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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 OF 1934
For the quarterly period ended September 30, 2023
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
_____________________________________________
twiliologored2a01.jpg
TWILIO INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware26-2574840
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
101 Spear Street, Fifth 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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.001 per shareTWLONew York Stock Exchange

As of November 1, 2023, 181,042,862 shares of the registrant’s Class A 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 
1


TWILIO INC.
Quarterly Report on Form 10-Q
For the Three Months Ended September 30, 2023
TABLE OF CONTENTS
Page


2


Item 1. Financial Statements
TWILIO INC.
Condensed Consolidated Balance Sheets
(Unaudited)
As of September 30,As of December 31,
20232022
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents$677,917 $651,752 
Short-term marketable securities3,179,492 3,503,317 
Accounts receivable, net557,201 547,507 
Prepaid expenses and other current assets326,968 281,510 
Total current assets4,741,578 4,984,086 
Property and equipment, net222,257 263,979 
Operating right-of-use assets79,126 121,341 
Equity method investment623,118 699,911 
Intangible assets, net678,721 849,935 
Goodwill5,243,266 5,284,153 
Other long-term assets269,672 360,899 
Total assets$11,857,738 $12,564,304 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$104,424 $124,605 
Accrued expenses and other current liabilities423,812 490,221 
Deferred revenue and customer deposits145,955 139,110 
Operating lease liability, current51,926 54,222 
Total current liabilities726,117 808,158 
Operating lease liability, noncurrent133,881 164,551 
Finance lease liability, noncurrent11,506 21,290 
Long-term debt, net988,555 987,382 
Other long-term liabilities18,298 23,881 
Total liabilities1,878,357 2,005,262 
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock  
Class A and Class B common stock182 186 
Additional paid-in capital14,610,887 14,055,853 
Accumulated other comprehensive loss(52,726)(121,161)
Accumulated deficit(4,578,962)(3,375,836)
Total stockholders’ equity9,979,381 10,559,042 
Total liabilities and stockholders’ equity$11,857,738 $12,564,304 
See accompanying notes to condensed consolidated financial statements.
3


TWILIO INC.
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months EndedNine Months Ended
September 30,September 30,
2023202220232022
(In thousands, except share and per share amounts)
Revenue$1,033,670 $983,030 $3,077,995 $2,801,747 
Cost of revenue517,351 520,955 1,565,231 1,469,312 
Gross profit516,319 462,075 1,512,764 1,332,435 
Operating expenses:
Research and development241,654 284,735 707,145 804,987 
Sales and marketing262,898 328,833 784,383 951,697 
General and administrative114,071 135,331 361,491 392,319 
Restructuring costs3,437 72,451 140,281 72,451 
Impairment of long-lived assets3,162 97,722 34,278 97,722 
Total operating expenses625,222 919,072 2,027,578 2,319,176 
Loss from operations(108,903)(456,997)(514,814)(986,741)
Other expenses, net:
Share of losses from equity method investment(31,058)(13,376)(93,838)(13,376)
Impairment of strategic investments  (46,154) 
Other income (expenses), net1 (8,374)17,731 (23,290)
Total other expenses, net(31,057)(21,750)(122,261)(36,666)
Loss before provision for income taxes(139,960)(478,747)(637,075)(1,023,407)
Provision for income taxes(1,747)(3,580)(12,958)(3,316)
Net loss attributable to common stockholders$(141,707)$(482,327)$(650,033)$(1,026,723)
Net loss per share attributable to common stockholders, basic and diluted$(0.78)$(2.63)$(3.54)$(5.63)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted181,749,309 183,692,564 183,854,526 182,319,735 
See accompanying notes to condensed consolidated financial statements.
4


TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2023202220232022
(In thousands)
Net loss$(141,707)$(482,327)$(650,033)$(1,026,723)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities13,921 (22,151)53,276 (103,999)
Foreign currency translation5,018 (2,192)5,587 (4,646)
Net change in market value of effective foreign currency
   forward exchange contracts
(8,626)(19,196)(7,458)(34,154)
Share of other comprehensive (loss) income from equity method
   investment
(2,764)(4,243)17,030 (4,243)
Total other comprehensive income (loss)7,549 (47,782)68,435 (147,042)
Comprehensive loss attributable to common stockholders$(134,158)$(530,109)$(581,598)$(1,173,765)
See accompanying notes to condensed consolidated financial statements.
5

TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

Common Stock
Class A
Common Stock
Class B
Additional Paid-In Capital
Accumulated Other Comprehensive (Loss) Income
Accumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmount
(In thousands, except share amounts)
Balance as of December 31, 2022176,358,104 $174 9,617,605 $12 $14,055,853 $(121,161)$(3,375,836)$10,559,042 
Net loss— — — — — — (342,139)(342,139)
Exercises of vested stock options66,968 — 97,199 — 3,264 — — 3,264 
Vesting of restricted stock units1,516,634 2 — — (2)— —  
Value of equity awards withheld for tax liability(36,965)— — — (2,456)— — (2,456)
Conversion of shares of Class B common stock into shares of Class A common stock97,199 — (97,199)— — — — — 
Shares of Class A common stock issued and donated to charity22,102 — — — 1,599 — — 1,599 
Unrealized gain on marketable securities— — — — — 30,750 — 30,750 
Repurchases of shares of Class A common stock including related costs(1,902,124)(2)— — — — (124,990)(124,992)
Foreign currency translation— — — — — 483 — 483 
Net change in market value of effective foreign currency forward exchange contracts— — — — — 3,335 — 3,335 
Share of other comprehensive income from equity method investment— — — — — 14,648 — 14,648 
Stock-based compensation— — — — 164,999 — — 164,999 
Stock-based compensation - restructuring— — — — 10,333 — — 10,333 
Balance as of March 31, 2023176,121,918 $174 9,617,605 $12 $14,233,590 $(71,945)$(3,842,965)$10,318,866 
Net loss— — — — — — (166,187)(166,187)
Exercises of vested stock options33,438 — 30,783 — 1,477 — — 1,477 
Vesting of restricted stock units1,144,112 1 — — (1)— —  
Value of equity awards withheld for tax liability(872)— — — (53)— — (53)
Conversion of shares of Class B common stock into shares of Class A common stock9,648,388 12 (9,648,388)(12)— — —  
Shares issued under ESPP579,857 — — — 23,337 — — 23,337 
Shares of Class A common stock issued and donated to charity22,102 — — — 1,047 — — 1,047 
Unrealized gain on marketable securities— — — — — 8,605 — 8,605 
Repurchases of shares of Class A common stock including related costs(6,374,327)(6)— — — — (373,141)(373,147)
Foreign currency translation— — — — — 86 — 86 
Net change in market value of effective foreign currency forward exchange contracts— — — — — (2,167)— (2,167)
Share of other comprehensive income from equity method investment— — — — — 5,146 — 5,146 
Stock-based compensation— — — — 159,253 — — 159,253 
Stock-based compensation - restructuring— — — — 296 — — 296 
Balance as of June 30, 2023181,174,616 $181  $ $14,418,946 $(60,275)$(4,382,293)$9,976,559 



6

TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock
Class A
Common Stock
Class B
Additional Paid-In CapitalAccumulated Other Comprehensive (Loss) IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmount
(In thousands, except share amounts)
Balance as of June 30, 2023181,174,616 $181  $ $14,418,946 $(60,275)$(4,382,293)$9,976,559 
Net loss— — — — — — (141,707)(141,707)
Exercises of vested stock options100,000 — — — 871 — — 871 
Vesting of restricted stock units1,669,596 2 — — (2)— —  
Value of equity awards withheld for tax liability(417)— — — (27)— — (27)
Shares of Class A common stock issued and donated to charity
22,102 — — — 1,339 — — 1,339 
Unrealized gain on marketable securities
— — — — — 13,921 — 13,921 
Repurchases of shares of Class A common stock including related costs(899,799)(1)— — — — (54,962)(54,963)
Foreign currency translation— — — — — 5,018 — 5,018 
Net change in market value of effective foreign currency forward exchange contracts— — — — — (8,626)— (8,626)
Share of other comprehensive loss from equity method investment— — — — — (2,764)— (2,764)
Stock-based compensation— — — — 189,293 — — 189,293 
Stock-based compensation - restructuring— — — — 467 — — 467 
Balance as of September 30, 2023182,066,098 $182  $ $14,610,887 $(52,726)$(4,578,962)$9,979,381 
See accompanying notes to condensed consolidated financial statements.



