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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 March 31, 2022
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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, California 94105
(Address of principal executive offices) (Zip Code)
(415) 390-2337
(Registrant’s telephone number, including area code)
____________________________________________
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 | New York Stock Exchange |
Long-Term Stock Exchange |
As of April 30, 2022, 171,861,852 shares of the registrant’s Class A common stock and 9,817,605 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. Yes x 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 x 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 ☒
TWILIO INC.
Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 2022
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•our ability to effectively manage our growth, including maintaining our corporate culture;
•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;
•the impact of the coronavirus disease of 2019 (“COVID-19”) pandemic on the global economy, our customers, partners, employees and business;
•our ability to attract and retain qualified employees and key personnel;
•our ability to retain and increase revenue from existing customers and attract new customers, including our ability to attract and retain enterprises and international organizations as customers for our products and our ability to maintain reliable service levels for our customers;
•our anticipated investments in sales and marketing, research and development and additional systems and processes to support our growth;
•our ability to compete effectively in an intensely competitive market, including our ability to adapt and respond effectively to rising costs, rapidly changing technology and evolving customer needs, requirements, and preferences;
•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 (“CCPA”), Brazil's General Data Protection Law (Lei Geral de Proteção de Dados Pessoais) (Law No. 13,709/2018), and other privacy or cybersecurity 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;
•potential harm caused by compromises in security, data and infrastructure, including cybersecurity protections, investments and resources and costs required to prevent, detect and remediate potential cybersecurity threats, incidents and breaches of ours or our customers’ systems or information;
•our ability to optimize our network service provider coverage and connectivity;
•our ability to 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 relationships with our larger customers;
•our ability to form and expand partnerships with technology partners and consulting partners;
•anticipated technology trends, such as the use of and demand for cloud communications;
•our ability to successfully enter into new markets and manage our international expansion;
•the sufficiency of our cash and cash equivalents to meet our liquidity needs;
•our ability to maintain, protect and enhance our intellectual property;
•our ability to successfully defend litigation brought against us;
•our ability to service the interest on our 3.625% senior notes due 2029 (“2029 Notes”), our 3.875% notes due 2031 (“2031 Notes,” and together with the 2029 Notes, the “Notes”), and repay such Notes;
•our customers’ and other platform users’ violation of our policies or other misuse of our platform;
•our expectations about the impact of climate change, natural disasters, public health epidemics and other natural catastrophic events and man-made problems such as data security breaches, war or terrorism; and
•our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, 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 below in Part II, Item 1A, “Risk Factors,” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
Summary of Risk Factors and Uncertainties Associated with Our Business
Our business is subject to numerous risks and uncertainties outside of our control. One, or a combination, of these risks and uncertainties could materially affect any of those matters as to which we have made forward-looking statements and cause our actual results or an actual event or occurrence to differ materially from those results or an event or occurrence described in a forward-looking statement. Some of the principal risks associated with our business include the following:
•our ability to effectively manage our rapid growth;
•fluctuations in our quarterly results and our ability to meet securities analysts’ and investors’ expectations;
•the impact of the global COVID-19 pandemic;
•the loss of our senior management and other key employees;
•our ability to hire, retain and motivate qualified employees;
•our ability to maintain and grow our relationships with existing customers and have them increase their usage of our platform;
•our ability to maintain and enhance our brand and increase market awareness of our company and products;
•new and unproven markets for our products and platform;
•limitations on the use and adoption of our solutions due to privacy laws, data collection and transfer restrictions and related domestic or foreign regulations;
