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, 2020

☐ 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, 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	The New York Stock Exchange

As of October 23, 2020, 140,261,650 shares of the registrant’s Class A common stock and 10,697,598 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 ☒  No ☐

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 ☒  No ☐

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.    ☐

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 September 30, 2020

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 5.	Other Information	79
Item 6.	Exhibits	80
	Signatures	81

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,” “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:

•the impact of the COVID-19 pandemic on the global economy, our customers, employees and business;

•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 Schrems II decision invalidating the EU-US Privacy Shield, 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;

•our ability to compete effectively in an intensely competitive market;

•the sufficiency of our cash and cash equivalents to meet our liquidity needs;

2

•our anticipated investments in sales and marketing, research and development and additional systems and processes to support our growth;

•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;

•our customers' and other platform users' violation of our policies or other misuse of our platform;

•our expectations about the impact of natural disasters and public health epidemics, such as the coronavirus on our business, results of operations, financial condition and on our customers, employees, vendors and partners; and

•our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments, including our proposed acquisition of Segment.io, Inc ("Segment").

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		As of
	September 30,		December 31,
	2020		2019
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,127,102	$	253,660
Short-term marketable securities	2,171,602		1,599,033
Accounts receivable, net	203,835		154,067
Prepaid expenses and other current assets	66,481		54,571
Total current assets	3,569,020		2,061,331
Restricted cash	—		75
Property and equipment, net	173,279		141,256
Operating right-of-use asset	192,728		156,741
Intangible assets, net	404,422		460,849
Goodwill	2,291,616		2,296,784
Other long-term assets	92,637		33,480
Total assets	$	6,723,702	$	5,150,516
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	39,880	$	39,099
Accrued expenses and other current liabilities	205,822		147,681
Deferred revenue and customer deposits	33,916		26,362
Operating lease liability, current	37,867		27,156
Finance lease liability, current	8,862		6,924
Total current liabilities	326,347		247,222
Operating lease liability, noncurrent	166,399		139,200
Finance lease liability, noncurrent	16,034		8,746
Convertible senior notes, net	432,697		458,190
Other long-term liabilities	19,957		17,747
Total liabilities	961,434		871,105
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock	—		—
Class A and Class B common stock	150		138
Additional paid-in capital	6,741,973		4,952,999
Accumulated other comprehensive income	10,585		5,086
Accumulated deficit	(990,440)		(678,812)
Total stockholders’ equity	5,762,268		4,279,411
Total liabilities and stockholders’ equity	$	6,723,702	$	5,150,516

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,
	2020		2019		2020		2019
	(In thousands, except share and per share amounts)
Revenue	$	447,969	$	295,066	$	1,213,686	$	803,244
Cost of revenue	217,095		136,904		580,146		369,017
Gross profit	230,874		158,162		633,540		434,227
Operating expenses:
Research and development	136,652		104,481		371,692		281,119
Sales and marketing	140,875		100,657		387,420		262,685
General and administrative	65,617		47,690		182,038		166,409
Total operating expenses	343,144		252,828		941,150		710,213
Loss from operations	(112,270)		(94,666)		(307,610)		(275,986)
Other (expenses) income, net	(3,996)		4,377		(2,099)		2,861
Loss before (provision) benefit for income taxes	(116,266)		(90,289)		(309,709)		(273,125)
(Provision) benefit for income taxes	(648)		2,555		(1,919)		56,309
Net loss attributable to common stockholders	$	(116,914)	$	(87,734)	$	(311,628)	$	(216,816)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.79)	$	(0.64)	$	(2.18)	$	(1.70)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	147,501,075		136,400,739		142,832,021		127,506,529

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,
	2020		2019		2020		2019
	(In thousands)
Net loss	$	(116,914)	$	(87,734)	$	(311,628)	$	(216,816)
Other comprehensive income:
Net unrealized (loss) gain on marketable securities	(3,021)		1,275		5,499		3,296
Comprehensive loss attributable to common stockholders	$	(119,935)	$	(86,459)	$	(306,129)	$	(213,520)

