The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Our fiscal year ends onDecember 31 . Overview We are the leader in the cloud communications platform category. We enable developers to build, scale and operate realtime customer engagement within their software applications. We offer a customer engagement platform with software designed to address specific use cases like account security and contact centers, and a set of Application Programming Interfaces ("APIs") that handles the higher level communication logic needed for nearly every type of customer engagement. The power, flexibility and reliability offered by our software building blocks empower companies of virtually every shape and size to build world-class engagement into their customer experience. For additional detail on the description of our business and products please refer to Part I, Item 1, "Business", included elsewhere on this Annual Report on Form 10-K. We have achieved significant growth in recent periods. In the years endedDecember 31, 2021 , 2020 and 2019, our revenue was$2.8 billion ,$1.8 billion and$1.1 billion , respectively, and our net loss was$949.9 million ,$491.0 million and$307.1 million , respectively. In the years endedDecember 31, 2021 , 2020 and 2019, our 10 largest Active Customer Accounts generated an aggregate of 11%, 14% and 13% of our total revenue, respectively.
Acquisition of
InJuly 2021 , we acquiredZipwhip, Inc. ("Zipwhip"), a leading provider of toll-free messaging inthe United States , for a purchase price of$838.8 million . The purchase price was paid in the form of shares of our Class A common stock and cash and included fair value of pre-combination services of Zipwhip employees that was embedded in the unvested equity awards which we assumed on the acquisition closing date. Part of the cash was paid to settle the vested stock options of Zipwhip employees that were outstanding on the acquisition closing date. We assumed all unvested and outstanding stock options and restricted stock units of Zipwhip continuing employees as converted into our own respective equity awards at the conversion ratio provided in the Agreement and Plan of Merger and Reorganization. Vesting of Class A shares of our common stock and assumed equity awards that were subject to service conditions is recorded into our stock-based compensation expense as the services are provided. This acquisition is described in detail in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 57
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Because the acquisition of Zipwhip occurred during the year endedDecember 31, 2021 , the information presented in this section with respect to the year endedDecember 31, 2021 includes the contribution of Zipwhip starting fromJuly 14, 2021 , the date of acquisition. The information with respect to the periods prior to the date of acquisition relates toTwilio on a standalone basis, not including Zipwhip. As a result, comparisons to prior periods may not be indicative of future results or future rates of growth.
Acquisition of Segment.io, Inc. in 2020
InNovember 2020 , we acquired Segment.io, Inc. ("Segment"), the market-leading customer data platform, for a purchase price of$3.0 billion . The purchase price was paid in the form of shares of our Class A common stock and cash and included fair value of pre-combination services of Segment employees that was embedded in the unvested equity awards which we assumed on the acquisition closing date. Part of the cash was paid to settle the vested equity awards of Segment employees that were outstanding on the acquisition closing date. We assumed all unvested and outstanding equity awards of Segment continuing employees as converted into our own equity awards at the conversion ratio provided in the Agreement and Plan of Reorganization. Vesting of Class A shares of our common stock and assumed equity awards that were subject to service conditions is recorded into our stock-based compensation expense over the period the services are provided. This acquisition is described in detail in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Because the acquisition of Twilio Segment occurred during the year endedDecember 31, 2020 , the information presented in this section with respect to the year endedDecember 31, 2020 includes the contribution of Twilio Segment starting fromNovember 2, 2020 , the date of acquisition. The information with respect to periods prior to the date of acquisition relates toTwilio on a standalone basis, not including Segment. The information with respect to year 2021 includes Segment results for the full year. As a result, comparisons to prior periods or the current full year period may not be indicative of future results or future rates of growth.
Investment in
InFebruary 2021 , we entered into a Framework Agreement, as amended, withSyniverse Corporation ("Syniverse") andCarlyle Partners V Holdings, L.P. , ("Framework Agreement"), pursuant to which Syniverse would issue to us shares of Syniverse common stock in consideration for an investment by us of up to$750.0 million , subject to certain terms and conditions. The initial agreements and conditions to closing of this transaction are described in detail in Note 13(a) to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. OnFebruary 9, 2022 , Syniverse mutually terminated a proposed Agreement and Plan of Merger withM-3 Brigade Acquisition II Corp. ("MBAC") because the rate of MBAC shareholder redemptions for the proposed transaction would have exceeded the minimum cash condition for closing, which occurred as a result of recent changes in market conditions ("MBAC Transaction Termination"). Because of the MBAC Transaction Termination,Twilio will not purchase any shares of common stock of, or make any investment in, MBAC. The Framework Agreement, dated as ofFebruary 26, 2021 , by and betweenTwilio ,Syniverse and Carlyle Partners V Holdings, L.P. , remains in full force and effect. The amendment, dated as ofAugust 16, 2021 , to the Framework Agreement terminated onFebruary 9, 2022 , as a result of the MBAC Transaction Termination. Pursuant to the terms and subject to the closing conditions set forth in the Framework Agreement, the parties thereto are pursuing the alternative transaction, wherebyTwilio will make a minority investment of$500.0 million to$750.0 million in Syniverse and the parties (or their applicable subsidiaries) will enter into a wholesale agreement.
