Company Quick10K Filing
Quick10K
Twilio
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$133.13 126 $16,800
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-06-19 Officers, Exhibits
8-K 2019-06-18 Shareholder Vote
8-K 2019-05-30 Enter Agreement, Exhibits
8-K 2019-05-29 Other Events, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-02-12 Earnings, Exhibits
8-K 2019-02-01 M&A, Regulation FD, Exhibits
8-K 2019-01-30 Shareholder Vote
8-K 2018-11-20 Other Events, Exhibits
8-K 2018-11-09 Officers, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-10-24 Officers, Exhibits
8-K 2018-10-15 Enter Agreement, Earnings, Other Events, Exhibits
8-K 2018-08-06 Earnings, Exhibits
8-K 2018-06-14 Shareholder Vote
8-K 2018-05-30 Officers
8-K 2018-05-14 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-02-13 Earnings, Officers, Exhibits
ECL Ecolab 52,100
JCI Johnson Controls 35,550
CNA CNA Financial 12,370
WWW Wolverine World Wide 2,860
OMAB Central North Airport Group 2,420
CORT Corcept Therapeutics 1,310
SBOW Silverbow Resources 202
BOTJ Bank of The James Financial Group 65
CMT Core Molding Technologies 64
CMDT iShares Commodity Optimized Trust 0
TWLO 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 twlo-20190630xex311.htm
EX-31.2 twlo-20190630ex312.htm
EX-32.1 twlo-20190630xex321.htm

Twilio Earnings 2019-06-30

TWLO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-Q
_____________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended June 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-37806
twiliologored2.jpg
TWILIO INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware
 
26-2574840
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
375 Beale Street, Suite 300
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
(415) 390-2337
(Registrant’s telephone number, including area code)
_____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   No ý

Securities registered pursuant to Section 12(b) of the act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share
TWLO
The New York Stock Exchange
    
As of July 26, 2019, 121,541,496 shares of the registrant’s Class A common stock and 14,346,097 shares of registrant’s Class B common stock were outstanding.
 



TWILIO INC.
Quarterly Report on Form 10-Q
For the Three Months Ended June 30, 2019
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1



Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our future financial performance, including our revenue, cost of revenue, gross margin and operating expenses, ability to generate positive cash flow and ability to achieve and sustain profitability;
anticipated technology trends, such as the use of and demand for cloud communications;
our ability to continue to build and maintain credibility with the global software developer community;
our ability to attract and retain customers to use our products;
the evolution of technology affecting our products and markets;
our ability to introduce new products and enhance existing products;
our ability to comply with modified or new industry standards, laws and regulations applying to our business, including the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act of 2018 and other privacy regulations that may be implemented in the future, and increased costs associated with such compliance;
our ability to optimize our network service provider coverage and connectivity;
our ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on our platform;
our ability to work closely with email inbox service providers to maintain deliverability rates;
our ability to pass on our savings associated with our platform optimization efforts to our customers;
the impact and expected results from changes in our relationship with our larger customers;
our ability to attract and retain enterprises and international organizations as customers for our products;
our ability to form and expand partnerships with technology partners and consulting partners;
our ability to successfully enter into new markets and manage our international expansion;
the attraction and retention of qualified employees and key personnel;
our ability to effectively manage our growth and future expenses and maintain our corporate culture;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
our anticipated investments in sales and marketing and research and development;
our ability to maintain, protect and enhance our intellectual property;
our ability to successfully defend litigation brought against us;
our ability to service the interest on our convertible notes and repay such notes, to the extent required;

2



our customers' and other platform users' violation of our policies or other misuse of our platform; and
our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments, including our acquisition of SendGrid, Inc. (“SendGrid”).
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.


