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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-Q
_____________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934

For the quarterly period ended September 30, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37806
TWLO-20200930_G1.JPG
TWILIO INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware 26-2574840
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
101 Spear Street, First Floor
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)

(415) 390-2337
(Registrant’s telephone number, including area code)

____________________________________________
Securities registered pursuant to Section 12(b) of the act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share TWLO The New York Stock Exchange

As of October 23, 2020, 140,261,650 shares of the registrant’s Class A common stock and 10,697,598 shares of registrant’s Class B common stock were outstanding.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
    Emerging growth company

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TWILIO INC.
Quarterly Report on Form 10-Q
For the Three Months Ended September 30, 2020
TABLE OF CONTENTS

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Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
the impact of the COVID-19 pandemic on the global economy, our customers, employees and business;
our future financial performance, including our revenue, cost of revenue, gross margin and operating expenses, ability to generate positive cash flow and ability to achieve and sustain profitability;
anticipated technology trends, such as the use of and demand for cloud communications;
our ability to continue to build and maintain credibility with the global software developer community;
our ability to attract and retain customers to use our products;
the evolution of technology affecting our products and markets;
our ability to introduce new products and enhance existing products;
our ability to comply with modified or new industry standards, laws and regulations applying to our business, including the General Data Protection Regulation (“GDPR”), the Schrems II decision invalidating the EU-US Privacy Shield, the California Consumer Privacy Act of 2018 and other privacy regulations that may be implemented in the future, and Signature-based Handling of Asserted Information Using toKENs ("SHAKEN") and Secure Telephone Identity Revisited ("STIR") standards (together, "SHAKEN/STIR") and other robocalling prevention and anti-spam standards and increased costs associated with such compliance;
our ability to optimize our network service provider coverage and connectivity;
our ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on our platform;
our ability to work closely with email inbox service providers to maintain deliverability rates;
our ability to pass on our savings associated with our platform optimization efforts to our customers;
the impact and expected results from changes in our relationship with our larger customers;
our ability to attract and retain enterprises and international organizations as customers for our products;
our ability to form and expand partnerships with technology partners and consulting partners;
our ability to successfully enter into new markets and manage our international expansion;
the attraction and retention of qualified employees and key personnel;
our ability to effectively manage our growth and future expenses and maintain our corporate culture;
our ability to compete effectively in an intensely competitive market;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
2


our anticipated investments in sales and marketing, research and development and additional systems and processes to support our growth;
our ability to maintain, protect and enhance our intellectual property;
our ability to successfully defend litigation brought against us;
our ability to service the interest on our convertible notes and repay such notes, to the extent required;
our customers' and other platform users' violation of our policies or other misuse of our platform;
our expectations about the impact of natural disasters and public health epidemics, such as the coronavirus on our business, results of operations, financial condition and on our customers, employees, vendors and partners; and
our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments, including our proposed acquisition of Segment.io, Inc ("Segment").
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.


3


PART I - FINANCIAL INFORMATION

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

See accompanying notes to condensed consolidated financial statements.
4


TWILIO INC.
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
(In thousands, except share and per share amounts)
Revenue $ 447,969  $ 295,066  $ 1,213,686  $ 803,244 
Cost of revenue 217,095  136,904  580,146  369,017 
Gross profit 230,874  158,162  633,540  434,227 
Operating expenses:
Research and development 136,652  104,481  371,692  281,119 
Sales and marketing 140,875  100,657  387,420  262,685 
General and administrative 65,617  47,690  182,038  166,409 
Total operating expenses 343,144  252,828  941,150  710,213 
Loss from operations (112,270) (94,666) (307,610) (275,986)
Other (expenses) income, net (3,996) 4,377  (2,099) 2,861 
Loss before (provision) benefit for income taxes (116,266) (90,289) (309,709) (273,125)
(Provision) benefit for income taxes (648) 2,555  (1,919) 56,309 
Net loss attributable to common stockholders $ (116,914) $ (87,734) $ (311,628) $ (216,816)
Net loss per share attributable to common stockholders, basic and diluted $ (0.79) $ (0.64) $ (2.18) $ (1.70)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 147,501,075  136,400,739  142,832,021  127,506,529 

See accompanying notes to condensed consolidated financial statements.


5


TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
(In thousands)
Net loss $ (116,914) $ (87,734) $ (311,628) $ (216,816)
Other comprehensive income:
Net unrealized (loss) gain on marketable securities (3,021) 1,275  5,499  3,296 
Comprehensive loss attributable to common stockholders $ (119,935) $ (86,459) $ (306,129) $ (213,520)

