What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 140 added, 120 removed, 426 unchanged (38% of the section changed)

15 unchanged sentences

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

We believe that our two business units are complementary and address adjacent needs and related problems for our customers.

Our goal is to create a flywheel for effective customer engagement by combining Segment’s user profiles with our rich Communications data to drive more personalized and intelligent customer interactions.

We believe that our business unit structure enables each business unit to execute toward its respective goals with appropriate focus and independence, best positioning us to achieve our long-term plan of creating the leading customer engagement platform.

In 2023, we revealed CustomerAI, our predictive and generative AI layer, which couples the power of large language models with the rich customer data that flows through our Customer Engagement Platform to help brands unlock enhanced consumer experiences.

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 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.

In the three months ended September 30, 2024 and 2023, our revenue was $1.13 billion and $1.03 billion, respectively, and our net loss was $9.7 million and $141.7 million, respectively.

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

Factors Affecting Our Results of Operations

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We also experience seasonal trends due to increased consumer activity in the fourth quarter, which may result in lower sequential revenue in the first quarter.

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

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.

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

This migration will result in overlapping expenses with our original and new vendors for the fourth quarter of 2024, which we expect to negatively impact Segment gross margins in such quarter.

We expect to complete the migration by the end of 2024.

We also expect that the wind-down of the software component of our Zipwhip business will negatively impact our revenue growth rates in the fourth quarter of 2024.

In 2024, we introduced a company-wide annual cash bonus program to reduce our use of equity compensation.

The bonus payout amount for each eligible participant is determined based on Company and individual full year performance metrics.

In the three and nine months ended September 30, 2024, we recorded $45.8 million and $94.4 million of expense related to the program, respectively.

The third quarter of 2024 included an additional $17.9 million of expense due to a higher anticipated bonus payout as a result of an increased outlook for the Company’s full year performance metrics.

The program also provided for a 25% mid-year bonus cash payment in its initial year only, which resulted in a $24.3 million payment in July 2024.

As of September 30, 2024, the accrued bonus liability was $70.2 million recorded in the accrued expenses and other current liabilities in our condensed consolidated balance sheet included elsewhere in this Quarterly Report on Form 10-Q.

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 continue to increase our expenses in future periods.

We also expect the new cash bonus program as described above to 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 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 Oi Reorganization Plan was subsequently ratified by the Brazilian bankruptcy court and contains various contingencies.

As of September 30, 2024, we have $6.4 million in pre-petition receivables recorded in other long-term assets (net of $8.8 million in reserves) and $10.8 million in post-petition accounts receivable due from Oi SA.

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

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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 June 30, 2024 and 2023, and the number of Active Customer Accounts as of June 30, 2024 and 2023.

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

Three Months Ended

September 30,

Active Customer Accounts 320,000 306,000

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

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

Dollar‑Based Net Expansion Rate

4 unchanged sentences

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 June 30, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any acquisitions made after April 1, 2023.

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

As a result, for the quarter ended September 30, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any divestitures made after September 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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These contracts may include negotiated terms and typically include minimum revenue commitments of varying durations.

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

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

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

In the three months ended September 30, 2024 and 2023, we generated 72% and 71% of our revenue, respectively, 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 June 30, 2024 and 2023, we generated 29% of our revenue from non-usage‑based fees.

In the three months ended September 30, 2024 and 2023, we generated 28% and 29% of our revenue, respectively, 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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Operating Expenses

The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, sales commissions and bonuses and stock‑based compensation.

The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, sales commissions, bonuses and stock‑based compensation.

We also incur other non‑personnel costs related to our general overhead expenses.

3 unchanged sentences

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

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

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

A small percentage of research and development costs, such as costs related to digital architecture and information security, are not allocated to segments because they support company-wide processes and are managed on a company-wide level.

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Impairment of long-lived assets consists of impairment of intangible assets and certain operating right-of-use assets and the associated leasehold improvements and property and equipment when the carrying amounts exceed their respective fair values.

Other Expenses, Net

Our other expenses, net consist primarily of our share of losses from our equity method investment, impairment charges and gains and losses related to our strategic investments and marketable securities, including interest income;

Other Income (Expenses), Net

Our other income (expenses), net consist primarily of our share of losses from our equity method investment, impairment charges and gains and losses related to our strategic investments and marketable securities, including interest income;

and debt-related costs, including interest expense.