Public Equity Offerings
InFebruary 2021 ,August 2020 andJune 2019 , we completed public equity offerings in which we sold 4,312,500 shares, 5,819,838 shares and 8,064,515 shares, respectively, of our Class A common stock at public offering prices of$409.60 per share,$247.00 per share and$124.00 per share, respectively. We received aggregate proceeds of$1.8 billion ,$1.4 billion and$979.0 million , respectively, after deducting underwriting discounts and offering expenses paid by us.
Issuance of 2029 and 2031 Senior Notes
InMarch 2021 , we issued and sold$1.0 billion aggregate principal amount of senior notes, consisting of$500.0 million principal amount of 3.625% notes due 2029 (the "2029 Notes") and$500.0 million principal amount of 3.875% notes due 2031 (the "2031 Notes," and together with the 2029 Notes, the "Notes"). The net proceeds from the offering of these Notes were 58
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approximately$984.7 million , after deducting underwriting discounts and issuance costs paid by us. These Notes are described in detail in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Redemption of Convertible Senior Notes and Capped Call Transactions
During 2021 we issued a notice of redemption for our convertible senior notes due 2023 (the "Convertible Notes") and onJune 2, 2021 , we redeemed all of the remaining outstanding principal amount of the notes. During 2021 and through the date of the redemption, we converted$343.7 million aggregate principal amount of the Convertible Notes by issuing 4,846,965 shares of our Class A common stock. The extinguishment of these notes resulted in a$29.0 million loss that is included in other (expenses) income, net, in our consolidated statement of operations included elsewhere in this Annual Report on Form 10-K. Concurrently with the principal redemption, we settled the related capped call arrangements that were entered into contemporaneously with the Convertible Notes offering inMay 2018 . The capped call arrangements were settled for gross cash consideration of$229.8 million that we received and recorded as additional paid-in-capital, net of$1.4 million of transaction costs and a$3.2 million realized gain. These transactions are described in detail in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. COVID-19 UPDATE The rapid spread of the COVID-19 globally has disrupted, and may continue to disrupt, our day-to-day operations and the operations of our customers, partners and service providers for an indefinite period of time, including as a result of changing public health recommendations, travel restrictions and limitations, the duration, spread and severity and potential recurrence of the virus and its variants, as well as the efficacy of vaccines and vaccine distribution and the timing and trajectory of the economic recovery, all of which could negatively impact our business and results of operations and financial condition. Sincemid-March 2020 , we have taken precautionary measures to protect our employees and contingent workers and to help minimize the spread of the virus by temporarily closing our worldwide offices and minimizing business travel. We have continued to monitor the progress of vaccination efforts around the world. In the second half of 2021, as COVID-19 related restrictions have eased in some geographies, we commenced a phased reopening for certain offices. The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain. The COVID-19 pandemic and its adverse effects on economic and market conditions, including labor shortages, supply chain disruptions and inflation, have been prevalent in the locations where we, our customers, our suppliers or our third-party business partners conduct business. These adverse conditions may continue for an extended period and there may be additional impacts to the economy and our business as a result of COVID-19. This could result in decreased business spending by our customers and prospective customers and business partners and third-party business partners, reduced demand for our solutions, lower renewal rates by our customers, longer or delayed sales cycles, including customers and prospective customers delaying contract signing or contract renewals, or reducing budgets or minimum commitments related to the product and services that we offer, all of which could have an adverse impact on our business operations and financial condition. See the risk factor titled "The global COVID-19 pandemic may adversely impact our business, results of operations and financial condition" in Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business, financial condition and results of operations. 59
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Table of Contents Key Business Metrics Year Ended December 31, 2021 2020 2019
Number of Active Customer Accounts (as of end date of period) (1)
256,000 221,000 179,000 Total Revenue (in thousands) (1)$ 2,841,839 $ 1,761,776 $ 1,134,468 Total Revenue Growth Rate (1) 61 % 55 % 75 % Dollar-Based Net Expansion Rate (2) 131 % 137 % 135 %
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(1) Includes the contributions from our Zipwhip business, acquiredJuly 14, 2021 ; Twilio Segment business, acquiredNovember 2, 2020 ; Twilio SendGrid business, acquiredFebruary 1, 2019 ; and other smaller acquisitions from the dates of their respective acquisitions except for the Number of Active Customer Accounts, which excludes customer accounts from our Zipwhip business. (2) As previously announced in our Annual Report on Form 10-K filed with theSEC onMarch 2, 2020 , commencing with the three-month period endedMarch 31, 2020 , we calculate our Dollar-Based Net Expansion Rate by comparing total revenue from a cohort of Active Customer Accounts in a period to the same period in the prior year (the "New DBNE Definition"). To facilitate comparison between the periods presented, Dollar-Based Net Expansion Rate as presented in the table above has been calculated as if the New DBNE Definition had been in effect during that period. As a result of the New DBNE Definition, unless specifically identified as being calculated using