3



PART I — FINANCIAL INFORMATION
 Item 1. Financial Statements
TWILIO INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 
As of
June 30, 2019
 
As of
December 31, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
535,911

 
$
487,215

Short-term marketable securities
 
1,346,371

 
261,128

Accounts receivable, net
 
126,780

 
97,712

Prepaid expenses and other current assets
 
50,451

 
26,893

Total current assets
 
2,059,513

 
872,948

Restricted cash
 
862

 
18,119

Property and equipment, net
 
106,480

 
63,534

Operating right of use asset
 
151,946

 

Intangible assets, net
 
485,410

 
27,558

Goodwill
 
2,283,578

 
38,165

Other long-term assets
 
21,316

 
8,386

Total assets
 
$
5,109,105

 
$
1,028,710

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
29,361

 
$
18,495

Accrued expenses and other current liabilities
 
117,625

 
96,343

Deferred revenue and customer deposits
 
24,898


22,972

Operating lease liability, current
 
21,858

 

Financing lease liability, current
 
5,920

 

Note payable, current
 
2,119

 

Total current liabilities
 
201,781

 
137,810

Operating lease liability, noncurrent
 
138,819

 

Financing lease liability, noncurrent
 
7,752

 

Note payable, noncurrent
 
2,237



Convertible senior notes, net
 
446,177

 
434,496

Other long-term liabilities
 
15,479

 
18,169

Total liabilities
 
812,245

 
590,475

Commitments and contingencies (Note 12)
 


 


Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Class A and Class B common stock
 
136

 
100

Additional paid-in capital
 
4,794,177

 
808,527

Accumulated other comprehensive income
 
3,303

 
1,282

Accumulated deficit
 
(500,756
)
 
(371,674
)
Total stockholders’ equity
 
4,296,860

 
438,235

Total liabilities and stockholders’ equity
 
$
5,109,105

 
$
1,028,710

See accompanying notes to condensed consolidated financial statements.

4



TWILIO INC.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue
 
$
275,039

 
$
147,754

 
$
508,178

 
$
276,870

Cost of revenue
 
125,024

 
67,940

 
232,113

 
127,522

Gross profit
 
150,015

 
79,814

 
276,065

 
149,348

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
98,783

 
39,811

 
176,638

 
77,387

Sales and marketing
 
90,421

 
37,749

 
162,028

 
70,571

General and administrative
 
54,543

 
24,212

 
118,719

 
47,605

Total operating expenses
 
243,747

 
101,772

 
457,385

 
195,563

Loss from operations
 
(93,732
)
 
(21,958
)
 
(181,320
)
 
(46,215
)
Other expenses, net
 
(880
)
 
(1,898
)
 
(1,516
)
 
(1,233
)
Loss before provision for income taxes
 
(94,612
)
 
(23,856
)
 
(182,836
)
 
(47,448
)
Income tax benefit (provision)
 
2,033

 
(150
)
 
53,754

 
(287
)
Net loss attributable to common stockholders
 
$
(92,579
)
 
$
(24,006
)
 
$
(129,082
)
 
$
(47,735
)
Net loss per share attributable to common stockholders, basic and diluted
 
$
(0.72
)
 
$
(0.25
)
 
$
(1.05
)
 
$
(0.50
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
 
129,310,641

 
96,348,356

 
122,985,716

 
95,515,583

See accompanying notes to condensed consolidated financial statements.


5



TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Net loss
 
$
(92,579
)
 
$
(24,006
)
 
$
(129,082
)
 
$
(47,735
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain (loss) on marketable securities
 
980

 
152

 
2,021

 
(165
)
Foreign currency translation
 

 
(629
)
 

 
102

Total other comprehensive income (loss)
 
980

 
(477
)
 
2,021

 
(63
)
Comprehensive loss attributable to common stockholders
 
$
(91,599
)
 
$
(24,483
)
 
$
(127,061
)
 
$
(47,798
)
See accompanying notes to condensed consolidated financial statements.

6




TWILIO INC.
Condensed Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
(Unaudited)

 
 
Common Stock
Class A
 
Common Stock
Class B
 
Additional Paid In Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total Stockholders' Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance as of December 31, 2018
 
80,769,763

 
$
80

 
19,310,465

 
$
20

 
$
808,527

 
$
1,282

 
$
(371,674
)
 
$
438,235

Net loss
 

 

 

 

 

 

 
(36,503
)
 
(36,503
)
Exercises of vested stock options
 
748,679

 
1

 
1,023,984

 
1

 
15,326

 

 

 
15,328

Vesting of early exercised stock options
 

 

 
 
 

 
9

 

 

 
9

Vesting of restricted stock units
 
641,406

 

 
39,360

 

 

 

 

 

Value of equity awards withheld for tax liability
 
(5,860
)
 

 
(4,431
)
 

 
(1,062
)
 

 

