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, 2021

☐ 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	The New York Stock Exchange

As of October 22, 2021, 168,448,610 shares of the registrant’s Class A common stock and 9,880,181 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 September 30, 2021

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	10
	Notes to Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 5.	Other Information	86
Item 6.	Exhibits	86
	Signatures	87

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 coronavirus disease of 2019 (“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 (“CCPA”) 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 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;

2

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

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

•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 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 natural disasters and public health epidemics, such as COVID-19 on our business, results of operations and 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.

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 “Summary of Risk Factors and Uncertainties Associated with Our Business” 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.

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TWILIO INC.

Condensed Consolidated Balance Sheets

(Unaudited)

	As of		As of
	September 30,		December 31,
	2021		2020
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,497,498	$	933,885
Short-term marketable securities	3,896,754		2,105,906
Accounts receivable, net	345,793		251,167
Prepaid expenses and other current assets	165,760		81,377
Total current assets	5,905,805		3,372,335
Property and equipment, net	237,241		183,239
Operating right-of-use asset	248,582		258,610
Intangible assets, net	1,102,599		966,573
Goodwill	5,263,051		4,595,394
Other long-term assets	219,569		111,282
Total assets	$	12,976,847	$	9,487,433
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	76,293	$	60,042
Accrued expenses and other current liabilities	368,683		252,895
Deferred revenue and customer deposits	121,337		87,031
Operating lease liability, current	50,760		48,338
Total current liabilities	617,073		448,306
Operating lease liability, noncurrent	223,033		229,905
Finance lease liability, noncurrent	20,254		17,856
Long-term debt	985,547		302,068
Other long-term liabilities	49,191		36,633
Total liabilities	1,895,098		1,034,768
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock	—		—
Class A and Class B common stock	178		164
Additional paid-in capital	12,910,271		9,613,246
Accumulated other comprehensive income	(405)		9,046
Accumulated deficit	(1,828,295)		(1,169,791)
Total stockholders’ equity	11,081,749		8,452,665
Total liabilities and stockholders’ equity	$	12,976,847	$	9,487,433

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,
	2021		2020		2021		2020
	(In thousands, except share and per share amounts)
Revenue	$	740,176	$	447,969	$	1,999,095	$	1,213,686
Cost of revenue	375,561		217,095		1,004,929		580,146
Gross profit	364,615		230,874		994,166		633,540
Operating expenses:
Research and development	209,890		136,652		565,970		371,692
Sales and marketing	264,548		140,875		713,196		387,420
General and administrative	122,522		65,617		346,958		182,038
Total operating expenses	596,960		343,144		1,626,124		941,150
Loss from operations	(232,345)		(112,270)		(631,958)		(307,610)
Other expenses, net	(6,613)		(3,996)		(39,219)		(2,099)
Loss before benefit (provision) for income taxes	(238,958)		(116,266)		(671,177)		(309,709)
Benefit (provision) for income taxes	14,849		(648)		12,673		(1,919)
Net loss attributable to common stockholders	$	(224,109)	$	(116,914)	$	(658,504)	$	(311,628)
Net loss per share attributable to common stockholders, basic and diluted	$	(1.26)	$	(0.79)	$	(3.82)	$	(2.18)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	177,231,285		147,501,075		172,605,371		142,832,021

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,
	2021		2020		2021		2020
	(In thousands)
Net loss	$	(224,109)	$	(116,914)	$	(658,504)	$	(311,628)
Other comprehensive (loss) income:
Unrealized (loss) gain on marketable securities	(982)		(3,021)		(6,137)		5,499
Foreign currency translation	31		—		(245)		—
Net change in market value of effective foreign currency forward exchange contracts	(161)		—		(3,069)		—
Total other comprehensive (loss) income	(1,112)		(3,021)		(9,451)		5,499
Comprehensive loss attributable to common stockholders	$	(225,221)	$	(119,935)	$	(667,955)	$	(306,129)

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, 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
Donated common stock	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
Net loss	—	—		—	—		—		—		(227,853)		(227,853)
Exercises of vested stock options	294,430	—		63,164	—		20,351		—		—		20,351
Vesting of restricted stock units	839,472	1		—	—		(1)		—		—		—
Value of equity awards withheld for tax liability	(5,498)	—		—	—		(1,882)		—		—		(1,882)
Conversion of shares of Class B common stock into shares of Class A common stock	188,044	1		(188,044)	(1)		—		—		—		—
Equity component from partial settlement of 2023 convertible senior notes	3,688,584	4		—	—		255,590		—		—		255,594
Settlement of capped call, net of related costs	—	—		—	—		225,233		—		—		225,233
Shares issued under ESPP	100,107	—		—	—		23,699		—		—		23,699
Donated common stock	22,102	—		—	—		6,789		—		—		6,789
Costs related to the follow-on public offering	—	—		—	—		(50)		—		—		(50)
Unrealized loss on marketable securities	—	—		—	—		—		(979)		—		(979)
Foreign currency translation	—	—		—	—		—		(66)		—		(66)
Net change in market value of effective foreign currency forward exchange contracts	—	—		—	—		—		(2,908)		—		(2,908)
Stock-based compensation	—	—		—	—		148,988		—		—		148,988
Balance as of June 30, 2021	165,715,499	$	164	10,218,422	$	12	$	12,297,415	$	707	$	(1,604,186)	$	10,694,112