total revenue, any Dollar-Based Net Expansion Rates disclosed by us in ourSEC filings, press releases and presentations prior to the date of our press release for the three months endedMarch 31, 2020 , will not be directly comparable to our Dollar-Based Net Expansion Rates going forward. Unless an acquisition closes on the first day of a quarter, revenue from an acquisition will not impact this calculation until the quarter following the one year anniversary of the acquisition. Number of Active Customer Accounts. We believe that the number of Active Customer Accounts is an important indicator of the growth of our business, the market acceptance of our platform and future revenue trends. We define an "Active Customer Account" at the end of any period as an individual account, as identified by a unique account identifier, for which we have recognized at least$5 of revenue in the last month of the period. We believe that use of our platform by customers at or above the$5 per month threshold is a stronger indicator of potential future engagement than trial usage of our platform or usage at levels below$5 per month. In the years endedDecember 31, 2021 , 2020 and 2019, revenue from Active Customer Accounts represented over 99% of total revenue in each period. A single organization may constitute multiple unique Active Customer Accounts if it has multiple account identifiers, each of which is treated as a separate Active Customer Account. DollarBased Net Expansion Rate. Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing Active Customer Accounts and to increase their use of the platform. An important way in which we have historically tracked performance in this area is by measuring the Dollar-Based Net Expansion Rate for Active Customer Accounts. Our Dollar-Based Net Expansion Rate increases when such Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product. Our Dollar-Based Net Expansion Rate decreases when such Active Customer Accounts cease or reduce their usage of a product or when we lower usage prices on a product. As our customers grow their businesses and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of revenue in a quarterly reporting period) that has created a new Active Customer Account, this new Active Customer Account is tied to, and revenue from this new Active Customer Account is included with, the original Active Customer Account for the purposes of calculating this metric. We believe that measuring Dollar-Based Net Expansion Rate provides a more meaningful indication of the performance of our efforts to increase revenue from existing customers. For historical periods throughDecember 31, 2019 , our Dollar-Based Net Expansion Rate compared the revenue from Active Customer Accounts, other than large Active Customer Accounts that have never entered into 12-month minimum revenue commitment contracts with us, in a quarter to the same quarter in the prior year. For reporting periods starting with the three months endedMarch 31, 2020 , our Dollar-Based Net Expansion Rate compares the revenue from all Active Customer Accounts in a quarter to the same quarter in the prior year. To calculate the Dollar-Based Net Expansion Rate, we first identify the cohort of Active Customer Accounts that were Active Customer Accounts in the same quarter of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. When we calculate Dollar-Based Net Expansion Rate for periods longer than one quarter, we use the average of the applicable quarterly Dollar-Based Net Expansion Rates for each of the quarters in such period. Revenue from acquisitions does not impact the Dollar-Based Net Expansion Rate calculation until the quarter following the one-year anniversary of the applicable acquisition, unless the acquisition closing date is the first day of a quarter. As a result of the change in calculation of Dollar-Based Net Expansion Rate, unless specifically identified as being calculated based on total revenue, any Dollar-Based Net Expansion Rates disclosed by us in ourSEC filings, press releases and presentations prior to the date of our press release for the three months endedMarch 31, 2020 , will not be directly comparable to our Dollar-Based Net Expansion Rates going forward. 60
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Net Loss Carryforwards AtDecember 31, 2021 , we had federal, state and foreign net operating loss carryforwards of approximately$4.2 billion ,$2.7 billion and$268.7 million , respectively, and federal and state tax credits of approximately$132.9 million and$84.9 million , respectively. If not utilized, the federal and state loss carryforwards will expire at various dates beginning in 2029 and 2025, respectively, and the federal tax credits will expire at various dates beginning in 2029. The state tax credits can be carried forward indefinitely. At present, we believe that it is more likely than not that the federal and state net operating loss and credit carryforwards will not be realized. Accordingly, a full valuation allowance has been established for these tax attributes, as well as the rest of the federal and state deferred tax assets. Key Components of Statements of Operations Revenue. We derive our revenue primarily from usagebased fees earned from customers using the software products within our Channel APIs. These usagebased software products include offerings, such as Programmable Messaging, Programmable Voice and Programmable Video, among others. Some examples of the usagebased fees that we charge include the number of text messages sent or received using our Programmable Messaging products, minutes of call duration activity for our Programmable Voice products and the number of authentications for our Verify product. In the years endedDecember 31, 2021 , 2020 and 2019, we generated 72%, 76% and 75% of our revenue, respectively, from usagebased fees. We also earn monthly flat fees from certain feebased products, such as our Email API, Marketing Campaigns, Twilio Flex, our cloud contact center platform, and Twilio Segment, our customer data platform. When customers first begin using our platform, they typically pay upfront via credit card