•our ability to attract new customers in a cost-effective manner;
•our ability to develop enhancements to our products and introduce new products that achieve market acceptance;
•our ability to compete effectively in the markets in which we participate;
•our history of losses and uncertainty about our future profitability;
•our ability to increase adoption of our products by enterprises;
•our ability to expand our relationships with existing technology partner customers and add new technology partner customers;
•significant risks associated with expansion of our international operations;
•compliance with applicable laws and regulations;
•telecommunications-related regulations and future legislative or regulatory actions;
•our ability to obtain or retain geographical, mobile, regional, local or toll-free numbers and to effectively process requests to port such numbers in a timely manner due to industry regulations;
•our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements or preferences;
•our ability to provide monthly uptime service level commitments of a minimum of 99.95% under our agreements with customers;
•any breaches of our networks or systems, or those of AWS or our service providers;
•defects or errors in our products;
•any loss or decline in revenue from our largest customers;
•litigation by third parties for alleged infringement of their proprietary rights;
•exposure to substantial liability for intellectual property infringement and other losses from indemnity provisions in various agreements;
•our ability to successfully utilize or to integrate acquired businesses and technologies successfully or to achieve the expected benefits of such acquisitions, partnerships and investments;
•our use of open source software;
•our reliance on SaaS technologies from third parties;
•potentially adverse tax consequences on our global operations and structure;
•fraudulent usage of or activity relating to our products;
•unfavorable conditions in our industry or the global economy;
•requirement of additional capital to support our business and its availability on acceptable terms, if at all;
•exposure to foreign currency exchange rate fluctuations;
•our ability to use our net operating losses and certain other tax attributes to offset future taxable income and taxes;
•our failure to maintain an effective system of disclosure controls and internal control over financial reporting;
•the risks of pandemics, earthquakes, fire, floods and other natural catastrophic events and of interruption by man-made problems such as power disruptions, computer viruses, data security breaches, war or terrorism;
•volatility of the trading price of our Class A common stock;
•potential decline in the market price of our Class A common stock due to substantial future sales of shares;
•requirement of a significant amount of cash to service our future debt; and
•our ability to raise the funds necessary for the repayment of the 2029 Notes and 2031 Notes for cash.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TWILIO INC.
Condensed Consolidated Balance Sheets
(Unaudited) | | | | | | | | | | | | | | |
| | As of March 31, | | As of December 31, |
| | 2022 | | 2021 |
| | (In thousands) |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 1,617,022 | | | $ | 1,479,452 | |
Short-term marketable securities | | 3,606,290 | | | 3,878,430 | |
Accounts receivable, net | | 406,736 | | | 388,215 | |
Prepaid expenses and other current assets | | 201,142 | | | 186,131 | |
Total current assets | | 5,831,190 | | | 5,932,228 | |
Property and equipment, net | | 259,003 | | | 255,316 | |
Operating right-of-use assets | | 225,951 | | | 234,584 | |
Intangible assets, net | | 1,006,692 | | | 1,050,012 | |
Goodwill | | 5,286,683 | | | 5,263,166 | |
Other long-term assets | | 281,283 | | | 263,292 | |
Total assets | | $ | 12,890,802 | | | $ | 12,998,598 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 93,389 | | | $ | 93,333 | |
Accrued expenses and other current liabilities | | 433,668 | | | 417,503 | |
Deferred revenue and customer deposits | | 139,671 | | | 140,389 | |
Operating lease liability, current | | 53,094 | | | 52,325 | |
| | | | |
Total current liabilities | | 719,822 | | | 703,550 | |
Operating lease liability, noncurrent | | 201,354 | | | 211,253 | |
Finance lease liability, noncurrent | | 22,053 | | | 25,132 | |
Long-term debt, net | | 986,243 | | | 985,907 | |
Other long-term liabilities | | 43,897 | | | 41,290 | |
Total liabilities | | 1,973,369 | | | 1,967,132 | |
Commitments and contingencies (Note 10) | | | | |
Stockholders’ equity: | | | | |
Preferred stock | | — | | | — | |
Class A and Class B common stock | | 181 | | | 180 | |
Additional paid-in capital | | 13,343,554 | | | 13,169,118 | |
Accumulated other comprehensive loss | | (84,984) | | | (18,141) | |
Accumulated deficit | | (2,341,318) | | | (2,119,691) | |
Total stockholders’ equity | | 10,917,433 | | | 11,031,466 | |
Total liabilities and stockholders’ equity | | $ | 12,890,802 | | | $ | 12,998,598 | |
See accompanying notes to condensed consolidated financial statements.
