QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended September 30, 2019
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:001-37806
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)
101 Spear Street, First Floor
San Francisco, California94105
(Address of principal executive offices) (Zip Code)
(415) 390-2337
(Registrant’s telephone number, including area code)
375 Beale Street, Suite 300
San Francisco, California94105
(Former name or former address, if changed since last report)
____________________________________________
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 October 25, 2019, 124,601,389 shares of the registrant’s Class A common stock and 12,551,350 shares of registrant’s Class B common stock were outstanding.
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. Yesý 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). Yesý 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).
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 Signature-based Handling of Asserted Information Using toKENs ("SHAKEN") and Secure Telephone Identity Revisited ("STIR") standards (together, "SHAKEN/STIR") and other robocalling prevention and anti-spam standards 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;
2
•
our ability to service the interest on our convertible notes and repay such notes, to the extent required;
•
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
(Unaudited)
As of September 30,
As of December 31,
2019
2018
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
$
330,601
$
487,215
Short-term marketable securities
1,551,175
261,128
Accounts receivable, net
131,193
97,712
Prepaid expenses and other current assets
55,455
26,893
Total current assets
2,068,424
872,948
Restricted cash
75
18,119
Property and equipment, net
118,481
63,534
Operating right of use asset
148,069
—
Intangible assets, net
465,255
27,558
Goodwill
2,283,387
38,165
Other long-term assets
26,477
8,386
Total assets
$
5,110,168
$
1,028,710
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
25,949
$
18,495
Accrued expenses and other current liabilities
135,544
96,343
Deferred revenue and customer deposits
26,015
22,972
Operating lease liability, current
22,211
—
Financing lease liability, current
6,509
—
Total current liabilities
216,228
137,810
Operating lease liability, noncurrent
134,755
—
Financing lease liability, noncurrent
8,174
—
Convertible senior notes, net
452,184
434,496
Other long-term liabilities
14,341
18,169
Total liabilities
825,682
590,475
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock
—
—
Class A and Class B common stock
137
100
Additional paid-in capital
4,868,261
808,527
Accumulated other comprehensive income
4,578
1,282
Accumulated deficit
(588,490
)
(371,674
)
Total stockholders’ equity
4,284,486
438,235
Total liabilities and stockholders’ equity
$
5,110,168
$
1,028,710
See accompanying notes to condensed consolidated financial statements.
4
TWILIO INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
(In thousands, except share and per share amounts)
Revenue
$
295,066
$
168,895
$
803,244
$
445,765
Cost of revenue
136,904
77,031
369,017
204,553
Gross profit
158,162
91,864
434,227
241,212
Operating expenses:
Research and development
104,481
42,340
281,119
119,727
Sales and marketing
100,657
45,949
262,685
116,520
General and administrative
47,690
28,608
166,409
76,213
Total operating expenses
252,828
116,897
710,213
312,460
Loss from operations
(94,666
)
(25,033
)
(275,986
)
(71,248
)
Other income (expense), net
4,377
(1,939
)
2,861
(3,172
)
Loss before provision for income taxes
(90,289
)
(26,972
)
(273,125
)
(74,420
)
Income tax benefit (provision)
2,555
(84
)
56,309
(371
)
Net loss attributable to common stockholders
$
(87,734
)
$
(27,056
)
$
(216,816
)
$
(74,791
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.64
)
$
(0.28
)
$
(1.70
)
$
(0.78
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
136,400,739
98,019,629
127,506,529
96,359,437
See accompanying notes to condensed consolidated financial statements.
5
TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
(in thousands)
Net loss
$
(87,734
)
$
(27,056
)
$
(216,816
)
$
(74,791
)
Other comprehensive income (loss):
Unrealized gain on marketable securities
1,275
291
3,296
126
Foreign currency translation
—
(873
)
—
(771
)
Total other comprehensive income (loss)
1,275
(582
)
3,296
(645
)
Comprehensive loss attributable to common stockholders
$
(86,459
)
$
(27,638
)
$
(213,520
)
$
(75,436
)
See accompanying notes to condensed consolidated financial statements.
6
TWILIO INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Common Stock Class A
Common Stock Class B
Additional Paid In Capital
Accumulated Other Comprehensive Income
Accumulated Deficit
Total Stockholders' Equity
Shares
Amount
Shares
Amount
(In thousands, except share amounts)
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
Net loss
—
—
—
—
—
—
(87,734
)
(87,734
)
Exercises of vested stock options
231,571
—
351,563
—
6,845
—
—
6,845
Vesting of early exercised stock options
—
—
—
—
12
—
—
12
Vesting of restricted stock units
713,904
1
25,291
—
—
—
—
1
Value of equity awards withheld for tax liability
(5,860
)
—
(5,888
)
—
(1,568
)
—
—
(1,568
)
Conversion of shares of Class B common stock into shares of Class A common stock
2,158,562
2
(2,158,562
)
(2
)
—
—
—
—
Equity awards assumed in acquisition (measurement period adjustment)
—
—
—
—
(1,940
)
—
—
(1,940
)
Unrealized gain on marketable securities
—
—
—
—
—
1,275
—
1,275
Stock-based compensation
—
—
—
—
70,735
—
—
70,735
Balance as of September 30, 2019
124,475,791
$
123
12,597,150
$
14
$
4,868,261
$
4,578
$
(588,490
)
$
4,284,486
See accompanying notes to condensed consolidated financial statements.
7
TWILIO INC.
Condensed Consolidated Statements of Stockholders' Equity, continued
(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
(In thousands, except share amounts)
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
)
Exercise of unvested stock options
—
—
—
—
—
—
—
—
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
Net loss
—
—
—
—
—
(27,056
)
(27,056
)
Exercises of vested stock options
—
—
847,528
1
8,862
—
—
8,863
Vesting of early exercised stock options
—
—
—
1
—
—
1
Vesting of restricted stock units
511,713
—
40,069
—
—
—
—
—
Value of equity awards withheld for tax liability
(5,860
)
—
(5,888
)
—
(810
)
—
—
(810
)
Conversion of shares of Class B common stock into shares of Class A common stock
1,982,436
—
(1,982,436
)
—
—
—
—
—
Unrealized loss on marketable securities
—
—
—
—
291
—
291
Foreign currency translation
—
—
—
—
(873
)
—
(873
)
Stock-based compensation
—
—
—
24,266
—
—
24,266
Balance as of September 30, 2018
78,999,646
$
75
19,727,396
$
22
757,392
$
1,380
$
(324,516
)
$
434,353
See accompanying notes to condensed consolidated financial statements.
8
TWILIO INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2019
2018
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(216,816
)
$
(74,791
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
79,295
18,246
Right-of-use asset amortization
16,732
—
Net amortization of investment premium and discount
(4,163
)
(845
)
Amortization of debt discount and issuance costs
17,689
8,374
Stock-based compensation
197,332
61,287
Tax benefit related to release of valuation allowance