in monthly prepaid amounts and draw down their balances as they purchase or use our products. Our larger customers often enter into contracts for at least 12 months, that contain minimum revenue commitments, which may contain more favorable pricing. Customers on such contracts typically are invoiced monthly in arrears for products used. Amounts that have been charged via credit card or invoiced are recorded in revenue, deferred revenue or customer deposits, depending on whether the revenue recognition criteria have been met. Our deferred revenue and customer deposits liability balance is not a meaningful indicator of our future revenue at any point in time because the number of contracts with our invoiced customers that contain terms requiring any form of prepayment is not significant. We defineU.S. revenue as revenue from customers with IP addresses or mailing addresses at the time of registration inthe United States , and we define international revenue as revenue from customers with IP addresses or mailing addresses at the time of registration outside ofthe United States . Cost of Revenue and Gross Margin. Cost of revenue consists primarily of fees paid to network service providers. Cost of revenue also includes cloud infrastructure fees, direct costs of personnel, such as salaries and stockbased compensation for our customer support employees, and nonpersonnel costs, such as depreciation and amortization expense related to data centers and hosting equipment, amortization of capitalized internal use software development costs and acquired intangibles. Our arrangements with network service providers require us to pay fees based on the volume of phone calls initiated or text messages sent, as well as the number of telephone numbers acquired by us to service our customers. Our arrangements with our cloud infrastructure provider require us to pay fees based on our server capacity consumption. Our gross margin has been and will continue to be affected by a number of factors, including the timing and extent of our investments in our operations; our product mix; our ability to manage our network service provider and cloud infrastructurerelated fees, including A2P SMS fees; the mix ofU.S. revenue compared to international revenue; changes in foreign exchange rates; the timing of amortization of capitalized software development costs and acquired intangibles; and the extent to which we periodically choose to pass on our cost savings from platform optimization efforts to our customers in the form of lower usage prices. Operating Expenses. The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, sales commissions and bonuses and stockbased compensation. We also incur other nonpersonnel costs related to our general overhead expenses. We expect that our operating costs will increase in absolute dollars as we add additional employees and invest in our infrastructure to grow our business. 61
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Research and Development. Research and development expenses consist primarily of personnel costs, outsourced engineering services, cloud infrastructure fees for staging and development, amortization of capitalized internal use software development costs, depreciation and an allocation of our general overhead expenses. We capitalize the portion of our software development costs that meets the criteria for capitalization. We continue to focus our research and development efforts on adding new features and products, including new use cases, improving our platform and increasing the functionality of our existing products. Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, including commissions for our sales employees. Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities and developer evangelism, costs related to our SIGNAL customer and developer conferences, credit card processing fees, professional services fees, depreciation, amortization of acquired intangibles and an allocation of our general overhead expenses. We focus our sales and marketing efforts on generating awareness of our company, platform and products, creating sales leads and establishing and promoting our brand, both domestically and internationally. We plan to continue investing in sales and marketing by increasing our sales and marketing headcount, supplementing our selfservice model with an enterprise sales approach, expanding our sales channels, driving our gotomarket strategies, building our brand awareness and sponsoring additional marketing events. General and Administrative. General and administrative expenses consist primarily of personnel costs for our accounting, finance, legal, human resources and administrative support personnel. General and administrative expenses also include costs related to business acquisitions, legal and other professional services fees, certain taxes, depreciation and amortization, charitable contributions and an allocation of our general overhead expenses. We expect that we will incur costs associated with supporting the growth of our business and to meet the increased compliance requirements associated with our international expansion. We may also incur higher than usual losses related to deterioration of quality of certain financial assets caused by the macroeconomic conditions and uncertainly in the COVID-19 environment.
Our general and administrative expenses include a certain amount of prior non-income-based taxes in certain domestic and international jurisdictions that we are subject to based on the manner we sell and deliver our products. Additional details are provided in Note 13(d) to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Provision for Income Taxes. Our income tax provision or benefit consists primarily of income taxes, withholding taxes in foreign jurisdictions in which the Company conducts business and the tax benefit related to the release of valuation allowance from acquisitions. The primary difference between our effective tax rate and the federal statutory rate relates to the full valuation allowance the Company established on the federal, state and certain foreign net operating losses and credits.