7

TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

Common Stock
Class A
Common Stock
Class B
Additional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmount
(In thousands, except share amounts)
Balance as of December 31, 2021170,625,994 $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 options180,643 — 193,889 — 11,727 — — 11,727 
Vesting of restricted stock units877,089 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 stock215,389 — (215,389)— — — — — 
Shares of Class A common stock issued and donated to charity22,102 — — — 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, 2022171,763,174 $169 9,820,605 $12 $13,343,554 $(84,984)$(2,341,318)$10,917,433 
Net loss— — — — — — (322,769)(322,769)
Exercises of vested stock options98,111 — 77,732 — 5,649 — — 5,649 
Vesting of restricted stock units1,049,640 1 — — (1)— —  
Value of equity awards withheld for tax liability(38)— — — (4)— — (4)
Conversion of shares of Class B common stock into shares of Class A common stock80,732 — (80,732)— — — — — 
Shares issued under ESPP258,221 1 — — 24,317 — — 24,318 
Shares of Class A common stock issued and donated to charity22,102 — — — 2,373 — — 2,373 
Unrealized loss on marketable securities— — — — — (19,022)— (19,022)
Foreign currency translation— — — — — (2,289)— (2,289)
Net change in market value of effective foreign currency forward exchange contracts— — — — — (11,106)— (11,106)
Stock-based compensation— — — — 247,412 — — 247,412 
Balance as of June 30, 2022173,271,942 $171 9,817,605 $12 $13,623,300 $(117,401)$(2,664,087)$10,841,995 






8

TWILIO INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock
Class A
Common Stock
Class B
Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Accumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmount
(In thousands, except share amounts)
Balance as of June 30, 2022173,271,942 $171 9,817,605 $12 $13,623,300 $(117,401)$(2,664,087)$10,841,995 
Net loss— — — — — — (482,327)(482,327)
Exercises of vested stock options38,368 — 35,187 — 2,056 — — 2,056 
Vesting of restricted stock units1,115,248 1 — — (1)— —  
Value of equity awards withheld for tax liability(125)— — — (11)— — (11)
Conversion of shares of Class B common stock into shares of Class A common stock35,187 — (35,187)— — — — — 
Shares of Class A common stock issued and donated to charity
22,102 — — — 1,911 — — 1,911 
Unrealized loss on marketable securities— — — — — (22,151)— (22,151)
Foreign currency translation— — — — — (2,192)— (2,192)
Net change in market value of effective foreign currency forward exchange contracts— — — — — (19,196)— (19,196)
Share of other comprehensive loss from equity method investment— — — — — (4,243)— (4,243)
Stock-based compensation— — — — 199,772 — — 199,772 
Stock-based compensation - restructuring— — — — 15,274 — — 15,274 
Balance as of September 30, 2022174,482,722 $172 9,817,605 $12 $13,842,301 $(165,183)$(3,146,414)$10,530,888 
See accompanying notes to condensed consolidated financial statements.


9


TWILIO INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:(In thousands)
Net loss$(650,033)$(1,026,723)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization218,968 207,880 
Non-cash reduction to the right-of-use asset21,815 38,669 
Net amortization of investment premium and discount4,403 27,900 
Impairment of long-lived assets due to office closures34,278 97,722 
Stock-based compensation including restructuring509,367 606,260 
Amortization of deferred commissions54,428 41,322 
Unrealized loss on equity securities9,750  
Allowance for doubtful accounts41,454 21,786 
Value of shares of Class A common stock issued and donated to charity3,985 8,516 
Share of losses from equity method investment93,838 13,376 
Loss on net assets divested32,277  
Impairment of strategic investments46,154  
Other adjustments11,822 3,166 
Changes in operating assets and liabilities:
Accounts receivable(69,116)(121,353)
Prepaid expenses and other current assets(56,506)(81,071)
Other long-term assets(15,367)(111,662)
Accounts payable(2,578)11,585 
Accrued expenses and other current liabilities(59,677)122,408 
Deferred revenue and customer deposits6,827 (6,206)
Operating lease liabilities(41,446)(42,158)
Other long-term liabilities(2,436)(7,330)
Net cash provided by (used in) operating activities192,207 (195,913)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired and payments related to prior period acquisitions(5,770)(32,853)
Divestitures, net of cash divested38,194  
Purchases of marketable securities and other investments(1,391,975)(1,650,759)
Proceeds from sales and maturities of marketable securities1,764,841 1,065,998 
Capitalized software development costs(30,526)(35,905)
Purchases of long-lived and intangible assets(9,019)(28,634)
Net cash provided by (used in) investing activities365,745 (682,153)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of costs related to public offerings (35)
Principal payments on debt and finance leases(13,763)(9,383)
Value of equity awards withheld for tax liabilities(2,536)(1,080)
Repurchases of shares of Class A common stock and related costs(548,871) 
Proceeds from exercises of stock options and shares of Class A common stock issued under ESPP28,949 43,750 
Net cash (used in) provided by financing activities(536,221)33,252 
Effect of exchange rate changes on cash, cash equivalents and restricted cash108 146 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH21,839 (844,668)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period656,078 1,481,831 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period$677,917 $637,163 
Cash paid for income taxes, net$22,916 $5,481 
Cash paid for interest$38,216 $37,500 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents$677,917 $632,794 
Restricted cash in other current assets 4,357 
Restricted cash in other long-term assets 12 
Total cash, cash equivalents and restricted cash$677,917 $637,163 
See accompanying notes to condensed consolidated financial statements.
10

