What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-08 · 162 added, 78 removed, 384 unchanged (38% of the section changed)

12 unchanged sentences

Our Communications business consists of a variety of APIs and software solutions to optimize communications between our customers and their end users.

Our key Communications offerings include Messaging, Voice, Email, Flex, Marketing Campaigns, and User Identity and Authentication.

Our key Communications offerings include Messaging, Voice, Flex, Email and Marketing Campaigns, and User Identity and Authentication.

Our Segment business consists of software products that enable businesses to leverage their first-party data to create unique customer profiles and achieve more effective customer engagement.

Our key Segment offerings are Segment and Engage.

Together, our Communications and Segment products power our customer engagement platform.

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We believe that our CustomerAI capabilities and initiatives have the potential to increase the power and reach of our platform, make every interaction between our customers and their end users more personalized and intelligent, and accelerate our data and communications flywheel described above, benefiting both our Communications and Segment products.

In January 2024, our co-founder, Jeff Lawson, resigned as Chief Executive Officer and as a member of our board of directors, and Khozema Shipchandler, our former President, Twilio Communications, was appointed as Chief Executive Officer and as a member of our board of directors.

In the three months ended March 31, 2024 and 2023, our revenue was $1.05 billion and $1.01 billion, respectively, and our net loss was $55.3 million and $342.1 million, respectively.

In each of the three months ended March 31, 2024 and 2023, our 10 largest Active Customer Accounts generated an aggregate of 10% of our total revenue.

In the three months ended June 30, 2024 and 2023, our revenue was $1.08 billion and $1.04 billion, respectively, and our net loss was $31.9 million and $166.2 million, respectively.

In the three months ended June 30, 2024 and 2023, our 10 largest Active Customer Accounts generated an aggregate of 10% and 11% of our total revenue, respectively.

Factors Affecting Our Results of Operations

We are focused on profitable growth.

To increase revenue and grow market share, we intend to drive product innovation, leverage predictive and generative AI, further enhance our ISV, reseller and other partner relationships, improve our self-service capabilities, cross-sell our products, expand internationally, and enhance Segment data warehouse interoperability.

We also intend to optimize our business and take measures to reduce costs, including simplifying our business processes, modernizing our infrastructure, focusing on self-service, leveraging AI, and implementing other initiatives targeted at improving efficiencies in our business.

To increase revenue and grow market share, we intend to drive product innovation, leverage predictive and generative AI, further enhance our ISV, reseller and other partner relationships, improve our self-service capabilities, cross-sell our products, expand internationally, enhance Segment data warehouse interoperability and reduce time to value for Segment.

We also intend to optimize our business and take measures to reduce costs, including simplifying and further automating our business processes, modernizing our infrastructure, focusing on self-service, leveraging AI, and implementing other initiatives targeted at improving efficiencies in our business.

Our revenue is primarily derived from usage-based fees, which can lead to variability in our results of operations and at times create differences between our forecasts and actual results.

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We are winding down the software component of our Zipwhip business in 2024, which we expect will negatively impact revenue growth rates in 2024.

While we previously announced the end of life of our video product, we have extended this timeline to December 2026.

As a result, we no longer expect a significant impact to our revenue growth rates in 2024 resulting from the end of life of our video product.

We are also migrating part of Segment’s architecture to a new infrastructure provider in 2024, which we expect to allow us to recognize greater operational efficiency and scale up new AI-driven products and features.

We are also migrating part of Segment’s architecture to a new infrastructure provider in 2024, which we expect will allow us to recognize greater operational efficiency and scale up new AI-driven products and features.

We expect this migration will take several quarters and result in overlapping expenses with our original and new vendors for much of 2024, which we expect to negatively impact Segment gross margins until we complete the migration.

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We expect our prior workforce restructurings to reduce our operating expenses in future periods.

We also expect that the new cash bonus program that we introduced in 2024 to reduce or eliminate our use of equity compensation for certain employees will impact our expenses commencing in the current period.

We also expect that the new cash bonus program that we introduced in 2024 to reduce or eliminate our use of equity compensation for certain employees will continue to increase our expenses in future periods.

In February 2023, one of our customers, Oi SA, a Brazilian telecom company, initiated reorganization proceedings in a Brazilian bankruptcy court and exposed us to risks on collections of pre-petition receivables and ongoing revenue.