Non-GAAP Financial Measures:
We use the following nonGAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that nonGAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates periodtoperiod comparisons of results of operations and assists in comparisons with other companies, many of which use similar nonGAAP financial information to supplement their GAAP results. NonGAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from similarlytitled nonGAAP measures used by other companies. Whenever we use a nonGAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with generally accepted accounting principles. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these nonGAAP financial measures to their most directly comparable GAAP financial measures. 62
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NonGAAP Gross Profit and NonGAAP Gross Margin. For the periods presented, we define nonGAAP gross profit and nonGAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below: Year Ended December 31, 2021 2020 2019 Reconciliation: (In thousands) Gross profit$ 1,390,713 $ 915,661 $ 608,917 Gross margin 49 % 52 % 54 % Non-GAAP adjustments: Stock-based compensation 14,074 8,857 7,123 Amortization of acquired intangibles 114,896 59,501 45,267 Payroll taxes related to stock-based compensation - - 104 Non-GAAP gross profit$ 1,519,683 $ 984,019 $ 661,411 Non-GAAP gross margin 53 % 56 % 58 % NonGAAP Operating Expenses. For the periods presented, we define nonGAAP operating expenses (including categories of operating expenses) as GAAP operating expenses (and categories of operating expenses) adjusted to exclude, as applicable, certain expenses as presented in the table below: Year Ended December 31, 2021 2020 2019 Reconciliation: (In thousands) Operating expenses$ 2,306,297 $ 1,408,562 $ 978,702 Non-GAAP adjustments: Stock-based compensation (618,211) (353,054) (257,195) Amortization of acquired intangibles (83,888) (38,993) (27,540) Acquisition-related expenses (7,449) (21,765) (15,713) Charitable contributions (31,169) (18,993) - Payroll taxes related to stock-based compensation (48,417) (27,389) (15,084) Non-GAAP operating expenses$ 1,517,163 $ 948,368 $ 663,170 63
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NonGAAP Income (Loss) from Operations and NonGAAP Operating Margin. For the periods presented, we define nonGAAP income (loss) from operations and nonGAAP operating margin as GAAP loss from operations and GAAP operating margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below: Year Ended December 31, 2021 2020 2019 Reconciliation: (In thousands) Loss from operations$ (915,584) $ (492,901) $ (369,785) Operating margin (32) % (28) % (33) % Non-GAAP adjustments: Stock-based compensation 632,285 361,911 264,318 Amortization of acquired intangibles 198,784 98,494 72,807 Acquisition-related expenses 7,449 21,765 15,713 Charitable contributions 31,169 18,993 - Payroll taxes related to stock-based compensation 48,417 27,389 15,188 Non-GAAP income (loss) from operations$ 2,520 $ 35,651 $ (1,759) Non-GAAP operating margin - % 2 % - % 64
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Results of Operations The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. We have included Zipwhip in our results of operations prospectively afterJuly 14, 2021 , Twilio Segment afterNovember 2, 2020 ; Twilio SendGrid afterFebruary 1, 2019 , and all other acquisitions from the respective closing dates of each such acquisition. The period-to-period comparison of our historical results are not necessarily indicative of the results that may be expected in the future. Our results of operations may be significantly affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, labor market constraints, world events and existing and new domestic and foreign laws and regulations, as well as those factors outlined in Part I, Item 1A, "Risk Factors." Our revenue is primarily derived from usage-based fees we charge for certain of our products, which can lead to variability and at times create significant differences between forecasts and actual results. In addition, our product mix and mix of international and domestic customers may significantly impact our gross margin. Because usage trends by geographic region and by customer are inherently difficult to estimate, our actual results could differ materially from our estimates. Year Ended December 31, 2021 2020 2019 Consolidated Statements of Operations Data: (In thousands, except share and per share amounts) Revenue$ 2,841,839 $ 1,761,776 $ 1,134,468 Cost of revenue (1) (2) 1,451,126 846,115 525,551 Gross profit 1,390,713 915,661 608,917 Operating expenses: Research and development (1) (2) 789,219 530,548 391,355 Sales and marketing (1) (2) 1,044,618 567,407 369,079 General and administrative (1) (2) 472,460 310,607 218,268 Total operating expenses 2,306,297 1,408,562 978,702 Loss from operations (915,584) (492,901) (369,785) Other (expenses) income, net (45,345) (11,525) 7,569 Loss before benefit for income taxes (960,929) (504,426) (362,216) Benefit for income taxes 11,029 13,447 55,153
Net loss attributable to common
stockholders $ (949,900)$ (490,979) $ (307,063) Net loss per share attributable to common stockholders, basic and diluted $ (5.45)$ (3.35) $ (2.36) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 174,180,465 146,708,663 130,083,046
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(1) Includes stock-based compensation expense as follows:
Year Ended December 31, 2021 2020 2019 (In thousands) Cost of revenue$ 14,074 $ 8,857 $ 7,123 Research and development 258,672 173,303 126,012 Sales and marketing 213,351 103,450 60,886 General and administrative 146,188 76,301 70,297 Total$ 632,285 $ 361,911 $ 264,318
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(2) Includes amortization of acquired intangibles as follows:
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Table of Contents Year Ended December 31, 2021 2020 2019 (In thousands) Cost of revenue$ 114,896 $ 59,501 $ 45,267 Research and development 1,260 - - Sales and marketing 82,493 38,915 27,540 General and administrative 135 78 - Total$ 198,784 $ 98,494 $ 72,807 Year Ended December 31, 2021 2020 2019 Consolidated Statements of Operations, as a percentage of revenue: ** Revenue 100 % 100 % 100 % Cost of revenue 51 48 46 Gross profit 49 52 54 Operating expenses: Research and development 28 30 34 Sales and marketing 37 32 33 General and administrative 17 18 19 Total operating expenses 81 80 86 Loss from operations (32) (28) (33) Other (expenses) income, net (2) (1) 1 Loss before benefit for income taxes (34) (29) (32) Benefit for income taxes * 1 5
Net loss attributable to common
stockholders (33 %) (28 %) (27) %
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* Less than 0.5% of revenue. ** Columns may not add up to 100% due to rounding. Comparison of the Fiscal Years EndedDecember 31, 2021 , 2020 and 2019 Revenue Year Ended December 31, 2020 to 2021 2019 to 2020 2021 2020 2019 Change Change (Dollars in thousands)
Total Revenue$ 2,841,839 $ 1,761,776 $ 1,134,468 $ 1,080,063 61 %$ 627,308 55 % 2021 compared to 2020 In 2021, total revenue increased by$1.1 billion , or 61%, compared to the same period last year. This increase was primarily attributable to an increase in the usage of our products, particularly our Programmable Messaging products, Programmable Voice products and Email products, the adoption of additional products by our existing customers, the additional A2P fees imposed by certain carriers and revenue contributions from our acquisitions of Twilio Segment, Zipwhip and other businesses. The change in usage from our existing customers was reflected in our DollarBased Net Expansion Rate of 131% for the year endedDecember 31, 2021 . The increase in usage was also attributable to a 16% increase in the number of Active Customer Accounts, from 221,000 as ofDecember 31, 2020 , to over 256,000 as ofDecember 31, 2021 . 66
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In 2021,U.S. revenue and international revenue represented$1.9 billion or 66%, and$960.0 million , or 34%, respectively, of total revenue. In 2020,U.S. revenue and international revenue represented$1.3 billion , or 73%, and$479.6 million , or 27%, respectively, of total revenue. The increase in international revenue was attributable to the growth in usage of our products, particularly our Programmable Messaging products and Programmable Voice products, by our existing international Active Customer Accounts; a 14% increase in the number of international Active Customer Accounts driven in part by our focus on expanding our sales to customers outside ofthe United States ; and revenue contribution from our recent acquisitions.