TWILIO INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2022 | | 2021 | | |
| | (In thousands, except share and per share amounts) |
Revenue | | $ | 875,363 | | | $ | 589,988 | | | |
Cost of revenue | | 450,292 | | | 291,684 | | | |
Gross profit | | 425,071 | | | 298,304 | | | |
Operating expenses: | | | | | | |
Research and development | | 240,611 | | | 174,800 | | | |
Sales and marketing | | 287,906 | | | 210,590 | | | |
General and administrative | | 114,362 | | | 110,253 | | | |
Total operating expenses | | 642,879 | | | 495,643 | | | |
Loss from operations | | (217,808) | | | (197,339) | | | |
Other expenses, net | | (6,677) | | | (8,313) | | | |
Loss before benefit from (provision for) income taxes | | (224,485) | | | (205,652) | | | |
Benefit from (provision for) income taxes | | 2,858 | | | (890) | | | |
Net loss attributable to common stockholders | | $ | (221,627) | | | $ | (206,542) | | | |
Net loss per share attributable to common stockholders, basic and diluted | | $ | (1.23) | | | $ | (1.24) | | | |
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | | 180,898,713 | | | 167,160,458 | | | |
See accompanying notes to condensed consolidated financial statements.
TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, |
| | 2022 | | 2021 | | |
| | (In thousands) |
Net loss | | $ | (221,627) | | | $ | (206,542) | | | |
Other comprehensive loss: | | | | | | |
Unrealized loss on marketable securities | | (62,826) | | | (4,176) | | | |
Foreign currency translation | | (165) | | | (210) | | | |
Net change in market value of effective foreign currency forward exchange contracts | | (3,852) | | | — | | | |
Total other comprehensive loss | | (66,843) | | | (4,386) | | | |
Comprehensive loss attributable to common stockholders | | $ | (288,470) | | | $ | (210,928) | | | |
See accompanying notes to condensed consolidated financial statements.
TWILIO, INC.
Condensed Consolidated Statements of Stockholder's 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, 2021 | | 170,625,994 | | | $ | 168 | | | 9,842,105 | | | $ | 12 | | | $ | 13,169,118 | | | $ | (18,141) | | | $ | (2,119,691) | | | $ | 11,031,466 | | | | | | | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (221,627) | | | (221,627) | | | | | | | |
Exercises of vested stock options | | 180,643 | | | — | | | 193,889 | | | — | | | 11,727 | | | — | | | — | | | 11,727 | | | | | | | |
Vesting of restricted stock units | | 877,089 | | | 1 | | | — | | | — | | | (1) | | | — | | | — | | | — | | | | | | | |
Value of equity awards withheld for tax liability | | (5,804) | | | — | | | — | | | — | | | (1,065) | | | — | | | — | | | (1,065) | | | | | | | |
Conversion of shares of Class B common stock into shares of Class A common stock | | 215,389 | | | — | | | (215,389) | | | — | | | — | | | — | | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Shares of Class A common stock donated to charity | | 22,102 | | | — | | | — | | | — | | | 4,232 | | | — | | | — | | | 4,232 | | | | | | | |
Shares returned from escrow | | (152,239) | | | — | | | — | | | — | | | (387) | | | — | | | — | | | (387) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Unrealized loss on marketable securities | | — | | | — | | | — | | | — | | | — | | | (62,826) | | | — | | | (62,826) | | | | | | | |
Foreign currency translation | | — | | | — | | | — | | | — | | | — | | | (165) | | | — | | | (165) | | | | | | | |
Net change in market value of effective foreign currency forward exchange contracts | | — | | | — | | | — | | | — | | | — | | | (3,852) | | | — | | | (3,852) | | | | | | | |
Stock-based compensation | | — | | | — | | | — | | | — | | | 159,930 | | | — | | | — | | | 159,930 | | | | | | | |
Balance as of March 31, 2022 | | 171,763,174 | | | $ | 169 | | | 9,820,605 | | | $ | 12 | | | $ | 13,343,554 | | | $ | (84,984) | | | $ | (2,341,318) | | | $ | 10,917,433 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2020 | | 153,496,222 | | | $ | 151 | | | 10,551,302 | | | $ | 13 | | | $ | 9,613,246 | | | $ | 9,046 | | | $ | (1,169,791) | | | $ | 8,452,665 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (206,542) | | | (206,542) | |
Exercises of vested stock options | | 248,008 | | | — | | | 211,371 | | | — | | | 11,564 | | | — | | | — | | | 11,564 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Vesting of restricted stock units | | 913,966 | | | 1 | | | — | | | — | | | (1) | | | — | | | — | | | — | |
Value of equity awards withheld for tax liability | | (6,989) | | | — | | | — | | | — | | | (2,774) | | | — | | | — | | | (2,774) | |