In April 2024, the creditors of Oi SA approved a Judicial Reorganization Plan (the “Oi Reorganization Plan”) that aims to ensure Oi SA’s operational feasibility and continuity of activities and further provides extended and discounted payment terms for pre-petition receivables.

The Oi Reorganization Plan is subject to ratification by the Brazilian bankruptcy court and contains contingencies including but not limited to Oi SA’s completion of financing by July 16, 2024.

As of March 31, 2024, we have $10.8 million in pre-petition accounts receivable (net of $4.4 million in reserves) and $16.7 million in post-petition accounts receivable due from Oi SA.

The Oi Reorganization Plan was subsequently ratified by the Brazilian bankruptcy court and contains contingencies including but not limited to Oi SA’s completion of financing by July 16, 2024, which was subsequently extended to August 8, 2024.

As of June 30, 2024, we have $6.4 million in pre-petition accounts receivable (net of $8.8 million in reserves) and $13.1 million in post-petition accounts receivable due from Oi SA.

The customer has been making regular payments on post-petition receivables.

If the Oi Reorganization Plan is not ratified, if Oi SA fails to comply with its obligations under the Oi Reorganization Plan, if the contingencies contained in the Oi Reorganization Plan are not timely resolved, or if the customer ceases to make payment on post-petition receivables, we may incur additional bad debt expense or reductions in revenue in future periods.

If Oi SA fails to comply with its obligations under the Oi Reorganization Plan, if the contingencies contained in the Oi Reorganization Plan are not timely resolved, or if the customer ceases to make payment on post-petition receivables, we may incur additional bad debt expense or reductions in revenue in future periods.

Key Business Metrics

We review a number of operational and financial metrics, including Active Customer Accounts and Dollar-Based Net Expansion Rate, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

The following table summarizes our year-over-year revenue growth and Dollar-Based Net Expansion Rate for the three months ended March 31, 2024 and 2023, and the number of Active Customer Accounts as of March 31, 2024 and 2023.

The following table summarizes our year-over-year revenue growth and Dollar-Based Net Expansion Rate for the three months ended June 30, 2024 and 2023, and the number of Active Customer Accounts as of June 30, 2024 and 2023.

Three Months Ended

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Due to this dynamic, we believe that the number of Active Customer Accounts, as currently defined, is less informative now as an indicator of the growth of our business and future revenue trends than it has been in prior periods.

In the three months ended March 31, 2024 and 2023, revenue from Active Customer Accounts represented over 99% of total revenue in each period.

In the three months ended June 30, 2024 and 2023, revenue from Active Customer Accounts represented over 99% of total revenue in each period.

Dollar‑Based Net Expansion Rate

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Revenue from acquisitions does not impact the Dollar-Based Net Expansion Rate calculation until the quarter following the one-year anniversary of the applicable acquisition, unless the acquisition closing date is the first day of a quarter.

As a result, for the quarter ended March 31, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any acquisitions made after January 1, 2023.

As a result, for the quarter ended June 30, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any acquisitions made after April 1, 2023.

Revenue from divestitures does not impact the Dollar-Based Net Expansion Rate calculation beginning in the quarter the divestiture closed, unless the divestiture closing date is the last day of a quarter.

As a result, for the quarter ended March 31, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any divestitures made after March 31, 2023.

As a result, for the quarter ended June 30, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any divestitures made after June 30, 2023.

Communications Dollar-Based Net Expansion Rate and Segment Dollar-Based Net Expansion Rate are calculated using the same methodology, but using only revenue attributable to the respective segment and Active Customer Accounts and customer accounts from Zipwhip for that respective segment.

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For these products we recognize revenue evenly over the contract term.

Our Segment reportable segment revenue is derived from Segment and Engage products that are subscription-based.

Our Segment reportable segment revenue is derived from Segment products that are subscription-based.

For these products we recognize revenue evenly over the contract term.

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Usage-based customers subject to such contracts are typically invoiced monthly in arrears for products used.

In each of the three months ended March 31, 2024 and 2023, we generated 71% of our revenue from usage-based fees.

In each of the three months ended June 30, 2024 and 2023, we generated 71% of our revenue from usage-based fees.

Subscription-based fees are earned in accordance with subscription pricing terms.

1 unchanged sentence

Subscription customers are generally invoiced in advance at the start of the contract term.

In each of the three months ended March 31, 2024 and 2023, we generated 29% of our revenue from non-usage‑based fees.