2020 compared to 2019
In 2020, total revenue increased by$627.3 million , or 55%, compared to the same period last year. This increase was primarily attributable to an increase in the usage of our products, particularly our Programmable Messaging products and Programmable Voice products, the adoption of additional products by our existing customers, and revenue contribution from our acquisition of our Twilio Segment business for the period fromNovember 2, 2020 , throughDecember 31, 2020 . This increase was partially offset by pricing decreases that we have implemented over time in the form of lower usage prices, in an effort to increase the reach and scale of our platform. The changes in usage and prices in 2020 were reflected in our DollarBased Net Expansion Rate of 137%. The increase in usage was also attributable to a 23% increase in the number of Active Customer Accounts, from 179,000 as ofDecember 31, 2019 , to over 221,000 as ofDecember 31, 2020 , which was also positively impacted by the customer accounts added through the acquisition of our Twilio Segment business. In 2020,U.S. revenue and international revenue represented$1.3 billion or 73%, and$479.6 million , or 27%, respectively, of total revenue. In 2019,U.S. revenue and international revenue represented$808.9 million , or 71%, and$325.6 million , or 29%, respectively, of total revenue. The increase in international revenue was attributable to the growth in usage of our products, particularly our Programmable Messaging products and Programmable Voice products, by our existing international Active Customer Accounts; a 23% increase in the number of international Active Customer Accounts driven in part by our focus on expanding our sales to customers outside ofthe United States ; and revenue contribution from the acquisition of our Twilio Segment business.
Cost of Revenue and Gross Margin
Year Ended December 31, 2020 to 2021 2019 to 2020 2021 2020 2019 Change Change (Dollars in thousands) Cost of revenue$ 1,451,126 $ 846,115 $ 525,551 $ 605,011 72 %$ 320,564 61 % Gross margin 49 % 52 % 54 % 2021 compared to 2020 In 2021, cost of revenue increased by$605.0 million , or 72%, compared to the same period last year. The increase in cost of revenue was primarily attributable to a$465.5 million increase in network service providers' costs, which included the additional A2P fees imposed by certain carriers, and a$44.2 million increase in cloud infrastructure fees, all to support the growth in usage of our products. The increase was also due to a$55.4 million increase in the amortization expense of intangible assets that we acquired through business combinations. In addition, the year endedDecember 31, 2021 , included cost of revenue from our recent acquisitions. In 2021, the gross margin percentage declined compared to the same period last year. This decline was primarily driven by continued strong growth of our international messaging business, the additional A2P fees imposed by certain carriers and an increase in network service provider fees in certain geographies, which we pass to our customers at cost. The decline was also due to an increase in amortization expense related to our acquired intangible assets, These declines were partially offset by the growth of our other application services products, the impact of the acquisition of our Twilio Segment business and certain operational improvements. 67
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2020 compared to 2019
In 2020, cost of revenue increased by$320.6 million , or 61%, compared to the same period last year. The increase in cost of revenue was primarily attributable to a$246.2 million increase in network service providers' costs and a$32.3 million increase in cloud infrastructure fees, both to support the growth in usage of our products. The increase was also due to a$14.2 million increase in the amortization expense of intangible assets that we acquired through business combinations. In 2020, gross margin percentage declined compared to the same period last year. This decline was primarily driven by a re-acceleration in growth of our messaging business, an increase in amortization expense related to acquired intangible assets, the impact of an increasing mix of international product usage and an increase in network service provider fees in certain geographies, which we pass to our customers at cost. These declines were partially offset by the impact of the acquisition of our Twilio Segment business and certain operational improvements. Operating Expenses Year Ended December 31, 2020 to 2021 2019 to 2020 2021 2020 2019 Change Change (Dollars in thousands) Research and development$ 789,219 $ 530,548 $ 391,355 $ 258,671 49 %$ 139,193 36 % Sales and marketing 1,044,618 567,407 369,079 477,211 84 % 198,328 54 % General and administrative 472,460 310,607 218,268 161,853 52 % 92,339 42 % Total operating expenses$ 2,306,297 $ 1,408,562 $ 978,702 $ 897,735 64 %$ 429,860 44 % 2021 compared to 2020 In 2021, research and development expenses increased by$258.7 million , or 49%, compared to the same period last year. The increase was primarily attributable to a$225.0 million increase in personnel costs, net of a$15.7 million increase in capitalized software development costs, largely as a result of a 54% average increase in our research and development headcount, as we continued to focus on enhancing our existing products, introducing new products as well as enhancing product management and other technical functions. In addition, the year endedDecember 31, 2021 included research and development expenses and the impact of growth in headcount from our recent acquisitions. In 2021, sales and marketing expenses increased by$477.2 million , or 84%, compared to the same period last year. The increase was primarily attributable to a$331.5 million increase in personnel costs, largely as a result of a 74% average increase in sales and marketing headcount, as we continued to expand our sales efforts globally. The increase was also due to a$43.6 million increase related to the amortization of acquired intangible assets and a$31.6 million increase in advertising expenses. In addition, the year endedDecember 31, 2021 included sales and marketing expenses and the impact of growth in headcount from our recent acquisitions. In 2021, general and administrative expenses increased by$161.9 million , or 52%, compared to the same period last year. The increase was primarily attributable to a$142.1 million increase in personnel costs, largely as a result of a 75% average increase in general and administrative headcount, to support the growth of our business globally. The increase was also due to a$12.2 million increase in charitable contributions that we made through Twilio.org,$11.2 million increase in professional service fees incurred in the ordinary course of business, offset by a$14.2 million decrease in professional services related to our acquisitions. In addition, the year endedDecember 31, 2021 included general and administrative expenses and the impact of growth in headcount from our recent acquisitions.