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 (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
	(In thousands, except share amounts)
Balance as of June 30, 2021	165,715,499	$	164	10,218,422	$	12	$	12,297,415	$	707	$	(1,604,186)	$	10,694,112
Net loss	—	—		—	—		—		—		(224,109)		(224,109)
Exercises of vested stock options	222,066	—		83,484	—		15,993		—		—		15,993
Vesting of restricted stock units	834,148	1		—	—		(1)		—		—		—
Value of equity awards withheld for tax liability	(5,530)	—		—	—		(1,896)		—		—		(1,896)
Conversion of shares of Class B common stock into shares of Class A common stock	388,725	—		(388,725)	—		—		—		—		—
Donated common stock	22,102	—		—	—		8,389		—		—		8,389
Cost adjustments related to the follow-on public offering	—	—		—	—		90		—		—		90
Shares issued in acquisition	1,116,390	1		—	—		419,036		—		—		419,037
Value of equity awards assumed in acquisition	—	—		—	—		1,511		—		—		1,511
Shares issued in acquisition subject to future vesting	59,533	—		—	—		—		—		—		—
Unrealized loss on marketable securities	—	—		—	—		—		(982)		—		(982)
Foreign currency translation	—	—		—	—		—		31		—		31
Net change in market value of effective foreign currency forward exchange contracts	—	—		—	—		—		(161)		—		(161)
Stock-based compensation	—	—		—	—		169,734		—		—		169,734
Balance as of September 30, 2021	168,352,933	$	166	9,913,181	$	12	$	12,910,271	$	(405)	$	(1,828,295)	$	11,081,749

See accompanying notes to condensed consolidated financial statements.

8

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 (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
Unrealized loss on marketable 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
Unrealized gain on marketable 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
Unrealized loss on marketable 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.

9

TWILIO INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	(In thousands)
Net loss	$	(658,504)	$	(311,628)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	189,669		98,070
Non-cash reduction to the right-of-use asset	36,249		27,240
Net amortization of investment premium and discount	24,880		2,909
Amortization of debt discount and issuance costs	5,457		18,432
Stock-based compensation	445,366		237,822
Amortization of deferred commissions	20,798		8,556
Tax benefit related to release of valuation allowance	(15,569)		(716)
Allowance for credit losses	11,371		8,417
Value of donated common stock	24,583		12,430
Loss on extinguishment of debt	28,965		3,155
Other adjustments	8,626		(142)
Changes in operating assets and liabilities:
Accounts receivable	(81,186)		(58,340)
Prepaid expenses and other current assets	(59,929)		(8,733)
Other long-term assets	(66,501)		(64,777)
Accounts payable	(8,665)		86
Accrued expenses and other current liabilities	84,730		59,594
Deferred revenue and customer deposits	27,004		7,799
Operating lease liabilities	(36,274)		(25,161)
Other long-term liabilities	(1,019)		2,740
Net cash (used in) provided by operating activities	(19,949)		17,753
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired and other related payments	(490,880)		(2,786)
Purchases of marketable securities and other investments	(3,225,799)		(1,465,158)
Proceeds from sales and maturities of marketable securities	1,334,444		892,365
Capitalized software development costs	(35,926)		(26,114)
Purchases of long-lived and intangible assets	(33,575)		(19,252)
Net cash used in investing activities	(2,451,736)		(620,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from a public equity offering	1,766,400		1,408,750
Payments of costs related to public offerings	(464)		(433)
Proceeds from issuance of senior notes	987,500		—
Payments of debt issuance costs	(2,751)		—
Proceeds from settlement of capped call, net of settlement costs	228,412		—
Principal payments on debt and finance leases	(4,852)		(6,688)
Proceeds from exercises of stock options and shares issued in ESPP	71,607		79,157
Value of equity awards withheld for tax liabilities	(6,552)		(4,227)
Net cash provided by financing activities	3,039,300		1,476,559
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(157)		—
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	567,458		873,367

10

TWILIO INC.

Condensed Consolidated Statements of Cash Flows, continued

(Unaudited)

Nine Months Ended September 30,
2021	2020
(In thousands)