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 (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
	(In thousands, except share amounts)
Balance as of December 31, 2019	126,882,172	$	124	11,530,627	$	14	$	4,952,999	$	5,086	$	(678,812)	$	4,279,411
Net loss	—	—		—	—		—		—		(94,791)		(94,791)
Exercises of stock options	243,029	—		426,001	—		8,231		—		—		8,231
Vesting of restricted stock units	849,763	1		23,107	—		—		—		—		1
Value of equity awards withheld for tax liability	(8,726)	—		(4,692)	—		(1,674)		—		—		(1,674)
Conversion of shares of Class B common stock into shares of Class A	618,103	1		(618,103)	(1)		—		—		—		—
Donated common stock	22,102	—		—	—		2,701		—		—		2,701
Net unrealized loss on available-for-sale securities	—	—		—	—		—		(9,375)		—		(9,375)
Stock-based compensation	—	—		—	—		72,021		—		—		72,021
Balance as of March 31, 2020	128,606,443	$	126	11,356,940	$	13	$	5,034,278	$	(4,289)	$	(773,603)	$	4,256,525
Net loss	—	—		—	—		—		—		(99,923)		(99,923)
Exercises of stock options	1,590,891	2		459,010	—		45,230		—		—		45,232
Vesting of restricted stock units	807,270	1		4,212	—		—		—		—		1
Value of equity awards withheld for tax liability	(6,018)	—		—	—		(1,144)		—		—		(1,144)
Conversion of shares of Class B common stock into shares of Class A	983,005	1		(983,005)	(1)		—		—		—		—
Shares issued under ESPP	190,642	—		—	—		16,473		—		—		16,473
Donated common stock	22,102	—		—	—		3,972		—		—		3,972
Net unrealized gain on available-for-sale securities	—	—		—	—		—		17,895		—		17,895
Stock-based compensation	—	—		—	—		82,559		—		—		82,559
Balance as of June 30, 2020	132,194,335	$	130	10,837,157	$	12	$	5,181,368	$	13,606	$	(873,526)	$	4,321,590
Net loss	—	—		—	—		—		—		(116,914)		(116,914)
Issuance of common stock in connection with a public offering, net of underwriting discounts	5,819,838	6		—	—		1,408,744		—		—		1,408,750
Costs related to the public offering	—	—		—	—		(541)		—		—		(541)
Exercises of stock options	218,555	—		173,199	—		9,221		—		—		9,221
Vesting of restricted stock units	926,032	1		1,688	—		—		—		—		1
Value of equity awards withheld for tax liability	(5,870)	—		—	—		(1,409)		—		—		(1,409)
Conversion of shares of Class B common stock into shares of Class A	282,780	—		(282,780)	—		—		—		—		—
Equity component from partial settlement of 2023 convertible senior notes	715,819	1		—	—		46,154		—		—		46,155
Donated common stock	22,102	—		—	—		5,757		—		—		5,757
Net unrealized loss on available-for-sale securities	—	—		—	—		—		(3,021)		—		(3,021)
Stock-based compensation	—	—		—	—		92,679		—		—		92,679
Balance as of September 30, 2020	140,173,591	$	138	10,729,264	$	12	$	6,741,973	$	10,585	$	(990,440)	$	5,762,268

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, 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 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	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
Net unrealized gain on available-for-sale 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 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	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)
Net unrealized gain on available-for-sale 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.