2020 compared to 2019
In 2020, research and development expenses increased by$139.2 million , or 36%, compared to the same period last year. The increase was primarily attributable to a$128.3 million increase in personnel costs, net of a$17.8 million increase in capitalized software development costs, largely as a result of a 63% average increase in our research and development headcount, as we continued to focus on enhancing our existing products, introducing new products as well as enhancing product management and other technical functions. The increase was also due to a$13.3 million increase in our cloud infrastructure fees related to staging and development of our products. In addition, the year endedDecember 31, 2020 included research and development expenses and headcount from our recent acquisitions. 68
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In 2020, sales and marketing expenses increased by$198.3 million , or 54%, compared to the same period last year. The increase was primarily attributable to a$137.4 million increase in personnel costs, largely as a result of a 88% average increase in sales and marketing headcount, as we continued to expand our sales efforts inthe United States and abroad. The increase was also due to a$11.4 million increase related to the amortization of acquired intangible assets and a$20.1 million increase in advertising expenses. In addition, the year endedDecember 31, 2020 , included sales and marketing expenses and headcount from our recent acquisitions. In 2020, general and administrative expenses increased by$92.3 million , or 42%, compared to the same period last year. The increase was primarily attributable to a$25.4 million increase in personnel costs, largely as a result of a 66% average increase in general and administrative headcount, to support the growth of our business globally. The increase was also due to a$19.0 million increase in charitable contributions due to several donations made by Twilio.org, a$10.7 million increase in our allowance for estimated credit losses partially impacted by the COVID-19 environment and a$5.8 million increase in professional expenses related to our acquisitions of other business. Additionally, certain of our taxes increased by$7.9 million primarily in foreign jurisdictions and our professional services fees increased by$6.6 million . In addition, the year endedDecember 31, 2021 included general and administrative expenses and headcount from our recent acquisitions. Liquidity and Capital Resources Our principal sources of liquidity have been (i) the net proceeds of$979.0 million ,$1.4 billion and$1.8 billion , net of underwriting discounts and offering expenses paid by us, from our public equity offerings inJune 2019 ,August 2020 andFebruary 2021 , respectively; (ii) the aggregate net proceeds of approximately$537.0 million , after deducting purchaser discounts and debt issuance costs paid by us, from the issuance of our Convertible Notes inMay 2018 ; (iii) the aggregate net proceeds of approximately$984.7 million , after deducting purchaser discounts and debt issuance costs paid by us, from the issuance of our 2029 Notes and 2031 Notes inMarch 2021 ; (iv) the net proceeds of$228.4 million , after deducting transaction costs paid by us, from settlement of our capped call arrangements inJune 2021 ; and (v) the payments received from customers using our products. Our primary uses of cash include operating costs, such as personnel-related costs, network service provider costs, cloud infrastructure costs, facility-related spending, as well as acquisitions and investments. Refer to Note 6, Note 10, Note 13(a) and Note 18 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for detailed discussions of our obligations and commitments related to leases, debt, other purchase obligations and our proposed minority investment inSyniverse Corporation . We may, from time to time, consider acquisitions of, or investments in, complementary businesses, products, services, capital infrastructure or technologies which might affect our liquidity requirements, cause us to secure additional financing or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all. We believe that our cash, cash equivalents and marketable securities balances, as well as the cash flows generated by our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for the next 12 months and beyond. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part I, Item 1A, "Risk Factors." We may be required to seek additional equity or debt financing in order to meet these future capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected. Additionally, cash from operations could also be affected by various risks and uncertainties in connection with the COVID-19 pandemic, including timing and ability to collect payments from our customers and other risks detailed in Part I, Item 1A, "Risk Factors." 69
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Cash Flows
The following table summarizes our cash flows:
Year Ended December 31, 2021 2020 2019 (In thousands) Cash (used in) provided by operating activities$ (58,192) $ 32,654 $ 14,048 Cash (used in) investing activities (2,489,996) (845,855) (1,285,792) Cash provided by financing activities 3,096,325 1,493,311 1,020,145 Effect of exchange rate changes on cash, cash equivalents and restricted cash (191) 40 -
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 547,946
Cash Flows from Operating Activities
