 16. Related Party Transactions In May 2022, the Company and Syniverse Corporation (“Syniverse”), an equity method investee, entered into a wholesale agreement pursuant to which Syniverse would process, route and deliver application-to-person messages originating and/or terminating between the Company’s customers and mobile network operators. For the three months ended March 31, 2024 and 2023, the value of the transactions that occurred between the Company and Syniverse were $ 34.0 million and $ 33.5 million, respectively. These transactions were recorded as cost of revenue in the accompanying condensed consolidated statements of operations. 20 Table of Contents Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: • the impact of macroeconomic uncertainties and significant market volatility in the global economy on our customers, partners, employees and business; • our future financial performance, including expectations regarding our revenue, revenue growth, cost of revenue, gross profit, gross margin and operating expenses, our ability to generate positive cash flow and ability to achieve and sustain profitability on GAAP and non-GAAP bases, the factors affecting our results of operations, the timing of future expenses, the end dates for certain types of expenses, and the assumptions underlying such expectations; • the benefits and efficiencies we expect to derive from workforce reductions and other cost-saving initiatives, including reducing our global office footprint and stock-based compensation expense; • our business unit reorganization, including its expected costs and benefits, related accounting determinations and the shift in our segment reporting structure, and changes to our leadership structure; • the impact on our business, corporate culture, and employees as a result of our recent leadership transition; • our expectations regarding our Segment (formerly known as Data & Applications) business, including the targets set as a result of our recent operational review of Segment, new product releases, increased investment and go-to-market focus to capture market share, and increased revenue growth; • our expectations regarding our Communications business, including anticipated efficiencies and strategy for streamlining the customer experience, including increased focus on self-service capabilities; • our ability to retain and increase revenue from existing customers and attract new customers, including enterprises and international organizations; • our ability to maintain reliable service levels for our customers; • our anticipated investments in sales and marketing, research and development and additional systems and processes to support our growth; • the anticipated results of our foreign currency hedging activities; • our ability to compete effectively in an intensely competitive market, including our ability to set optimal prices for our products and adapt and respond effectively to rising costs, rapidly changing technology and evolving customer needs, requirements, and preferences; • potential harm caused by compromises in security, data and infrastructure, including cybersecurity protections; • our ability to comply with modified or new industry standards, laws and regulations applying to our business; • our ability to make progress on our environmental, social and governance (“ESG”) programs, goals and commitments; • our ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on our platform; 21 Table of Contents • investments and costs required to prevent, detect and remediate potential cybersecurity threats, incidents and breaches of ours or our customers’ systems or information; • our ability to optimize our network service provider coverage and connectivity; • our ability to work closely with email inbox service providers to maintain deliverability rates; • the impact and expected results from changes in our relationships with our larger customers; • our ability to form and expand partnerships with technology partners and consulting partners; • anticipated technology trends, such as the use of and demand for cloud communications and customer engagement tools; • our ability to leverage artificial intelligence (“AI”) and machine learning (“ML”) and develop and deliver products that incorporate AI and ML and our expectations about CustomerAI and its potential; • our ability to successfully enter into new markets and manage our international expansion; • the sufficiency of our cash and cash equivalents to meet our liquidity needs; • our expectations regarding our share repurchase programs; • our ability to maintain, protect and enhance our intellectual property; • our ability to successfully defend litigation brought against us; • our ability to service the interest on our 3.625% senior notes due 2029 (“2029 Notes”) and on our 3.875% notes due 2031 (“2031 Notes,” and together with the 2029 Notes, the “Notes”), and repay such Notes; • our customers’ and other platform users’ violation of our policies or other misuse of our platform; and • our ability to successfully integrate acquired businesses and realize the benefits of our past or future strategic acquisitions, divestitures or investments. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, results of operations and financial condition. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described below in Part II, Item 1A, “Risk Factors,” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. 22 Table of Contents