Table of Contents
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. Today's leading companies trust Twilio's Customer Engagement Platform to build direct, personalized relationships with their customers everywhere in the world. Twilio enables companies to use communications and data to add intelligence and security to every step of their customers’ journey, from sales to marketing to growth, customer service and many more engagement use cases in a flexible, programmatic way.
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 27, 2023 (“Annual Report”).
The condensed consolidated balance sheet as of December 31, 2022, 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 2023 or any future period.
(b)Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All 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; allocation of goodwill to reporting units; impairment assessments of goodwill and indefinite-lived 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)Remaining Performance Obligations
Revenue allocated to remaining performance obligations for contracts with durations of more than one year was $128.8 million as of September 30, 2023, of which 68% is expected to be recognized over the next 12 months and 96% is expected to be recognized over the next 24 months.
(e)Deferred Revenue and Customer Deposits
As of September 30, 2023, and December 31, 2022, the Company recorded $146.0 million and $139.1 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 September 30, 2023 and 2022, the Company recognized $16.7 million and $17.5 million of revenue, respectively, that was included in the deferred revenue and customer deposits balances as of the end of the previous year. During the nine months ended September 30, 2023 and 2022, the Company recognized $115.3 million and $112.2 million of revenue, respectively, that was included in the deferred revenue and customer deposits balances as of the end of the previous year.
(f)Deferred Sales Commissions
Total net capitalized commission costs as of September 30, 2023, and December 31, 2022, were $210.1 million and $239.1 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. Certain balances held by such financial institutions 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. As of September 30, 2023, and December 31, 2022, the allowance for doubtful accounts was $40.3 million and $27.0 million, respectively, and is recorded in accounts receivable, net, in the accompanying condensed consolidated balance sheets.
In the three and nine months ended September 30, 2023 and 2022, no customer organization accounted for more than 10% of the Company’s total revenue.
As of September 30, 2023, and December 31, 2022, no customer organization represented more than 10% of the Company’s gross accounts receivable.
12

Table of Contents
(h)Significant Accounting Policies
Segment Information
The Company determines its operating and reportable segments in accordance with Accounting Standards Codification 280 - Segment Reporting (“ASC 280”), which requires financial information to be reported based on how the chief operating decision maker (“CODM”), who is the Company's Chief Executive Officer, reviews and manages the business, and establishes criteria for aggregating operating segments into reportable segments. Historically, the Company had one operating and reportable segment. As described in Note 8, in the second quarter of 2023, the Company determined that it operated in and, as such, started reporting its results in two reportable segments.
Goodwill