In each of the three months ended June 30, 2024 and 2023, we generated 29% of our revenue from non-usage‑based fees.

Amounts that have been charged via credit card or invoiced are recorded in revenue, deferred revenue or customer deposits, depending on whether the revenue recognition criteria have been met.

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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.

Certain costs of revenue are allocated to segments based on methodologies that best reflect the patterns of consumption of these costs.

Our arrangements with network service providers require us to pay fees based on the volume of phone calls initiated or text messages sent, as well as the number of telephone numbers acquired by us to service our customers.

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Sales and marketing expenses are generally directly attributable to each segment.

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

Certain sales and marketing expenses are allocated to segments based on methodologies that best reflect the patterns of consumption of these costs.

A small percentage of sales and marketing costs, such as costs related to corporate communications and global brand awareness, are not allocated to segments because they support company-wide processes and are managed on a company-wide level.

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General and administrative expenses also include costs related to business acquisitions and dispositions, legal and other professional services fees, certain taxes, depreciation and amortization, charitable contributions and an allocation of our general overhead expenses.

General and administrative expenses are allocated to each segment when they are directly attributable to each segment or are allocated to segments based on methodologies that best reflect the patterns of consumptions of these costs.

A significant portion of general and administrative costs, such as costs related to corporate governance, and certain legal, human resources, finance and accounting functions, support company-wide processes and are managed on a company-wide level and, therefore, are considered corporate costs and are not allocated to segments.

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Free Cash Flow and Free Cash Flow Margin

For the periods presented, we define free cash flow and free cash flow margin as net cash provided by (used in) operating activities and operating cash flow margin, respectively, less capitalized software development costs and purchases of long-lived and intangible assets, as presented in the table below:

For the periods presented, we define free cash flow and free cash flow margin as net cash provided by operating activities and operating cash flow margin, respectively, less capitalized software development costs and purchases of long-lived and intangible assets, as presented in the table below:

Three Months Ended

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(In thousands)

Net cash provided by (used in) operating activities $ 190,123 $ (97,866)

Net cash provided by operating activities $ 213,343 $ 83,646

Operating cash flow margin

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The period-to-period comparison of our historical results are not indicative of the results that may be expected in the future.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

Condensed Consolidated Statements of Operations Data:

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(1) Includes stock-based compensation expense as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

(In thousands)

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(2) Includes amortization of acquired intangibles as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

(In thousands)

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The following table sets forth our results of operations for each of the periods presented as a percentage of our total revenue:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

Condensed Consolidated Statements of Operations, as a percentage of revenue:

16 unchanged sentences

Loss before provision for income taxes

(2) (16) (3) (24)

Provision for income taxes

(1) * (1) (1)

Net loss attributable to common stockholders

(3 %) (16 %) (4 %) (25 %)

____________________________________

* Less than 0.5% of revenue.

** Columns may not add up to 100% due to rounding.

Comparison of Three Months Ended March 31, 2024 and 2023

Comparison of Three Months Ended June 30, 2024 and 2023

Three Months Ended

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Consolidated total revenue $ 1,082,502 $ 1,037,761 $ 44,741 4 %

In the three months ended March 31, 2024, Communications revenue increased by $39.1 million, or 4%, compared to the same period last year.

This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 103%, as well as $48.9 million in revenue derived from our new Communications Active Customer Accounts and new customer accounts from Zipwhip.

These increases were partially offset by a decrease of $28.0 million related to revenue from our ValueFirst and Internet of Things businesses which we divested after the first quarter of 2023.

In the three months ended March 31, 2024, Segment revenue increased by $1.4 million, or 2%, compared to the same period last year.

This change was primarily attributable to the decreased usage of our products due to churn and contraction affecting our existing customers in 2023, as reflected in our Segment Dollar‑Based Net Expansion Rate of 92%;

partially offset by $8.5 million in revenue derived from our new Segment Active Customer Accounts.

In the three months ended June 30, 2024, Communications revenue increased by $42.8 million, or 4%, compared to the same period last year.

This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 102%, as well as $48.6 million in revenue derived from our new Communications Active Customer Accounts.

These increases were partially offset by a decrease of $24.8 million related to revenue from our Internet of Things and ValueFirst businesses which we divested during the second and third quarters of 2023, respectively.

In the three months ended June 30, 2024, Segment revenue increased by $2.0 million, or 3%, compared to the same period last year.