 
(1,062
)
Conversion of shares of Class B common stock into shares of Class A common stock
 
4,339,519

 
4

 
(4,339,519
)
 
(4
)
 

 

 

 

Shares issued in acquisition
 
23,555,081

 
24

 

 

 
2,658,874

 

 

 
2,658,898

Equity awards assumed in acquisition
 

 

 

 

 
191,620

 

 

 
191,620

Unrealized gain on marketable securities
 

 

 

 

 

 
1,041

 

 
1,041

Stock-based compensation
 

 

 

 

 
59,947

 

 

 
59,947

Balance as of March 31, 2019
 
110,048,588

 
$
109

 
16,029,859

 
$
17

 
$
3,733,241

 
$
2,323

 
$
(408,177
)
 
$
3,327,513

Net loss
 

 

 

 

 

 

 
(92,579
)
 
(92,579
)
Issuance of common stock in connection with a public offering, net of underwriter discounts
 
8,064,515

 
8

 

 

 
979,992

 

 

 
980,000

Costs related to the public offering
 

 

 

 

 
(953
)
 

 

 
(953
)
Exercises of vested stock options
 
313,924

 

 
503,797

 
1

 
9,926

 

 

 
9,927

Vesting of restricted stock units
 
675,028

 
1

 
29,576

 

 

 

 

 
1

Value of equity awards withheld for tax liability
 
(5,934
)
 

 
(5,888
)
 

 
(1,518
)
 

 

 
(1,518
)
Conversion of shares of Class B common stock into shares of Class A common stock
 
2,172,598

 
2

 
(2,172,598
)
 
(2
)
 

 

 

 

Shares issued under ESPP
 
108,895

 

 

 

 
8,254

 

 

 
8,254

Equity awards assumed in acquisition (measurement period adjustment)
 

 

 

 

 
(7,126
)
 

 

 
(7,126
)
Unrealized gain on marketable securities
 

 

 

 

 

 
980

 

 
980

Stock-based compensation
 

 

 

 

 
72,361

 

 

 
72,361

Balance as of June 30, 2019
 
121,377,614

 
$
120

 
14,384,746

 
$
16

 
$
4,794,177

 
$
3,303

 
$
(500,756
)
 
$
4,296,860

See accompanying notes to condensed consolidated financial statements.


7



TWILIO INC.
Condensed Consolidated Statements of Stockholders' Equity, continued
(In thousands, except share amounts)
(Unaudited)

 
 
Common Stock
Class A
 
Common Stock
Class B
 
Additional Paid In Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total Stockholders' Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance as of December 31, 2017
 
69,906,550

 
$
70

 
24,063,246

 
$
24

 
$
608,165

 
$
2,025

 
$
(250,438
)
 
$
359,846

Net loss
 

 

 

 

 

 

 
(23,729
)
 
(23,729
)
Adjustment to opening retained earnings due to adoption of ASC 606
 

 

 

 

 

 

 
713

 
713

Exercises of vested stock options
 

 

 
1,190,387

 
1

 
6,677

 

 

 
6,678

Vesting of early exercised stock options
 

 

 
 
 

 
21

 

 

 
21

Vesting of restricted stock units
 
491,501

 

 
52,716

 

 

 

 

 

Value of equity awards withheld for tax liability
 
(8,352
)
 

 
(4,380
)
 

 
(371
)
 

 

 
(371
)
Conversion of shares of Class B common stock into shares of Class A common stock
 
1,358,716

 
1

 
(1,358,716
)
 
(1
)
 

 

 

 

Unrealized loss on marketable securities
 

 

 

 

 

 
(317
)
 

 
(317
)
Foreign currency translation
 

 

 

 

 

 
731

 

 
731

Stock-based compensation
 

 

 

 

 
18,968

 

 

 
18,968

Balance as of March 31, 2018
 
71,748,415

 
$
71

 
23,943,253

 
$
24

 
$
633,460

 
$
2,439

 
$
(273,454
)
 
$
362,540

Net loss
 

 

 

 

 

 

 
(24,006
)
 
(24,006
)
Exercises of vested stock options
 

 

 
960,414

 
1

 
7,036

 

 

 
7,037

Vesting of early exercised stock options
 

 

 

 

 
4

 

 

 
4

Vesting of restricted stock units
 
457,495

 