In connection with changes in the segment reporting structure described in Note 8, in the second quarter of 2023, the Company concluded that it had multiple reporting units. Accordingly, the Company reassigned assets and liabilities to the reporting units based on which reporting units’ operations the assets and liabilities were employed in or were related to. The Company reassigned goodwill to each reporting unit using a relative fair value allocation approach.
There have been no other changes to the Company’s significant accounting policies as described in its Annual Report.
(i)Recently Issued Accounting Guidance, Not yet Adopted
In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update No. 2022-03, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions," which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. 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 Less Than 12 Months
Gross
Unrealized
Losses More
Than
12 Months
Fair Value Hierarchy as of
September 30, 2023
Aggregate
Fair Value
Level 1Level 2Level 3
Financial Assets:(In thousands)
Cash and cash equivalents:
Money market funds$418,098 $— $— $— $418,098 $ $ $418,098 
Commercial paper23,311 — — —  23,311  23,311 
Total included in cash
    and cash equivalents
441,409 — — — 418,098 23,311  441,409 
Marketable securities:
Debt securities:
U.S. Treasury securities528,950 20 (1,060)(3,999)523,911   523,911 
Non-U.S. government
   securities
115,923   (2,897)113,026   113,026 
Corporate debt securities and commercial paper2,577,183 134 (9,810)(31,002)16,690 2,519,815  2,536,505 
Total debt securities3,222,056 154 (10,870)(37,898)653,627 2,519,815  3,173,442 
Equity securities6,050 — — — 6,050   6,050 
Total marketable
   securities
3,228,106 154 (10,870)(37,898)659,677 2,519,815  3,179,492 
Total financial assets$3,669,515 $154 $(10,870)$(37,898)$1,077,775 $2,543,126 $ $3,620,901 
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Amortized
Cost or
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses Less Than 12 Months
Gross
Unrealized
Losses More
Than
12 Months
Fair Value Hierarchy as of
December 31, 2022
Aggregate
Fair Value
Level 1Level 2Level  3
Financial Assets:(In thousands)
Cash and cash equivalents:
Money market funds $46,610 $— $— $— $46,610 $ $ $46,610 
Reverse repurchase
   agreements
200,000 — — —  200,000  200,000 
Commercial paper2,249 — — — 2,249 2,249 
Total included in cash
   and cash equivalents
248,859 — — — 46,610 202,249  248,859 
Marketable securities:
U.S. Treasury securities481,463  (1,269)(11,347)468,847   468,847 
Non-U.S. government
   securities
149,901  (33)(6,304)143,564   143,564 
Corporate debt securities and
   commercial paper
2,973,844 307 (12,202)(71,043)5,000 2,885,906  2,890,906 
Total marketable
   securities
3,605,208 307 (13,504)(88,694)617,411 2,885,906  3,503,317 
Total financial assets$3,854,067 $307 $(13,504)$(88,694)$664,021 $3,088,155 $ $3,752,176 
Debt Securities
The aggregate fair value of the corporate debt securities with unrealized losses was $2.3 billion as of September 30, 2023, of which $1.2 billion were in an unrealized loss position for more than 12 months and $1.1 billion were in an unrealized loss position for less than 12 months. The aggregate fair value of corporate debt securities with unrealized losses was $2.7 billion as of December 31, 2022, of which $2.0 billion were in an unrealized loss position for more than 12 months and $620.5 million were in an unrealized loss position for less than 12 months. Unrealized losses related to other investments as of September 30, 2023 and December 31, 2022 were not significant.
The Company’s primary objective when investing excess cash is preservation of capital, hence the Company’s debt securities primarily consist of U.S. Treasury Securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper. Because the Company views its debt securities as available to support current operations, it has classified all available for sale securities as short-term. As of September 30, 2023, and December 31, 2022, for all debt 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 September 30, 2023 and December 31, 2022, the Company anticipates that it will recover the entire amortized cost basis of such debt securities before maturity.
Interest earned on debt securities was $19.3 million and $53.2 million in the three and nine months ended September 30, 2023, respectively, and $16.3 million and $47.5 million in the three and nine months ended September 30, 2022, respectively. The interest is recorded as other income (expenses), net, in the accompanying condensed consolidated statements of operations.
The following table summarizes the contractual maturities of debt securities:
As of September 30,As of December 31,
20232022
Amortized
Cost
Aggregate
Fair Value
Amortized
Cost
Aggregate
Fair Value
Financial Assets:(In thousands)
Less than one year$1,740,368 $1,710,876 $1,943,836 $1,909,218 
One to three years1,481,688 1,462,566 1,661,372 1,594,099 
Total$3,222,056 $3,173,442 $3,605,208 $3,503,317 
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Table of Contents
Equity Securities
The equity securities consist of shares of a publicly traded company that were received as consideration in a divestiture transaction described further in Note 5.
Strategic Investments
As of September 30, 2023 and December 31, 2022, the Company held strategic investments with a carrying value of $30.7 million and $76.9 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 or impairment. In the nine months ended September 30, 2023, the Company remeasured to fair value one of its strategic investments acquired in 2021 due to an assessed impairment. The fair value measurement of the strategic investment is classified as Level 2 in the fair value hierarchy and the primary input used in the fair value measurement was the publicly available stock price of the issuer’s unrestricted security of the same class. The impairment loss of $46.2 million is recorded in other expenses, net, in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2023. There were no other impairments or adjustments recorded in the three and nine months ended September 30, 2023 and 2022 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 September 30, 2023 and December 31, 2022, the aggregate fair value of these liabilities and the associated unrealized losses were not significant.
The Company’s financial liabilities that are not measured at fair value on a recurring basis are its Senior Notes due 2029 (“2029 Notes”) and its Senior Notes due 2031 (“2031 Notes”). As of September 30, 2023, the fair value of the 2029 Notes and 2031 Notes were $419.0 million and $407.5 million, respectively. As of December 31, 2022, the fair value of the 2029 Notes and 2031 Notes were $410.9 million and $399.4 million, respectively.
4. Property and Equipment
Property and equipment consisted of the following:
As of September 30,As of December 31,
20232022
(In thousands)
Capitalized internal-use software developments costs$285,905 $257,983 
Data center equipment (1)
105,027