This change was primarily attributable to $8.1 million in revenue derived from our new Segment Active Customer Accounts, partially offset by the decreased usage of our products due to churn and contraction affecting our existing customers in 2023, as reflected in our Segment Dollar‑Based Net Expansion Rate of 93%.

Cost of Revenue and Gross Profit

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Gross profit $ 555,845 $ 505,755 $ 50,090 10 %

In the three months ended March 31, 2024, cost of revenue decreased by $12.9 million, or 2%, compared to the same period last year.

The decrease was primarily attributable to a $14.3 million decrease in amortization of intangible assets and an $8.9 million decrease in network service providers’ costs, net of the impact of hedging instruments.

These decreases were partially offset by a $6.6 million increase in hosting fees and a $4.4 million increase in amortization of internal-use software development costs.

In the three months ended March 31, 2024, gross profit increased by $53.4 million, or 11%, compared to the same period last year.

In the three months ended June 30, 2024, cost of revenue decreased by $5.3 million, or 1%, compared to the same period last year.

The decrease was primarily attributable to a $14.0 million decrease in amortization of intangible assets and a $4.8 million decrease in network service providers’ costs, net of the impact of hedging instruments.

These decreases were partially offset by a $14.4 million increase in hosting fees.

In the three months ended June 30, 2024, gross profit increased by $50.1 million, or 10%, compared to the same period last year.

This increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

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Total operating expenses $ 574,882 $ 647,582 $ (72,700) (11) %

In the three months ended March 31, 2024, research and development expenses increased by $13.0 million, or 5%, compared to the same period last year.

The increase was primarily attributable to a $6.4 million increase in total personnel costs, despite a 23% decrease in average research and development headcount during the period.

The $6.4 million increase in total personnel costs was primarily driven by a $14.5 million increase in bonus expenses as a result of the introduction of our new cash bonus program, a $3.8 million increase in stock-based compensation expense, and a $5.3 million increase related to our employee sabbatical program due to the reversal of certain expenses that occurred upon discontinuation of the program in the first quarter of 2023.

These increases were partially offset by a $14.6 million decrease in salaries expense and a $3.2 million decrease in employee benefits expense due to our lower headcount.

The increase in research and development expenses was also attributable to a $4.1 million increase in software subscription expenses.

In the three months ended March 31, 2024, sales and marketing expenses decreased by $45.9 million, or 18%, compared to the same period last year.

The decrease was primarily attributable to a $34.2 million decrease in total personnel costs, which was mostly driven by the restructuring of our workforce in February 2023 and December 2023, that contributed to a 24% decrease in average sales and marketing headcount during the period.

Sales and marketing expenses also decreased due to a $8.3 million decrease in amortization of intangible assets and a $3.4 million decrease in advertising expenses.

In the three months ended March 31, 2024, general and administrative expenses decreased by $0.6 million, or 1%, compared to the same period last year.

Fluctuations in general and administrative expense categories were not significant either individually or in the aggregate.

In the three months ended March 31, 2024, restructuring costs decreased by $112.0 million, or 92%, compared to the same period last year.

The decrease was primarily attributable to restructuring activities undertaken in February 2023, which had a more substantial financial impact than the restructuring activities undertaken in the first quarter of 2024.

In the three months ended March 31, 2024, impairment of long-lived assets decreased by $21.8 million, or 100%, compared to the same period last year.

The prior year charges were related to the impairment of certain of our operating leases and other long-lived assets as a result of permanent office closures in the first quarter of 2023.

In the three months ended June 30, 2024, research and development expenses increased by $16.8 million, or 7%, compared to the same period last year.

The increase was primarily attributable to a $17.3 million increase in total personnel costs, which was primarily driven by a $13.9 million increase in bonus expenses as a result of the introduction of our new cash bonus program, and a $7.4 million increase in stock-based compensation expense.

These increases were partially offset by a $5.1 million decrease in salaries expense due to a 14% decrease in average research and development headcount compared to the same period last year.

In the three months ended June 30, 2024, sales and marketing expenses decreased by $44.0 million, or 17%, compared to the same period last year.

The decrease was primarily attributable to a $25.1 million decrease in total personnel costs, which was primarily driven by a 19% decrease in average sales and marketing headcount compared to the same period last year.

The decrease in headcount was primarily due to the restructuring of our workforce in December 2023.

Sales and marketing expenses also decreased due to an $8.1 million decrease in amortization of intangible assets and a $5.1 million decrease in expenses related to corporate events.