 
40,070

 

 

 

 

 

Value of equity awards withheld for tax liability
 
(5,860
)
 

 
(5,888
)
 

 
(539
)
 

 

 
(539
)
Conversion of shares of Class B common stock into shares of Class A common stock
 
4,109,726

 
4

 
(4,109,726
)
 
(4
)
 

 

 

 

Shares issued under ESPP
 
201,581

 

 

 

 
4,474

 

 

 
4,474

Issuance of debt conversion option
 

 

 

 

 
119,435

 

 

 
119,435

Debt conversion option issuance costs
 

 

 

 

 
(2,819
)
 

 

 
(2,819
)
Capped call option issuance costs
 

 

 

 

 
(58,465
)
 

 

 
(58,465
)
Unrealized loss on marketable securities
 

 

 

 

 

 
152

 

 
152

Foreign currency translation
 

 

 

 

 

 
(629
)
 

 
(629
)
Stock-based compensation
 

 

 

 

 
22,487

 
 
 

 
22,487

Balance as of June 30, 2018
 
76,511,357

 
$
75

 
20,828,123

 
$
21

 
$
725,073

 
$
1,962

 
$
(297,460
)
 
$
429,671

See accompanying notes to condensed consolidated financial statements.



8



TWILIO INC.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)

 
Six Months Ended
June 30,

 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 


 


Net loss
 
$
(129,082
)
 
$
(47,735
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 


 


Depreciation and amortization
 
49,610

 
11,392

Right-of-use asset amortization
 
10,707

 

Net amortization of investment premium and discount
 
(2,948
)
 
(237
)
Amortization of debt discount and issuance costs
 
11,682

 
2,695

Stock-based compensation
 
129,064

 
38,546

Amortization of deferred commissions
 
1,585

 
478

Provision for doubtful accounts
 
697

 
1,515

Tax benefit related to release of valuation allowance
 
(53,502
)
 

Write-off of long lived assets
 
769

 
515

Other tax benefit realized in the period
 
(692
)
 

Changes in operating assets and liabilities:
 


 


Accounts receivable
 
(22,523
)
 
(26,048
)
Prepaid expenses and other current assets
 
(15,688
)
 
(2,847
)
Other long-term assets
 
(5,969
)
 
(1,908
)
Accounts payable
 
8,306

 
12,566

Accrued expenses and other current liabilities
 
13,976

 
28,040

Deferred revenue and customer deposits
 
1,927

 
3,300

Operating right of use liability
 
(9,367
)
 

Long-term liabilities
 
(2,371
)
 
(1,047
)
Net cash (used in) provided by operating activities
 
(13,819
)
 
19,225

CASH FLOWS FROM INVESTING ACTIVITIES:
 


 


Acquisitions, net of cash acquired
 
146,957

 

Purchases of marketable securities and other investments
 
(1,377,072
)
 
(184,364
)
Proceeds from sales and maturities of marketable securities
 
286,653

 
58,520

Capitalized software development costs
 
(10,520
)
 
(9,958
)
Purchases of long-lived assets
 
(7,882
)
 
(2,315
)
Net cash used in investing activities
 
(961,864
)
 
(138,117
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 


 


Proceeds from a public offering, net of underwriting discount
 
980,000

 

Payments of costs related to the public offering
 
(347
)
 

Proceeds from issuance of convertible senior notes
 

 
550,000

Payment of debt issuance costs
 

 
(12,513
)
Purchase of capped call
 

 
(58,465
)
Principal payments on notes payable
 
(997
)
 

Principal payments on financing leases
 
(2,463
)
 

Proceeds from exercises of stock options
 
25,255

 
13,715

Proceeds from shares issued under ESPP
 
8,254

 
4,474

Value of equity awards withheld for tax liabilities
 
(2,580
)
 
(910
)
Net cash provided by financing activities
 
1,007,122

 
496,301

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

 
818

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
31,439

 
378,227

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period
 
505,334

 
120,788

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period
 
$
536,773

 
$
499,015

Cash paid for income taxes, net
 
$
48

 
$
321

Cash paid on finance leases
 
$
337

 
$

NON-CASH INVESTING AND FINANCING ACTIVITIES:
 


 