| | | | | | | | | | | | | | | | |
Conversion of shares of Class B common stock into shares of Class A common stock | | 419,371 | | | — | | | (419,371) | | | — | | | — | | | — | | | — | | | — | |
Equity component from partial settlement of 2023 convertible senior notes | | 1,158,381 | | | 2 | | | — | | | — | | | 80,047 | | | — | | | — | | | 80,049 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Shares of Class A common stock donated to charity | | 22,102 | | | — | | | — | | | — | | | 9,405 | | | — | | | — | | | 9,405 | |
Issuance of common stock in connection with a follow-on public offering, net of underwriter discounts | | 4,312,500 | | | 4 | | | — | | | — | | | 1,766,396 | | | — | | | — | | | 1,766,400 | |
Costs related to the follow-on public offering | | — | | | — | | | — | | | — | | | (727) | | | — | | | — | | | (727) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Issuance of restricted stock awards | | 24,697 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Unrealized loss on marketable securities | | — | | | — | | | — | | | — | | | — | | | (4,176) | | | — | | | (4,176) | |
Foreign currency translation | | — | | | — | | | — | | | — | | | — | | | (210) | | | — | | | (210) | |
Stock-based compensation | | — | | | — | | | — | | | — | | | 141,542 | | | — | | | — | | | 141,542 | |
Balance as of March 31, 2021 | | 160,588,258 | | | $ | 158 | | | 10,343,302 | | | $ | 13 | | | $ | 11,618,698 | | | $ | 4,660 | | | $ | (1,376,333) | | | $ | 10,247,196 | |
See accompanying notes to condensed consolidated financial statements.
TWILIO INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2022 | | 2021 | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | (In thousands) |
Net loss | | $ | (221,627) | | | $ | (206,542) | | | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | |
Depreciation and amortization | | 68,103 | | | 59,592 | | | |
Non-cash reduction to the right-of-use asset | | 12,415 | | | 11,711 | | | |
Net amortization of investment premium and discount | | 10,712 | | | 4,240 | | | |
Amortization of debt discount and issuance costs | | 338 | | | 3,373 | | | |
Stock-based compensation | | 155,275 | | | 137,155 | | | |
Amortization of deferred commissions | | 12,626 | | | 5,630 | | | |
Allowance for credit losses | | 2,558 | | | 1,985 | | | |
Value of shares of Class A common stock donated to charity | | 4,232 | | | 9,405 | | | |
Loss on extinguishment of debt | | — | | | 7,602 | | | |
Other adjustments | | (1,478) | | | 3,089 | | | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | (19,623) | | | 5,565 | | | |
Prepaid expenses and other current assets | | (14,176) | | | (29,912) | | | |
Other long-term assets | | (27,399) | | | (15,232) | | | |
Accounts payable | | 1,247 | | | (10,275) | | | |
Accrued expenses and other current liabilities | | 18,148 | | | 28,307 | | | |
Deferred revenue and customer deposits | | (1,453) | | | 3,435 | | | |
Operating lease liabilities | | (13,058) | | | (12,053) | | | |
Other long-term liabilities | | (4,415) | | | (2,570) | | | |
Net cash (used in) provided by operating activities | | (17,575) | | | 4,505 | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Acquisitions, net of cash acquired and other related payments | | (27,682) | | | (66,926) | | | |
Purchases of marketable securities and other investments | | (246,874) | | | (1,640,499) | | | |
Proceeds from sales and maturities of marketable securities | | 442,753 | | | 356,824 | | | |
Capitalized software development costs | | (10,250) | | | (10,434) | | | |
Purchases of long-lived and intangible assets | | (6,980) | | | (4,986) | | | |
Net cash provided by (used in) investing activities | | 150,967 | | | (1,366,021) | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Proceeds from public offerings, net of underwriters' discount and issuance costs | | — | | | 1,766,400 | | | |
Payments of costs related to public offerings | | (35) | | | (360) | | | |
Proceeds from issuance of senior notes due 2029 and 2031 | | — | | | 987,500 | | | |
Payment of debt issuance costs | | — | | | (130) | | | |
Principal payments on debt and finance leases | | (6,520) | | | (2,751) | | | |
Value of equity awards withheld for tax liabilities | | (1,065) | | | (2,774) | | | |
Proceeds from exercises of stock options | | 11,727 | | | 11,564 | | | |
Net cash provided by financing activities | | 4,107 | | | 2,759,449 | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 27 | | | (44) | | | |