In the three months ended June 30, 2024, general and administrative expenses decreased by $20.9 million, or 15%, compared to the same period last year.

The decrease was primarily attributable to the $28.5 million loss on net assets held for sale recorded in the 2023 period related to the sale of our ValueFirst business.

This decrease was partially offset by a $14.3 million increase in charitable contributions that we made through Twilio.org during the second quarter of 2024.

Fluctuations in other general and administrative expense categories were not significant either individually or in the aggregate.

In the three months ended June 30, 2024, restructuring costs decreased by $15.2 million, or 102%, compared to the same period last year.

The decrease was primarily attributable to the significant restructuring costs incurred in the 2023 period related to our February 2023 restructuring activities.

In the three months ended June 30, 2024, impairment of long-lived assets decreased by $9.3 million, or 100%, compared to the same period last year.

The prior year charges were related to the impairment of certain of our operating leases and other long-lived assets as a result of permanent office closures in 2023.

There were no such impairments in the current period.

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Total other expenses, net $ 7,206 $ 23,616 $ (16,410) (69) %

In the three months ended March 31, 2024, other expenses, net, decreased by $65.9 million, or 98%, compared to the same period last year.

The decrease was primarily attributable to a $46.2 million impairment of a strategic investment that occurred during the first quarter of 2023 and a $18.9 million increase in income related to our investments in the first quarter of 2024 compared to the same period in 2023.

In the three months ended June 30, 2024, other expenses, net, decreased by $16.4 million, or 69%, compared to the same period last year.

The decrease was primarily attributable to an $8.4 million decrease in our share of losses from our equity method investment and an $8.7 million increase in other income, net, primarily related to the income earned on our debt securities in the current period.

These increases were partially offset by unrealized losses related to fluctuations in foreign currency exchange rates.

Results of Operations by Segment

The following table presents the results for non-GAAP income (loss) from operations, as reviewed by our CODM, for each of our Communications and Segment reportable segments for the three months ended March 31, 2024 and 2023:

Three Months Ended

3 unchanged sentences

Twilio Segment $ (15,815) $ (18,979) $ 3,164 (17) %

In the three months ended March 31, 2024, Communications non-GAAP income from operations increased by $68.5 million, or 38%, compared to the same period last year.

The increase was primarily driven by an increase in Communications revenue of $39.1 million, as described in the Revenue section above, and a decrease in Communications operating expenses and cost of revenue.

The decrease in operating expenses was primarily attributable to a $23.2 million decrease in total Communications personnel costs, which was mainly due to the restructuring of our workforce in February 2023 and December 2023.

In the three months ended June 30, 2024, Communications non-GAAP income from operations increased by $57.4 million, or 30%, compared to the same period last year.

The increase was primarily driven by an increase in Communications revenue of $42.8 million, as described in the Revenue section above, a $10.1 million decrease in total Communications personnel costs as a result of a 17% decrease in average Communications headcount compared to the same period last year, a $6.8 million decrease in the provision for doubtful accounts and a $4.8 million decrease in network service providers’ costs, net of the impact of hedging instruments, partially offset by an $11.2 million increase in hosting fees.

In the three months ended June 30, 2024, Segment non-GAAP loss from operations decreased by $3.2 million, or 17%, compared to the same period last year.

The decrease was driven by a decrease in Segment operating expenses of $5.3 million and an increase in Segment revenue of $2.0 million, as described in the Revenue section above, partially offset by an increase in hosting fees of $3.2 million.

Comparison of Six Months Ended June 30, 2024 and 2023

Six Months Ended

2024 2023 Change

(Dollars in thousands)

Twilio Communications $ 1,979,308 $ 1,897,483 $ 81,825 4 %

Twilio Segment 150,244 146,842 3,402 2 %

Consolidated total revenue $ 2,129,552 $ 2,044,325 $ 85,227 4 %

In the six months ended June 30, 2024, Communications revenue increased by $81.8 million, or 4%, compared to the same period last year.

This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 103%, as well as $97.5 million in revenue derived from our new Communications Active Customer Accounts and new customer accounts from Zipwhip.

These increases were partially offset by a decrease of $52.8 million related to revenue from our Internet of Things and ValueFirst businesses which we divested during the second and third quarters of 2023, respectively.

In the six months ended June 30, 2024, Segment revenue increased by $3.4 million, or 2%, compared to the same period last year.