Purchases of property, equipment and intangible assets, accrued but not paid
 
$
1,831

 
$
572

Purchases of property and equipment through finance leases
 
$
13,616


$

Acquisition holdback
 
$
4,230

 
$

Acquisition - value of common stock issued, stock awards assumed and measurement period adjustments
 
$
2,843,392

 
$

Stock-based compensation capitalized in software development costs
 
$
3,244

 
$
2,909

Debt offering costs, accrued but not paid
 
$


$
467

Costs related to public offerings, accrued but not paid
 
$
606

 
$

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

TWILIO INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. The Company is the leader in the Cloud Communications Platform category and enables developers to build, scale and operate real-time communications within their software applications via simple-to-use Application Programming Interfaces (“API”). The power, flexibility, and reliability offered by the Company’s software building blocks empower entities of virtually every shape and size to build world-class engagement into their customer experience.
The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries in Australia, Bermuda, Colombia, Czech Republic, Estonia, France, Germany, Hong Kong, Ireland, Japan, the Netherlands, Singapore, Spain, Sweden, United Kingdom and the United States.
2. Summary of Significant Accounting Policies
(a)Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K filed with the SEC on March 1, 2019 (“Annual Report”).
The condensed consolidated balance sheet as of December 31, 2018, included herein, was derived from the audited financial statements as of that date, but may not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2019 or any future period.
(b)Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c)Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, revenue allowances and returns; recoverability of long-lived and intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments; therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.

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(d)Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, restricted cash and accounts receivable. The Company maintains cash, cash equivalents, marketable securities and restricted cash with financial institutions that management believes are financially sound and have minimal credit risk exposure although the balances will exceed insured limits.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customers deteriorate substantially, operating results could be adversely affected. To reduce credit risk, management performs ongoing credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. During the three and six months ended June 30, 2019 and 2018, respectively, there was no customer organization that accounted for more than 10% of the Company’s total revenue.
As of June 30, 2019, and December 31, 2018, no customer organization represented more than 10% of the Company’s gross accounts receivable.
(e)Deferred Revenue and Customer Deposits

Deferred revenue is recorded when cash payments are received in advance of future usage on non-cancelable contracts. Customer refundable prepayments are recorded as customer deposits. During the three and six months ended June 30, 2019, the Company recognized $4.7 million and $15.4 million of revenue, respectively, and during the three and six months ended June 30, 2018, the Company recognized $3.6 million and $7.2 million of revenue, respectively, that was included in the deferred revenue and customer deposits balance as of the beginning of the year.
(f)Deferred Sales Commissions

The Company records an asset for the incremental costs of obtaining a contract with a customer, for example, sales commissions that are earned upon execution of contracts. The Company uses the portfolio of data method to determine the estimated period of benefit of capitalized commissions which is determined to be five years. Amortization expense related to these capitalized costs related to initial contracts, upsells and renewals, is recognized on a straight line basis over the estimated period of benefit of the capitalized commissions. Total net capitalized costs as of June 30, 2019, and December 31, 2018, were $17.5 million and $9.4 million, respectively, and are included in prepaid expenses and other current and long‑term assets in the accompanying condensed consolidated balance sheets. Amortization of these assets was $0.9 million and $1.6 million in the three and six months ended June 30, 2019, respectively, and $0.3 million and $0.5 million in the three and six months ended June 30, 2018, respectively, and is included in sales and marketing expense in the accompanying condensed consolidated statements of operations.
(g)     Recently Adopted Accounting Guidance

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, "Leases (Topic 842)", which was further clarified in July 2018 by ASU 2018‑10, “Codification Improvements to Topic 842, Leases”, and ASU 2018‑11, “Leases-Targeted Improvements”. ASU 2018-10 provides narrow amendments to clarify how to apply certain aspects of the new lease standard. ASU 2018-11 addresses implementation issues related to the new lease standard. The standard is effective for interim and annual reporting periods beginning after December 15, 2018. Under the new standard, lessees are required to recognize in the balance sheet the right-of-use ("ROU") assets and lease liabilities that arise from operating leases. The Company adopted the standard using the optional alternative method on a prospective basis with an effective date as of the beginning of the Company’s fiscal year, January 1, 2019, and applied it to the operating leases that existed on that date. Prior year comparative financial information was not recast under the new standard and continues to be presented under ASC 840. The Company elected to utilize the package of practical expedients available for expired or existing contracts which allowed the Company to carryforward historical assessments of (a) whether contracts are or contain leases, (b) lease classification, and (c) initial direct costs. The Company elected the use of hindsight practical expedient in determining the lease term and assessing the likelihood that lease renewal, termination or purchase option will be exercised. The Company also elected to apply the short-term lease exception for all leases. Under the short-term lease exception, the Company will not recognize ROU assets or lease liabilities for leases that, at the acquisition date, have a remaining lease term of 12 months or less.