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | 137,526 | | | 1,397,889 | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period | | 1,481,831 | | | 933,885 | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period | | $ | 1,619,357 | | | $ | 2,331,774 | | | |
Cash paid for income taxes, net | | $ | 1,443 | | | $ | 1,252 | | | |
Cash paid for interest | | $ | 19,011 | | | $ | 263 | | | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | |
| | | | | | |
Purchases of property and equipment through finance leases | | $ | — | | | $ | 5,266 | | | |
| | | | | | |
Value of common stock issued to settle convertible senior notes due 2023 | | $ | — | | | $ | 422,716 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS | | | | | | |
Cash and cash equivalents | | $ | 1,617,022 | | | $ | 2,331,774 | | | |
Restricted cash in other current assets | | 1,970 | | | — | | | |
Restricted cash in other long-term assets | | 365 | | | — | | | |
Total cash, cash equivalents and restricted cash | | $ | 1,619,357 | | | $ | 2,331,774 | | | |
See accompanying notes to condensed consolidated financial statements.
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 leading cloud communications platform and enables developers to build, scale and operate real-time customer engagement 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 across North America, South America, Europe, Asia and Australia.
2. Summary of Significant Accounting Policies
(a)Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2022 (“Annual Report”).
The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited financial statements as of that date, but may not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2022 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, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, revenue allowances and sales credit reserves; recoverability of long-lived and intangible assets; 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.
(d)Remaining Performance Obligations
Revenue allocated to remaining performance obligations for contracts with durations of more than one year was $152.7 million as of March 31, 2022, of which 67% is expected to be recognized over the next 12 months and 94% is expected to be recognized over the next 24 months.
(e)Deferred Revenue and Customer Deposits
As of March 31, 2022 and December 31, 2021, the Company recorded $140.4 million and $141.5 million as its deferred revenue and customer deposits, respectively, that are included in deferred revenue and customer deposits and other long-term liabilities in the accompanying condensed consolidated balance sheets. During the three months ended March 31, 2022 and 2021, the Company recognized $64.9 million and $27.8 million of revenue, respectively, that was included in the deferred revenue and customer deposits balance as of the end of the previous year.
(f)Deferred Sales Commissions
Total net capitalized commission costs as of March 31, 2022 and December 31, 2021, were $196.4 million and $193.4 million, respectively, and are included in prepaid expenses and other current assets and other long‑term assets in the accompanying condensed consolidated balance sheets.
(g)Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, restricted cash, marketable securities and accounts receivable. The Company maintains cash, restricted cash, cash equivalents and marketable securities 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 customer deteriorates substantially, operating results could be adversely affected. To reduce credit risk, management performs 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 months ended March 31, 2022 and 2021, no customer organization accounted for more than 10% of the Company’s total revenue.
As of March 31, 2022 and December 31, 2021, no customer organization represented more than 10% of the Company’s gross accounts receivable.
(e)Changes to Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies as described in its Annual Report.
(f)Recently Adopted Accounting Guidance
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, "Revenue from Contracts with Customers." At the acquisition date, an acquirer should account for the related revenue contracts as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contact assets and contract liabilities consistent with how they were recognized and measured in the acquiree's financial statements, assuming the acquirer is able to assess and rely on how the acquiree applied ASC 606. The Company adopted ASU 2021-08 in the first quarter of 2022 with no material impact to the Company's condensed consolidated financial statements.