8

TWILIO INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:	(In thousands)
Net loss	$	(311,628)	$	(216,816)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	98,070		79,295
Non-cash reduction to the right-of-use asset	27,240		16,732
Net amortization of investment premium and discount	2,909		(4,163)
Amortization of debt discount and issuance costs	18,432		17,689
Stock-based compensation	237,822		197,332
Amortization of deferred commissions	8,556		2,875
Tax benefit related to release of valuation allowance	(716)		(55,999)
Allowance for credit losses	8,417		1,380
Value of donated common stock	12,430		—
Other adjustments	3,013		(274)
Changes in operating assets and liabilities:
Accounts receivable	(58,340)		(27,619)
Prepaid expenses and other current assets	(8,733)		(20,743)
Other long-term assets	(64,777)		(10,756)
Accounts payable	86		4,333
Accrued expenses and other current liabilities	59,594		33,826
Deferred revenue and customer deposits	7,799		3,043
Operating lease liabilities	(25,161)		(15,397)
Long-term liabilities	2,740		(2,714)
Net cash provided by operating activities	17,753		2,024
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired, and other related payments	(2,786)		146,957
Purchases of marketable securities and other investments	(1,465,158)		(1,769,125)
Proceeds from sales and maturities of marketable securities	892,365		475,260
Capitalized software development costs	(26,114)		(16,809)
Purchases of long-lived and intangible assets	(19,252)		(18,994)
Net cash used in investing activities	(620,945)		(1,182,711)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from a public offering, net of underwriting discount and issuance costs	1,408,317		979,150
Principal payments on debt and finance leases	(6,688)		(9,327)
Proceeds from exercises of stock options and shares issued under ESPP	79,157		40,354
Value of equity awards withheld for tax liabilities	(4,227)		(4,148)
Net cash provided by financing activities	1,476,559		1,006,029
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	873,367		(174,658)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period	253,735		505,334
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period	$	1,127,102	$	330,676
Cash paid for income taxes, net	$	1,962	$	509
Cash paid for interest	$	1,290	$	1,406
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Value of common stock issued and stock awards assumed in acquisition	$	—	$	2,841,452
Value of common stock issued to settle convertible senior notes	$	171,840	$	—
Purchases of property, equipment and intangible assets, accrued but not paid	$	1,261	$	1,478
Finance lease right-of-use assets assumed in a business combination	$	—	$	14,173
Purchases of property and equipment through finance leases	$	15,047	$	3,141
Acquisition holdback	$	—	$	4,230
Stock-based compensation capitalized in software development costs	$	10,711	$	5,711

See accompanying notes to condensed consolidated financial statements.

9

TWILIO INC.

Notes to 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, Brazil, Canada, Colombia, Czech Republic, Estonia, France, Germany, Hong Kong, India, Ireland, Japan, the Netherlands, Singapore, Spain, Sweden, the 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 unaudited 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 March 2, 2020 (“Annual Report”).

The condensed consolidated balance sheet as of December 31, 2019, 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, 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 2020 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.

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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 and accounts receivable. The Company maintains 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 customers 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 and nine months ended September 30, 2020 and 2019, no customer organization accounted for more than 10% of the Company’s total revenue.

As of September 30, 2020, and December 31, 2019, no customer organization represented more than 10% of the Company’s gross accounts receivable.

(e)Significant Accounting Policies

There have been no changes to the Company's significant accounting policies as described in its Annual Report.

(f)Recently Issued Accounting Guidance, Not yet Adopted

In August 2020, the FASB issued ASU 2020-06, "Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)," which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. The ASU also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments. The standard is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. The Company is evaluating the impact of the adoption of this guidance on its 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 September 30, 2020						Aggregate Fair Value
							Level 1		Level 2		Level 3
Financial Assets:	(In thousands)
Cash and cash equivalents:
Money market funds	$	999,502	$	—	$	—	$	999,502	$	—	$	—	$	999,502
Commercial paper	36,005		—		—		—		36,005		—		36,005
Total included in cash and cash equivalents	1,035,507		—		—		999,502		36,005		—		1,035,507
Marketable securities:
U.S. Treasury securities	222,741		704		(5)		223,440		—		—		223,440
Corporate debt securities and commercial paper	1,938,664		10,212		(714)		50,000		1,898,162		—		1,948,162
Total marketable securities	2,161,405		10,916		(719)		273,440		1,898,162		—		2,171,602
Strategic investments	8,126		—		—		—		—		8,126		8,126
Total financial assets	$	3,205,038	$	10,916	$	(719)	$	1,272,942	$	1,934,167	$	8,126	$	3,215,235

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	Amortized Cost or Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value Hierarchy as of December 31, 2019			Aggregate Fair Value
							Level 1	Level 2	Level 3
Financial Assets:	(In thousands)
Cash and cash equivalents:
Money market funds	$	153,252	$	—	$	—