This change was primarily attributable to $16.6 million in revenue derived from our new Segment Active Customer Accounts, partially offset by the decreased usage of our products due to churn and contraction affecting our existing customers in 2023, as reflected in our Segment Dollar‑Based Net Expansion Rate of 92%.

Cost of Revenue and Gross Profit

Six Months Ended

2024 2023 Change

(Dollars in thousands)

Cost of revenue $ 1,029,666 $ 1,047,880 $ (18,214) (2) %

Gross profit $ 1,099,886 $ 996,445 $ 103,441 10 %

In the six months ended June 30, 2024, cost of revenue decreased by $18.2 million, or 2%, compared to the same period last year.

The decrease was primarily attributable to a $28.3 million decrease in amortization of intangible assets and a $13.7 million decrease in network service providers’ costs, net of the impact of hedging instruments.

These decreases were partially offset by a $21.0 million increase in hosting fees and a $4.2 million increase in amortization of internal-use software development costs.

In the six months ended June 30, 2024, gross profit increased by $103.4 million, or 10%, compared to the same period last year.

This increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

Operating Expenses

Six Months Ended

2024 2023 Change

(Dollars in thousands)

Research and development $ 495,267 $ 465,491 $ 29,776 6 %

Sales and marketing 431,574 521,485 (89,911) (17) %

General and administrative 225,950 247,420 (21,470) (9) %

Restructuring costs 9,636 136,844 (127,208) (93) %

Impairment of long-lived assets — 31,116 (31,116) (100) %

Total operating expenses $ 1,162,427 $ 1,402,356 $ (239,929) (17) %

In the six months ended June 30, 2024, research and development expenses increased by $29.8 million, or 6%, compared to the same period last year.

The increase was primarily attributable to a $23.7 million increase in total personnel costs, which was primarily driven by a $28.4 million increase in bonus expenses as a result of our new cash bonus program and an $11.2 million increase in stock-based compensation expense.

These increases were partially offset by a $19.6 million decrease in salaries expense due to a 21% decrease in average research and development headcount compared to the same period last year as a result of the restructuring of our workforce in February 2023 and December 2023.

The increase in research and development expenses was also attributable to a $6.2 million increase in hosting fees to support development and staging of our products.

In the six months ended June 30, 2024, sales and marketing expenses decreased by $89.9 million, or 17%, compared to the same period last year.

The decrease was primarily attributable to a $59.0 million decrease in total personnel costs, which was primarily driven by a 23% decrease in average sales and marketing headcount compared to the same period last year.

The decrease in headcount was primarily driven by the restructuring of our workforce in February 2023 and December 2023.

Sales and marketing expenses also decreased due to a $16.4 million decrease in amortization of intangible assets and a $5.3 million decrease in advertising expenses.

In the six months ended June 30, 2024, general and administrative expenses decreased by $21.5 million, or 9%, compared to the same period last year.

The decrease was primarily attributable to the $32.3 million loss on divested net assets recorded in the 2023 period related to the sale of our ValueFirst and Internet of Things businesses.

This decrease was partially offset by a $14.0 million increase in charitable contributions that we made through Twilio.org during the first half of 2024.

In the six months ended June 30, 2024, restructuring costs decreased by $127.2 million, or 93%, compared to the same period last year.

The decrease was primarily attributable to the significant restructuring costs incurred in the 2023 period related to our February 2023 restructuring activities.

In the six months ended June 30, 2024, impairment of long-lived assets decreased by $31.1 million, or 100%, compared to the same period last year.

The prior year charges were related to the impairment of certain of our operating leases and other long-lived assets as a result of permanent office closures in the first half of 2023.

There were no such impairments in the current period.

Other Expenses, net

Six Months Ended

2024 2023 Change

(Dollars in thousands)

Share of losses from equity method investment $ 53,515 $ 62,780 $ (9,265) (15) %

Impairment of strategic investments 667 46,154 (45,487) (99) %

Other income, net

(45,319) (17,730) (27,589) (156) %

Total other expenses, net $ 8,863 $ 91,204 $ (82,341) (90) %

In the six months ended June 30, 2024, other expenses, net, decreased by $82.3 million, or 90%, compared to the same period last year.

The decrease was primarily attributable to a $46.2 million impairment of a strategic investment that occurred during the first half of 2023, a $27.6 million increase in other income, net, primarily related to an increase in income earned on our debt securities, and a $9.3 million decrease in our share of losses from our equity method investment.