As a result of implementing this guidance, the Company recognized a $123.5 million net operating ROU asset and a $132.0 million operating lease liability in its condensed consolidated balance sheet as of January 1, 2019. The ROU asset was presented net of deferred rent of $9.0 million as of January 1, 2019, in the accompanying condensed consolidated balance sheet

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and as a change within operating cash flows. In addition, on February 1, 2019, the Company acquired through its business combination with SendGrid approximately $33.7 million in operating ROU assets, $32.6 million in operating lease liability, $14.2 million in finance ROU assets and $13.6 million in finance lease liability.

The Company measured the lease liability at the present value of the future lease payments as of January 1, 2019. The Company used its incremental borrowing rate to discount the lease payments. The Company derived the discount rate, adjusted for differences in the term and payment patterns, from the information available at the adoption date. The right-of-use asset is valued at the amount of the lease liability adjusted for the remaining December 31, 2018, balance of unamortized lease incentives, prepaid rent and deferred rent. The lease liability is subsequently measured at the present value of unpaid future lease payments as of the reporting date with a corresponding adjustment to the right-of-use asset. Absent a lease modification, the Company will continue to utilize the January 1, 2019, incremental borrowing rate.

The Company recognizes lease costs on a straight-line basis and presents these costs as operating expenses within the consolidated statements of operations and comprehensive loss. The Company presents lease payments within the cash flows from operations within the consolidated statements of cash flows.

The financial results for the three and six months ended June 30, 2019, are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.
 
See Note 5, “Right-of-use Assets and Lease Liabilities” for further information.
 
In March 2019, the FASB issued ASU 2019-01, “Codification Improvements” to Leases (Topic 842). This pronouncement did not have a material impact on the Company's financial statements.

In August 2018, the FASB issued ASU 2018‑13, “Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments under ASU 2018‑13 remove, add and modify certain disclosure requirements on fair value measurements in ASC 820. The amendments are effective for interim and annual periods beginning after December 15, 2019. The Company early adopted this guidance effective April 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09, "Codification Improvements ", which does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several topics. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The Company adopted this guidance effective April 1, 2019. The adoptions of this guidance did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU 2017‑04, “Simplifying the Test for Goodwill Impairment”, which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective prospectively for interim and annual reporting periods beginning after December 15, 2019. The Company early adopted this guidance effective April 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

(h)    Recently Issued Accounting Guidance, Not yet Adopted
In August 2018, the FASB issued ASU 2018‑15, “Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal‑use software. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016‑13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments”, which changes the impairment model for most financial assets. The new model uses a forward‑looking expected loss method, which will generally result in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018‑19, “Codification Improvements to Topic 326, Financial Instruments—Credit

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Losses”, which clarifies that receivables arising from operating leases are not within the scope of Topic 326, Financial Instruments—Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. In April 2019, the FASB issued ASU 2019-04, "Codification  Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which clarifies treatment of certain credit losses. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief", which permits an entity, upon adoption of ASU 2016-13, to irrevocably elect the fair value option (on an instrument-by-instrument basis) for eligible financial assets measured at amortized cost basis. These ASUs are effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements.

3. Fair Value Measurements
The following tables provide the financial assets measured at fair value on a recurring basis as of June 30, 2019, and December 31, 2018, (in thousands):
 
 
Amortized
Cost or
Carrying
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Less Than
12 Months
 
Gross
Unrealized
Losses More
Than
12 Months
 
Fair Value Hierarchy as of
June 30, 2019
 
Aggregate
Fair Value
Level 1
 
Level 2
 
Level 3
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
275,838

 
$

 
$

 
$

 
$
275,838

 
$

 
$

 
$
275,838

Reverse repurchase agreements
 
75,000

 

 

 

 

 
75,000

 

 
75,000

Commercial paper
 
114,471