3. Fair Value Measurements
Financial Assets
The following tables provide the financial assets measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost or Carrying Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | | | Fair Value Hierarchy as of March 31, 2022 | | Aggregate Fair Value |
| | Level 1 | | Level 2 | | Level 3 |
Financial Assets: | | (In thousands) |
Cash and cash equivalents: | | | | | | | | | | | | | | | | |
Money market funds | | $ | 272,248 | | | $ | — | | | $ | — | | | | | $ | 272,248 | | | $ | — | | | $ | — | | | $ | 272,248 | |
Reverse repurchase agreements | | 200,000 | | | — | | | — | | | | | — | | | 200,000 | | | — | | | 200,000 | |
Commercial paper | | 24,900 | | | — | | | — | | | | | — | | | 24,900 | | | — | | | 24,900 | |
Total included in cash and cash equivalents | | 497,148 | | | — | | | — | | | | | 272,248 | | | 224,900 | | | — | | | 497,148 | |
Marketable securities: | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | 410,933 | | | 2 | | | (9,694) | | | | | 401,241 | | | — | | | — | | | 401,241 | |
Non-U.S. government securities | | 181,628 | | | — | | | (4,983) | | | | | 176,645 | | | — | | | — | | | 176,645 | |
Corporate debt securities and commercial paper | | 3,095,397 | | | 180 | | | (67,173) | | | | | 11,000 | | | 3,017,404 | | | — | | | 3,028,404 | |
Total marketable securities | | 3,687,958 | | | 182 | | | (81,850) | | | | | 588,886 | | | 3,017,404 | | | — | | | 3,606,290 | |
Total financial assets | | $ | 4,185,106 | | | $ | 182 | | | $ | (81,850) | | | | | $ | 861,134 | | | $ | 3,242,304 | | | $ | — | | | $ | 4,103,438 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost or Carrying Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | | | Fair Value Hierarchy as of December 31, 2021 | | Aggregate Fair Value |
| | Level 1 | | Level 2 | | Level 3 |
Financial Assets: | | (In thousands) |
Cash and cash equivalents: | | | | | | | | | | | | | | | | |
Money market funds | | $ | 786,548 | | | $ | — | | | $ | — | | | | | $ | 786,548 | | | $ | — | | | $ | — | | | $ | 786,548 | |
Commercial paper | | 46,076 | | | — | | | — | | | | | — | | | 46,076 | | | — | | | 46,076 | |
Total included in cash and cash equivalents | | 832,624 | | | — | | | — | | | | | 786,548 | | | 46,076 | | | — | | | 832,624 | |
Marketable securities: | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | 375,305 | | | 6 | | | (2,561) | | | | | 372,750 | | | — | | | — | | | 372,750 | |
Non-U.S. government securities | | 221,641 | | | — | | | (1,355) | | | | | 220,286 | | | — | | | — | | | 220,286 | |
Corporate debt securities and commercial paper | | 3,300,326 | | | 960 | | | (15,892) | | | | | 31,000 | | | 3,254,394 | | | — | | | 3,285,394 | |
Total marketable securities | | 3,897,272 | | | 966 | | | (19,808) | | | | | 624,036 | | | 3,254,394 | | | — | | | 3,878,430 | |
Total financial assets | | $ | 4,729,896 | | | $ | 966 | | | $ | (19,808) | | | | | $ | 1,410,584 | | | $ | 3,300,470 | | | $ | — | | | $ | 4,711,054 | |
The Company's primary objective when investing excess cash is preservation of capital, hence the Company's marketable securities primarily consist of U.S. Treasury Securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper. As the Company views its marketable securities as available to support current operations, it has classified all available for sale securities as short-term. As of March 31, 2022 and 2021, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of March 31, 2022 and 2021, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity.
Interest earned on marketable securities was $15.6 million and $3.9 million in the three months ended March 31, 2022 and 2021, respectively. The interest is recorded as other expenses, net, in the accompanying condensed consolidated statements of operations.