12 unchanged sentences

Three Months Ended

September 30,

Reconciliation:

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Three Months Ended

September 30,

Reconciliation:

5 unchanged sentences

Acquisition and divestiture related expenses — (183)

Loss on net assets held for sale — (28,453)

Payroll taxes related to stock-based compensation (792) (3,156)

6 unchanged sentences

Three Months Ended

September 30,

Reconciliation:

6 unchanged sentences

Acquisition and divestiture related expenses — 183

Loss on net assets held for sale — 28,453

Payroll taxes related to stock-based compensation 1,049 3,337

8 unchanged sentences

Three Months Ended

September 30,

Reconciliation:

7 unchanged sentences

Free cash flow margin

Net cash provided by (used in) investing activities

$ 267,355 $ (144,032)

Net cash used in financing activities $ (642,780) $ (66,865)

Results of Operations

1 unchanged sentence

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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

17 unchanged sentences

Loss from operations (4,894) (108,903) (67,435) (514,814)

Other expenses, net:

Other income (expenses), net:

Share of losses from equity method investment (25,279) (31,058) (78,794) (93,838)

1 unchanged sentence

Other income, net 27,325 1 72,644 17,731

Total other expenses, net (7,206) (23,616) (8,863) (91,204)

Total other income (expenses), net 1,243 (31,057) (7,620) (122,261)

Loss before provision for income taxes

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

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(2) Includes amortization of acquired intangibles as follows:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

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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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

11 unchanged sentences

Loss from operations * (11) (2) (17)

Other expenses, net

Other income (expenses), net

Share of losses from equity method investment (2) (3) (2) (3)

1 unchanged sentence

Other income, net 2 * 2 1

Total other expenses, net (1) (2) * (4)

Total other income (expenses), net * (3) * (4)

Loss before provision for income taxes

1 unchanged sentence

Provision for income taxes

(1) * (1) (1)

Net loss attributable to common stockholders

3 unchanged sentences

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

Comparison of Three Months Ended June 30, 2024 and 2023

Comparison of Three Months Ended September 30, 2024 and 2023

Three Months Ended

September 30,

2024 2023 Change

3 unchanged sentences

Consolidated total revenue $ 1,133,649 $ 1,033,670 $ 99,979 10 %

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

In the three months ended September 30, 2024, Communications revenue increased by $100.0 million, or 10%, 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 106%, as well as $51.1 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%.

In the three months ended September 30, 2024, Segment revenue remained unchanged compared to the same period last year.

We recognized $6.9 million in revenue derived from our new Segment Active Customer Accounts, offset by the decreased usage of our products due to churn and contraction affecting our existing customers, as reflected in our Segment Dollar‑Based Net Expansion Rate of 91%.

Cost of Revenue and Gross Profit

Three Months Ended

September 30,

2024 2023 Change

2 unchanged sentences

Gross profit $ 578,629 $ 516,319 $ 62,310 12 %

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.

In the three months ended September 30, 2024, cost of revenue increased by $37.7 million, or 7%, compared to the same period last year.

The increase was primarily attributable to a $43.9 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $9.1 million increase in hosting fees.

These increases were partially offset by a $13.4 million decrease in amortization of intangible assets.

In the three months ended September 30, 2024, gross profit increased by $62.3 million, or 12%, compared to the same period last year.

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

1 unchanged sentence

Three Months Ended

September 30,

2024 2023 Change

6 unchanged sentences

Total operating expenses $ 583,523 $ 625,222 $ (41,699) (7) %

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.

In the three months ended September 30, 2024, research and development expenses increased by $19.2 million, or 8%, compared to the same period last year.

The increase was primarily attributable to a $14.6 million increase in total personnel costs, net of capitalized costs, despite a 6% decrease in average research and development headcount compared to the same period last year.

The increase in personnel costs was primarily driven by a $27.2 million increase in bonus expenses as a result of the introduction of our new cash bonus program, partially offset by a $5.3 million increase in capitalized costs and an $8.0 million decrease in stock-based compensation expense.

The increase in research and development expenses was also attributable to a $4.6 million increase in hosting fees to support development and staging of our products.

In the three months ended September 30, 2024, sales and marketing expenses decreased by $50.3 million, or 19%, compared to the same period last year.

The decrease was primarily attributable to a $20.6 million decrease in total personnel costs, which was primarily driven by a 16% 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.

Sales and marketing expenses also decreased due to an $8.1 million decrease in advertising expenses, a $7.7 million decrease in amortization of intangible assets and a $6.7 million decrease in expenses related to corporate events.

In the three months ended September 30, 2024, general and administrative expenses decreased by $7.7 million, or 7%, compared to the same period last year.

The decrease was primarily attributable to a $15.8 million decrease in the provision for doubtful accounts, partially offset by a $7.0 million increase in professional services fees.

In the three months ended September 30, 2024, restructuring costs increased by $0.3 million, or 7%, compared to the same period last year.

Restructuring costs and related fluctuations were not significant.

In the three months ended September 30, 2024, impairment of long-lived assets decreased by $3.2 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.

Other Expenses, net

Other (Income) Expenses, net

Three Months Ended

September 30,

2024 2023 Change

4 unchanged sentences

(27,325) (1) (27,324) (100) %

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

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.