Results of Operations by Segment

Six Months Ended

2024 2023 Change

(Dollars in thousands)

Twilio Communications $ 498,940 $ 372,988 $ 125,952 34 %

Twilio Segment $ (36,809) $ (36,196) $ (613) 2 %

In the six months ended June 30, 2024, Communications non-GAAP income from operations increased by $126.0 million, or 34%, compared to the same period last year.

The increase was primarily driven by an increase in Communications revenue of $81.8 million, as described in the Revenue section above, and a $33.4 million decrease in total Communications personnel costs, which was mainly due to the restructuring of our workforce in February 2023 and December 2023.

These restructurings contributed to a 25% decrease in average Communications headcount compared to the same period last year.

Communications non-GAAP income from operations also increased due to an $8.9 million decrease in network service providers’ costs, net of the impact of hedging instruments.

In the three months ended March 31, 2024, Segment non-GAAP loss from operations increased by $3.8 million, or 22%, compared to the same period last year.

The increase was driven by an increase in Segment operating expenses of $3.5 million and an increase in Segment cost of revenue of $1.7 million, partially offset by an increase in Segment revenue of $1.4 million, as described in the Revenue section above.

The increase was also due to a $9.2 million decrease in the provision for doubtful accounts and a $13.7 million decrease in network service providers’ costs, net of the impact of hedging instruments, which was partially offset by a $17.1 million increase in hosting fees.

In the six months ended June 30, 2024, Segment non-GAAP loss from operations increased by $0.6 million, or 2%, compared to the same period last year.

The increase was driven by an increase in hosting fees of $3.9 million, partially offset by a decrease in Segment operating expenses of $1.8 million and an increase in Segment revenue of $3.4 million, as described in the Revenue section above.

Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $672.6 million and short-term marketable securities of $3.2 billion.

As of June 30, 2024, we had cash and cash equivalents of $755.1 million and short-term marketable securities of $2.4 billion.

Cash equivalents consist of money market funds and commercial paper.

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In March 2024, our board of directors authorized a second share repurchase program for an additional $2.0 billion in aggregate value of our common stock.

As of March 31, 2024, we have repurchased $1.1 billion of our common stock in the open market under these programs, and approximately $1.9 billion of the aggregate authorized amount remained available for future repurchases.

As of June 30, 2024, we have repurchased approximately $2.0 billion of our common stock in the open market under these programs, and approximately $1.0 billion of the aggregate authorized amount remained available for future repurchases.

Repurchases under these programs will be made through open market, private transactions or other means in compliance with applicable federal securities laws, and could include repurchases pursuant to Rule 10b5-1 trading plans.

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The programs expire on December 31, 2024.

In the three months ended March 31, 2024, we repurchased $384.3 million in aggregate value, or 6.1 million shares, of our common stock on the open market under these programs.

In the three and six months ended June 30, 2024, we repurchased $898.6 million in aggregate value, or 15.2 million shares, and $1.3 billion in aggregate value, or 21.4 million shares, respectively, of our common stock on the open market under these programs.

2029 Notes and 2031 Notes

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The following table summarizes our cash flows:

Three Months Ended

Six Months Ended

(In thousands)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash — 108

Net increase (decrease) in cash, cash equivalents and restricted cash $ 16,664 $ (16,900)

Net increase in cash, cash equivalents and restricted cash, including cash classified as held for sale

$ 116,828 $ 26,309

Cash, cash equivalents and restricted cash classified as held for sale

Net increase in cash, cash equivalents and restricted cash

$ 116,828 $ 19,003

Cash Flows from Operating Activities

In the three months ended March 31, 2024, cash provided by operating activities consisted primarily of our net loss of $55.3 million adjusted for non-cash items, including $158.6 million of stock-based compensation expense, $53.3 million of depreciation and amortization expense, $18.8 million amortization of deferred commissions, $29.6 million of share of losses from equity method investments and $25.1 million of cumulative changes in operating assets and liabilities.

In the six months ended June 30, 2024, cash provided by operating activities consisted primarily of our net loss of $87.2 million adjusted for non-cash items, including $306.3 million of stock-based compensation expense, $105.4 million of depreciation and amortization expense, $37.8 million amortization of deferred commissions, $53.5 million of share of losses from equity method investments and $32.7 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $30.8 million primarily due to timing of cash receipts and pre-payments of certain operating expenses.