The following table summarizes the contractual maturities of marketable securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| | Amortized Cost | | Aggregate Fair Value | | Amortized Cost | | Aggregate Fair Value |
Financial Assets: | | (In thousands) |
Less than one year | | $ | 1,066,875 | | | $ | 1,061,276 | | | $ | 1,084,751 | | | $ | 1,085,006 | |
One to three years | | 2,621,083 | | | 2,545,014 | | | 2,812,521 | | | 2,793,424 | |
Total | | $ | 3,687,958 | | | $ | 3,606,290 | | | $ | 3,897,272 | | | $ | 3,878,430 | |
Strategic Investments
As of March 31, 2022 and December 31, 2021, the Company held strategic investments with a carrying value of $69.3 million and $68.3 million, respectively, recorded as other long-term assets in the accompanying condensed consolidated balance sheets. The carrying value of these securities is determined under the measurement alternative on a non-recurring basis and adjusted for observable changes in fair value. There were no impairments or other adjustments recorded in the three months ended March 31, 2022 and 2021 related to these securities.
Financial Liabilities
The Company’s financial liabilities that are measured at fair value on a recurring basis consist of foreign currency derivative liabilities and are classified as Level 2 financial instruments in the fair value hierarchy. As of March 31, 2022 and December 31, 2021, the aggregate fair value of these instruments and the associated gross unrealized losses were not significant.
The Company’s financial liabilities that are not measured at fair value on a recurring basis consist of its 2029 Notes and 2031 Notes, respectively. As of March 31, 2022 the fair values of the 2029 Notes and 2031 Notes were $474.4 million and $466.5 million, respectively. As of December 31, 2021, the fair value of the 2029 Notes and 2031 Notes were $510.2 million and $512.8 million, respectively.
4. Property and Equipment
Property and equipment consisted of the following:
| | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| | (In thousands) |
Capitalized internal-use software development costs | | $ | 213,309 | | | $ | 198,589 | |
Data center equipment (1) | | 78,210 | | | 77,946 | |
Leasehold improvements | | 87,600 | | | 85,297 | |
Office equipment | | 61,063 | | | 58,636 | |
Furniture and fixtures | | 15,591 | | | 15,360 | |
Software | | 10,731 | | | 10,506 | |
Total property and equipment | | 466,504 | | | 446,334 | |
Less: accumulated depreciation and amortization (1) | | (207,501) | | | (191,018) | |
Total property and equipment, net | | $ | 259,003 | | | $ | 255,316 | |
____________________________________
(1) Data center equipment contains $63.0 million in assets held under finance leases as of each March 31, 2022, and December 31, 2021. Accumulated depreciation and amortization contains $30.1 million and $26.8 million in accumulated amortization for assets held under finance leases as of March 31, 2022, and December 31, 2021, respectively.
Depreciation and amortization expense was $16.6 million and $14.4 million in the three months ended March 31, 2022 and 2021, respectively.
The Company capitalized $14.7 million and $15.1 million in internal‑use software development costs in the three months ended March 31, 2022 and 2021, respectively.
5. Derivatives and Hedging
As of March 31, 2022, the Company had outstanding foreign currency forward contracts designated as cash flow hedges with a total sell notional value of $324.9 million. The notional value represents the amount that will be sold upon maturity of the forward contract. As of March 31, 2022, these contracts had maturities of less than 9 months.
Gains and losses associated with these foreign currency forward contracts were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Consolidated Statement of Operations and Statement of Comprehensive Loss | | | | Three Months Ended March 31, |
| | | | | | | 2022 | | 2021 | | |
| | | | | | | | (In thousands) | | |
Losses recognized in OCI | | Net change in market value of effective foreign currency forward exchange contracts | | | | | | $ | 3,852 | | | $ | — | | | |
Losses recognized in income due to instruments maturing | | Cost of revenue | | | | | | $ | 1,597 | | | $ | — | | | |
The Company is subject to master netting agreements with certain counterparties of the foreign exchange contracts, under which it is permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is the Company’s policy to present the derivatives at gross in its condensed consolidated balance sheet. The Company’s foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. The Company manages its exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring its outstanding positions. As of March 31, 2022, the Company did not have any offsetting arrangements.
6. Goodwill and Intangible Assets
During 2022, the Company completed a business combination for an aggregate accounting purchase price of $32.7 million, of which $25.7 million was allocated to goodwill and $8.2 million was allocated to intangible assets.