Total other (income) expenses, net

$ (1,243) $ 31,057 $ (32,300) (104) %

In the three months ended September 30, 2024, other (income) expenses, net, increased by $32.3 million, or 104%, compared to the same period last year.

The decrease was primarily attributable to a $27.3 million increase in other income, net, primarily related to the income earned on our securities in the current period and unrealized gains related to fluctuations in foreign currency exchange rates, and a $5.8 million decrease in our share of losses from our equity method investment.

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 June 30, 2024 and 2023:

Three Months Ended

September 30,

2024 2023 Change

(Dollars in thousands)

Twilio Communications $ 249,930 $ 192,524 $ 57,406 30 %

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

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

Twilio Communications non-GAAP income from operations

$ 267,773 $ 220,610 $ 47,163 21 %

Twilio Segment non-GAAP loss from operations

$ (15,805) $ (17,740) $ 1,935 (11) %

In the three months ended September 30, 2024, Communications non-GAAP income from operations increased by $47.2 million, or 21%, compared to the same period last year.

The increase was primarily driven by an increase in Communications revenue of $100.0 million, as described in the Revenue section above, and a $15.6 million decrease in the provision for doubtful accounts.

This increase was partially offset by a $43.9 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $22.5 million increase in total Communications personnel costs, despite a 9% decrease in average Communications headcount during the period.

The $22.5 million increase in total Communications personnel costs was primarily driven by a $26.8 million increase in bonus expenses as a result of the introduction of our new cash bonus program.

In the three months ended September 30, 2024, Segment non-GAAP loss from operations decreased by $1.9 million, or 11%, compared to the same period last year.

The decrease was driven by a decrease in Segment operating expenses of $5.8 million, partially offset by an increase in hosting fees of $3.0 million.

Comparison of Nine Months Ended September 30, 2024 and 2023

Nine Months Ended

September 30,

2024 2023 Change

3 unchanged sentences

Consolidated total revenue $ 3,263,201 $ 3,077,995 $ 185,206 6 %

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

In the nine months ended September 30, 2024, Communications revenue increased by $181.8 million, or 6%, 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 104%, as well as $148.6 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%.

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

This change was primarily attributable to $23.5 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, as reflected in our Segment Dollar‑Based Net Expansion Rate of 92%.

Cost of Revenue and Gross Profit

Six Months Ended

Nine Months Ended

September 30,

2024 2023 Change

2 unchanged sentences

Gross profit $ 1,678,515 $ 1,512,764 $ 165,751 11 %

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.

In the nine months ended September 30, 2024, cost of revenue increased by $19.5 million, or 1%, compared to the same period last year.

The increase was primarily attributable to a $30.2 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $30.0 million increase in hosting fees.

These increases were partially offset by a $41.6 million decrease in amortization of intangible assets.

In the nine months ended September 30, 2024, gross profit increased by $165.8 million, or 11%, 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

Nine Months Ended

September 30,

2024 2023 Change

6 unchanged sentences

Total operating expenses $ 1,745,950 $ 2,027,578 $ (281,628) (14) %

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.

In the nine months ended September 30, 2024, research and development expenses increased by $49.0 million, or 7%, compared to the same period last year.

The increase was primarily attributable to a $30.7 million increase in total personnel costs, net of capitalized costs, which was primarily driven by a $55.6 million increase in bonus expenses as a result of our new cash bonus program, partially offset by a $20.3 million decrease in salaries expense due to a 17% 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 $10.7 million increase in hosting fees to support development and staging of our products and an $8.8 million increase in software subscription expenses.

In the nine months ended September 30, 2024, sales and marketing expenses decreased by $140.2 million, or 18%, compared to the same period last year.

The decrease was primarily attributable to a $79.4 million decrease in total personnel costs, which was primarily driven by a 21% 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.

Sales and marketing expenses also decreased due to a $24.0 million decrease in amortization of intangible assets, a $13.4 million decrease in advertising expenses and an $8.5 million decrease in expenses related to corporate events.

In the nine months ended September 30, 2024, general and administrative expenses decreased by $29.2 million, or 8%, 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 and a $22.7 million decrease in the provision for doubtful accounts.

The decrease in general and administrative expenses was partially offset by a $14.0 million increase in professional services fees and a $13.9 million increase in charitable contributions that we made through Twilio.org during the first nine months of 2024.

In the nine months ended September 30, 2024, restructuring costs decreased by $127.0 million, or 90%, 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.

In the nine months ended September 30, 2024, impairment of long-lived assets decreased by $34.3 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 the first half of 2023.

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Other Expenses, net

Six Months Ended

Nine Months Ended

September 30,

2024 2023 Change

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Total other expenses, net

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.

