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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 September 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-37806
twiliologored2a01.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)
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)

375 Beale Street, Suite 300
San Francisco, California 94105
(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.  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
 



TWILIO INC.
Quarterly Report on Form 10-Q
For the Three Months Ended September 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 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
 
(55,999
)
 

Other adjustments
 
3,981

 
5,198

Changes in operating assets and liabilities:
 


 


Accounts receivable
 
(27,619
)
 
(39,643
)
Prepaid expenses and other current assets
 
(20,743
)
 
(6,600
)
Other long-term assets
 
(10,756
)
 
(3,681
)
Accounts payable
 
4,333

 
1,641

Accrued expenses and other current liabilities
 
33,826

 
39,732

Deferred revenue and customer deposits
 
3,043

 
5,092

Operating right of use liability
 
(15,397
)
 

Long-term liabilities
 
(2,714
)
 
(1,177
)
Net cash provided by operating activities
 
2,024

 
12,833

CASH FLOWS FROM INVESTING ACTIVITIES:
 


 


Acquisitions, net of cash acquired
 
146,957

 
(29,662
)
Purchases of marketable securities and other investments
 
(1,769,125
)
 
(213,533
)
Proceeds from sales and maturities of marketable securities
 
475,260

 
113,497

Capitalized software development costs
 
(16,809
)
 
(15,276
)
Purchases of long-lived assets
 
(18,994
)
 
(3,428
)
Net cash used in investing activities
 
(1,182,711
)
 
(148,402
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 


 


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

 

Payments of costs related to the public offering
 
(850
)
 

Proceeds from issuance of convertible senior notes
 

 
550,000

Payment of debt issuance costs
 

 
(12,877
)
Purchase of capped call
 

 
(58,465
)
Principal payments on notes payable
 
(5,400
)
 

Principal payments on finance leases
 
(3,927
)
 

Proceeds from exercises of stock options and issuances under ESPP
 
40,354

 
27,052

Value of equity awards withheld for tax liabilities
 
(4,148
)
 
(1,720
)
Net cash provided by financing activities
 
1,006,029

 
503,990

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

 
105

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
(174,658
)
 
368,526

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period