Goodwill
The goodwill balance as of March 31, 2022 and December 31, 2021 was as follows:
| | | | | | | | | |
| | Total | |
| | (In thousands) | |
| | | |
| | | |
| | | |
| | | |
Balance as of December 31, 2021 | | $ | 5,263,166 | | |
Goodwill additions and adjustments | | 23,517 | | |
| | | |
Balance as of March 31, 2022 | | $ | 5,286,683 | | |
Intangible assets
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 |
| | Gross | | Accumulated Amortization | | Net |
Amortizable intangible assets: | | (In thousands) |
Developed technology | | $ | 796,231 | | | $ | (251,248) | | | $ | 544,983 | |
Customer relationships | | 539,264 | | | (147,028) | | | 392,236 | |
Supplier relationships | | 57,471 | | | (11,915) | | | 45,556 | |
Trade names | | 30,669 | | | (15,442) | | | 15,227 | |
Order backlog | | 10,000 | | | (10,000) | | | — | |
Patent | | 4,028 | | | (553) | | | 3,475 | |
| | | | | | |
Total amortizable intangible assets | | 1,437,663 | | | (436,186) | | | 1,001,477 | |
Non-amortizable intangible assets: | | | | | | |
Telecommunication licenses | | 4,920 | | | — | | | 4,920 | |
| | | | | | |
Trademarks and other | | 295 | | | — | | | 295 | |
Total | | $ | 1,442,878 | | | $ | (436,186) | | | $ | 1,006,692 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 | | |
| | Gross | | Accumulated Amortization | | Net | | |
Amortizable intangible assets: | | (In thousands) | | |
Developed technology | | $ | 794,831 | | | $ | (222,765) | | | $ | 572,066 | | | |
Customer relationships | | 538,264 | | | (128,035) | | | 410,229 | | | |
Supplier relationships | | 51,671 | | | (9,491) | | | 42,180 | | | |
Trade names | | 30,669 | | | (13,874) | | | 16,795 | | | |
Order backlog | | 10,000 | | | (10,000) | | | — | | | |
Patent | | 4,035 | | | (508) | | | 3,527 | | | |
Total amortizable intangible assets | | 1,429,470 | | | (384,673) | | | 1,044,797 | | | |
Non-amortizable intangible assets: | | | | | | | | |
Telecommunication licenses | | 4,920 | | | — | | | 4,920 | | | |
Trademarks and other | | 295 | | | — | | | 295 | | | |
Total | | $ | 1,434,685 | | | $ | (384,673) | | | $ | 1,050,012 | | | |
Amortization expense was $51.5 million and $45.2 million for the three months ended March 31, 2022 and 2021, respectively.
Total estimated future amortization expense is as follows:
| | | | | | | | |
| | As of March 31, 2022 |
Year Ended December 31, | | (In thousands) |
2022 (remaining nine months) | | $ | 154,826 | |
2023 | | 203,128 | |
2024 | | 197,693 | |
2025 | | 194,119 | |
2026 | | 120,493 | |
Thereafter | | 131,218 | |
Total | | $ | 1,001,477 | |
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| | (In thousands) |
Accrued payroll and related | | $ | 84,255 | | | $ | 78,780 | |
Accrued bonus and commission | | 30,533 | | | 64,665 | |
Accrued cost of revenue | | 153,571 | | | 118,004 | |
Sales and other taxes payable | | 67,123 | | | 61,975 | |
ESPP contributions | | 26,181 | | | 10,284 | |
| | | | |
| | | | |
| | | | |
Finance lease liability, current | | 12,254 | | | 12,370 | |
Accrued other expense | | 59,751 | | | 71,425 | |
Total accrued expenses and other current liabilities | | $ | 433,668 | | | $ | 417,503 | |
8. Notes Payable
Long-term debt, net, consisted of the following:
| | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| | (In thousands) |
2029 Senior Notes | | | | |
Principal | | $ | 500,000 | | | $ | 500,000 | |
Unamortized discount | | (5,529) | | | (5,701) | |
Unamortized issuance costs | | (1,244) | | | ( |