$ 7,620 $ 122,261 $ (114,641) (94) %

In the nine months ended September 30, 2024, other expenses, net, decreased by $114.6 million, or 94%, 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 nine months ended September 30, 2023, a $54.9 million increase in other income, net, primarily related to an increase in income earned on our debt securities, and a $15.0 million decrease in our share of losses from our equity method investment.

Results of Operations by Segment

Six Months Ended

Nine Months Ended

September 30,

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.

Twilio Communications non-GAAP income from operations

$ 766,713 $ 593,599 $ 173,114 29 %

Twilio Segment non-GAAP loss from operations

$ (52,613) $ (53,937) $ 1,324 (2) %

In the nine months ended September 30, 2024, Communications non-GAAP income from operations increased by $173.1 million, or 29%, compared to the same period last year.

The increase was primarily driven by an increase in Communications revenue of $181.8 million, as described in the Revenue section above, a $24.8 million decrease in the provision for doubtful accounts and a $10.9 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 21% decrease in average Communications headcount compared to the same period last year.

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.

These drivers were partially offset by a $30.2 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $23.1 million increase in hosting fees.

In the nine months ended September 30, 2024, Segment non-GAAP loss from operations decreased by $1.3 million, or 2%, compared to the same period last year.

The decrease was driven by a decrease in Segment operating expenses of $7.6 million and an increase in Segment revenue of $3.4 million, as described in the Revenue section above, partially offset by a $9.7 million increase in cost of revenue.

Liquidity and Capital Resources

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

As of September 30, 2024, we had cash and cash equivalents of $584.0 million and short-term marketable securities of $2.1 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 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.

As of September 30, 2024, we have repurchased approximately $2.6 billion of our common stock in the open market under these programs, and approximately $412.0 million 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 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.

In the three and nine months ended September 30, 2024, we repurchased $633.0 million in aggregate value, or 10.6 million shares, and $1.9 billion in aggregate value, or 32.0 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:

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Cash provided by (used in) operating activities

Cash provided by operating activities

$ 607,795 $ 192,207

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

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

Net (decrease) increase in cash, cash equivalents and restricted cash

$ (54,268) $ 21,839

Cash Flows from Operating Activities

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.

In the nine months ended September 30, 2024, cash provided by operating activities consisted primarily of our net loss of $96.9 million adjusted for non-cash items, including $460.8 million of stock-based compensation expense, $156.2 million of depreciation and amortization expense, $57.0 million amortization of deferred commissions, $78.8 million of share of losses from equity method investments and $74.0 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $20.9 million primarily due to timing of cash receipts and pre-payments of certain operating expenses.

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Operating lease liabilities decreased $35.4 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.

In the nine months ended September 30, 2023, cash provided by operating activities consisted primarily of our net loss of $650.0 million adjusted for non-cash items, including $509.4 million of stock-based compensation expense which included the impact of our February 2023 restructuring activities, $219.0 million of depreciation and amortization expense, $93.8 million of our share of losses from an equity method investment, $54.4 million of amortization of deferred commissions, $46.2 million of impairment of an investment that we acquired in 2021, $34.3 million of impairment of operating lease assets and other long-lived assets, $32.3 million loss on net assets divested, $21.8 million of non-cash reduction in our operating right-of-use asset, and $240.3 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $125.6 million primarily due to revenue growth, timing of cash receipts and prepayments and certain operating expenses.

Accounts payable and other current liabilities decreased $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.

Accounts payable and other current liabilities decreased $62.3 million, primarily driven by a $22.3 million decrease in the sabbatical benefit accrual as a result of lower headcount and sunsetting of the program and a decrease in personnel-related accruals due to lower headcount.

Operating lease liabilities decreased $41.4 million due to payments made against our operating lease obligations.

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Cash Flows from Investing Activities

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.

In the nine months ended September 30, 2024, cash provided by investing activities was $1.2 billion, primarily consisting of $1.3 billion of maturities and sales of marketable securities, net of purchases, partially offset by $40.3 million related to capitalized software development costs and $3.5 million related to purchases of long-lived assets.

In the nine months ended September 30, 2023, cash provided by investing activities was $365.7 million primarily consisting of $372.9 million of proceeds from sales and maturities of marketable securities, net of purchases of marketable securities and other investments, and $38.2 million of proceeds from divestitures, net of cash divested, partially offset by $30.5 million related to capitalized software development costs and $9.0 million related to purchases of long-lived assets.

Cash Flows from Financing Activities

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.

In the nine months ended September 30, 2024, cash used in financing activities was $1.9 billion, primarily consisting of $1.9 billion of cash paid to repurchase 10.6 million shares of our common stock in the open market, including related costs.

In the nine months ended September 30, 2023, cash used in financing activities was $536.2 million primarily consisting of $548.9 million of cash paid to repurchase 9.2 million shares of our Class A common stock in the open market, including related costs, and $13.8 million in principal payments on debt and finance leases, offset by $28.9 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan.

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