In 2021, cash used in operating activities consisted primarily of our net loss of$949.9 million adjusted for non-cash items, including$632.3 million of stock-based compensation expense,$17.2 million of tax benefit related to release of valuation allowance in connection with our Zipwhip and prior acquisitions,$258.4 million of depreciation and amortization expense,$5.8 million amortization of the debt discount and issuance costs related to our long-term debt,$48.8 million of non-cash reduction to our operating right-of-use asset,$31.5 million amortization of deferred commissions and$185.1 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased$196.0 million primarily due to revenue growth, the timing of cash receipts and pre-payments for cloud infrastructure fees and certain operating expenses. Accounts payable and other current liabilities increased$137.7 million primarily due to increases in transaction volumes. Operating lease liability decreased$49.0 million due to payments made against our operating lease obligations. Other long-term assets increased$121.2 million primarily due to an increase in the sales commissions balances related to the growth of our business. In 2020, cash provided by operating activities consisted primarily of our net loss of$491.0 million adjusted for non-cash items, including$360.9 million of stock-based compensation expense,$16.5 million of tax benefit related to release of valuation allowance in connection with our acquisitions of other businesses,$149.7 million of depreciation and amortization expense,$23.8 million amortization of the debt discount and issuance costs related to our long-term debt,$38.4 million of non-cash reduction to our operating right-of-use asset,$13.3 million amortization of deferred commissions, a$13.2 million increase in our allowance for credit losses, and$97.4 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased$92.9 million primarily due to the timing of cash receipts from certain of our larger customers, pre-payments for cloud infrastructure fees and certain operating expenses. Accounts payable and other current liabilities increased$98.4 million primarily due to increases in transaction volumes. Operating lease liability decreased$33.9 million due to payments made against our operating lease obligations. Other long-term assets increased$81.9 million primarily due to an increase in the sales commissions balances related to the growth of our business.
Cash Flows from Investing Activities
In 2021, cash used in investing activities was$2.5 billion primarily consisting of$1.9 billion of purchases of marketable securities and other investments, net of maturities and sales,$491.5 million of net cash paid to acquire other businesses as described in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K,$44.0 million related to capitalized software development costs and$46.0 million related to purchases of long-lived assets. In 2020, cash used in investing activities was$845.9 million primarily consisting of$453.1 million of purchases of marketable securities and other investments, net of maturities and sales,$333.6 million of net cash paid to acquire other businesses as described in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K,$33.3 million related to capitalized software development costs and$25.8 million related to purchases of long-lived assets. 70
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Cash Flows from Financing Activities
In 2021, cash provided by financing activities was$3.1 billion primarily consisting of$1.8 billion in net proceeds from our public equity offering, as described in Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K;$984.7 million in net proceeds from the issuance of our 2029 Notes and 2031 Notes and$228.4 million in net proceeds from the settlement of the capped call transactions related to our Convertible Notes, which were fully redeemed during 2021, as described in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K; and$136.2 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan. In 2020, cash provided by financing activities was$1.5 billion primarily consisting of$1.4 billion in net proceeds from our public equity offering, as described in Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and$104.8 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan. Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Segment Information
We have one business activity and operate in one reportable segment.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States of America . The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe that the accounting policies, assumptions and estimates associated with revenue recognition and business combinations have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of our accounting policies.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities. Our revenue is primarily derived from usage-based fees earned from customers accessing our enterprise cloud computing services. Platform access is considered a monthly series comprising one performance obligation and usage-based fees are recognized as revenue in the period in which the usage occurs. Subscription-based fees are derived from certain non-usage-based contracts, such as with the sales of short codes, customer support, and fees charged to access the cloud-based platform of our Twilio Segment business, which acquisition is further described in Note 7 to our consolidated financial statements included elsewhere in this Annual Report of Form 10-K. Non -usage-based contracts revenue is recognized on a ratable basis over the contractual term which is generally from one to three years. 71
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Our arrangements do not contain general rights of return. However, credits may be issued on a case-by-case basis. Credits are accounted for as variable consideration, are estimated based on historical trends and are recorded against revenue. The contracts do not provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met.
Business Combinations
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to future expected cash flows from acquired developed technologies; existing customer relationships; uncertain tax positions and tax related valuation allowances assumed; and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Recent Accounting Pronouncements Not Yet Adopted
See Note 2(ac) to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements not yet adopted.
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