Accounts payable and other current liabilities decreased $35.4 million primarily driven by timing of payments to vendors.

In the three months ended March 31, 2023, cash used in operating activities consisted primarily of our net loss of $342.1 million adjusted for non-cash items, including $170.8 million of stock-based compensation expense, $71.4 million of depreciation and amortization expense, $21.8 million of impairment of operating lease assets and other long-lived assets, $8.6 million of non-cash reduction in our operating right-of-use asset, $17.9 million amortization of deferred commissions, $30.4 million of our share of losses from an equity method investment, $46.2 million of impairment of an investment that we acquired in 2021, and $143.2 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $86.7 million primarily due to revenue growth, timing of cash receipts and pre-payments and certain operating expenses.

Accounts payable and other current liabilities increased $19.1 million primarily driven by a $33.2 million increase in the restructuring liabilities that was offset by a $15.0 million decrease in the sabbatical benefit accrual as a result of lower headcount and sunsetting of the program.

Operating lease liabilities decreased $24.2 million due to payments made against our operating lease obligations.

In the six months ended June 30, 2023, cash used in operating activities consisted primarily of our net loss of $508.3 million adjusted for non-cash items, including $323.9 million of stock-based compensation expense which included the impact of our February 2023 restructuring activities, $146.4 million of depreciation and amortization expense, $62.8 million of our share of losses from an equity method investment, $46.2 million of impairment of an investment that we acquired in 2021, $36.1 million amortization of deferred commissions, $31.1 million of impairment of operating lease assets and other long-lived assets, $32.3 million loss on net assets held for sale or divested, $16.1 million of non-cash reduction in our operating right-of-use asset, and $241.2 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $137.2 million primarily due to revenue growth, timing of cash receipts and prepayments and certain operating expenses.

Accounts payable and other current liabilities decreased $57.9 million primarily driven by an $18.1 million decrease in the sabbatical benefit accrual as a result of lower headcount and sunsetting of the program.

Operating lease liabilities decreased $27.9 million due to payments made against our operating lease obligations.

Other long-term assets increased $19.2 million primarily due to an increase in the sales commissions balances related to the growth of our business.

Cash Flows from Investing Activities

In the three months ended March 31, 2024, cash provided by investing activities was $189.8 million, primarily consisting of $202.6 million of maturities and sales of marketable securities, net of purchases, partially offset by $11.2 million related to capitalized software development costs and $1.7 million related to purchases of long-lived assets.

In the three months ended March 31, 2023, cash provided by investing activities was $202.5 million, primarily consisting of $219.1 million of proceeds from sales and maturities of marketable securities, net of purchases of marketable securities and other investments;

partially offset by $9.9 million related to capitalized software development costs and $6.8 million related to purchases of long-lived assets.

In the six months ended June 30, 2024, cash provided by investing activities was $974.4 million, primarily consisting of $1.0 billion of maturities and sales of marketable securities, net of purchases, partially offset by $25.8 million related to capitalized software development costs and $2.8 million related to purchases of long-lived assets.

In the six months ended June 30, 2023, cash provided by investing activities was $509.8 million primarily consisting of $538.3 million of proceeds from sales and maturities of marketable securities, net of purchases of marketable securities and other investments;

$20.1 million related to capitalized software development costs and $8.3 million related to purchases of long-lived assets.

Cash Flows from Financing Activities

In the three months ended March 31, 2024, cash used in financing activities was $363.2 million, primarily consisting of $356.9 million of cash paid to repurchase 6.1 million shares of our common stock in the open market, including related costs.

In the three months ended March 31, 2023, cash used in financing activities was $121.5 million, primarily consisting of $115.0 million of cash paid to repurchase 1.9 million shares of our Class A common stock in the open market, including related costs, and $7.4 million in principal payments on debt and finance leases, offset by $3.3 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan.

In the six months ended June 30, 2024, cash used in financing activities was $1.3 billion, primarily consisting of $1.3 billion of cash paid to repurchase 15.2 million shares of our common stock in the open market, including related costs.

In the six months ended June 30, 2023, cash used in financing activities was $469.4 million primarily consisting of $485.1 million of cash paid to repurchase 8.3 million shares of our Class A common stock in the open market, including related costs, and $9.8 million in principal payments on debt and finance leases, offset by $28.1 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan.

Critical Accounting Policies and Estimates

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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-Q

Item 2. Management’s Discussion and Analysis