See accompanying notes to condensed consolidated financial statements.
6


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

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

See accompanying notes to condensed consolidated financial statements.
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TWILIO INC.
Condensed Consolidated Statements of Stockholders' Equity, continued
(Unaudited)
Common Stock
Class A
Common Stock
Class B
Additional Paid In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity
Shares Amount Shares Amount
(In thousands, except share amounts)
Balance as of December 31, 2018 80,769,763  $ 80  19,310,465  $ 20  $ 808,527  $ 1,282  $ (371,674) $ 438,235 
Net loss —  —  —  —  —  —  (36,503) (36,503)
Exercises of stock options 748,679  1,023,984  15,326  —  —  15,328 
Vesting of early exercised stock options —  —  —  —  —  — 
Vesting of restricted stock units 641,406  —  39,360  —  —  —  —  — 
Value of equity awards withheld for tax liability (5,860) —  (4,431) —  (1,062) —  —  (1,062)
Conversion of shares of Class B common stock into shares of Class A 4,339,519  (4,339,519) (4) —  —  —  — 
Shares issued in acquisition 23,555,081  24  —  —  2,658,874  —  —  2,658,898 
Equity awards assumed in acquisition —  —  —  —  191,620  —  —  191,620 
Net unrealized gain on available-for-sale securities —  —  —  —  —  1,041  —  1,041 
Stock-based compensation —  —  —  —  59,947  —  —  59,947 
Balance as of March 31, 2019 110,048,588  $ 109  16,029,859  $ 17  $ 3,733,241  $ 2,323  $ (408,177) $ 3,327,513 
Net loss —  —  —  —  —  —  (92,579) (92,579)
Issuance of common stock in connection with a public offering, net of underwriter discounts 8,064,515  —  —  979,992  —  —  980,000 
Costs related to the public offering —  —  —  —  (953) —  —  (953)
Exercises of stock options 313,924  —  503,797  9,926  —  —  9,927 
Vesting of restricted stock units 675,028  29,576  —  —  —  — 
Value of equity awards withheld for tax liability (5,934) —  (5,888) —  (1,518) —  —  (1,518)
Conversion of shares of Class B common stock into shares of Class A 2,172,598  (2,172,598) (2) —  —  —  — 
Shares issued under ESPP 108,895  —  —  —  8,254  —  —  8,254 
Equity awards assumed in acquisition (measurement period adjustment) —  —  —  —  (7,126) —  —  (7,126)
Net unrealized gain on available-for-sale securities —  —  —  —  —  980  —  980 
Stock-based compensation —  —  —  —  72,361  —  —  72,361 
Balance as of June 30, 2019 121,377,614  $ 120  14,384,746  $ 16  $ 4,794,177  $ 3,303  $ (500,756) $ 4,296,860 
Net loss —  —  —  —  —  —  (87,734) (87,734)
Exercises of vested stock options 231,571  —  351,563  —  6,845  —  —  6,845 
Vesting of early exercised stock options —  —  —  —  12  —  —  12 
Vesting of restricted stock units 713,904  25,291  —  —  —  — 
Value of equity awards withheld for tax liability (5,860) —  (5,888) —  (1,568) —  —  (1,568)
Conversion of shares of Class B common stock into shares of Class A common stock 2,158,562  (2,158,562) (2) —  —  —  — 
Equity awards assumed in acquisition (measurement period adjustment) —  —  —  —  (1,940) —  —  (1,940)
Unrealized gain on marketable securities —  —  —  —  —  1,275  —  1,275 
Stock-based compensation —  —  —  —  70,735  —  —  70,735 
Balance as of September 30, 2019 124,475,791  $ 123  12,597,150  $ 14  $ 4,868,261  $ 4,578  $ (588,490) $ 4,284,486 

See accompanying notes to condensed consolidated financial statements.
8


TWILIO INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

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

See accompanying notes to condensed consolidated financial statements.
9

TWILIO INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. The Company is the leader in the Cloud Communications Platform category and enables developers to build, scale and operate real-time communications within their software applications via simple-to-use Application Programming Interfaces (“API”). The power, flexibility, and reliability offered by the Company’s software building blocks empower entities of virtually every shape and size to build world-class engagement into their customer experience.
The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries in Australia, Bermuda, Brazil, Canada, Colombia, Czech Republic, Estonia, France, Germany, Hong Kong, India, Ireland, Japan, the Netherlands, Singapore, Spain, Sweden, the United Kingdom and the United States.
2. Summary of Significant Accounting Policies
(a)Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K filed with the SEC on March 2, 2020 (“Annual Report”).
The condensed consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited financial statements as of that date, but may not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, stockholders' equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2020 or any future period.
(b)Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c)Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, revenue allowances and sales credit reserves; recoverability of long-lived and intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments, therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.
10

(d)Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company maintains cash, cash equivalents and marketable securities with financial institutions that management believes are financially sound and have minimal credit risk exposure although the balances will exceed insured limits.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customers deteriorates substantially, operating results could be adversely affected. To reduce credit risk, management performs credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. During the three and nine months ended September 30, 2020 and 2019, no customer organization accounted for more than 10% of the Company’s total revenue.
As of September 30, 2020, and December 31, 2019, no customer organization represented more than 10% of the Company’s gross accounts receivable.
(e)Significant Accounting Policies
There have been no changes to the Company's significant accounting policies as described in its Annual Report.
(f)Recently Issued Accounting Guidance, Not yet Adopted
In August 2020, the FASB issued ASU 2020-06, "Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)," which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. The ASU also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments. The standard is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. The Company is evaluating the impact of the adoption of this guidance on its consolidated financial statements.
3. Fair Value Measurements
Financial Assets
The following tables provide the financial assets measured at fair value on a recurring basis:

Amortized
Cost or
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value Hierarchy as of September 30, 2020 Aggregate
Fair Value
Level 1 Level 2 Level 3
Financial Assets: (In thousands)
Cash and cash equivalents:
Money market funds $ 999,502  $ —  $ —  $ 999,502  $ —  $ —  $ 999,502 
Commercial paper 36,005  —  —  —  36,005  —  36,005 
Total included in cash and cash equivalents 1,035,507  —  —  999,502  36,005  —  1,035,507 
Marketable securities:
U.S. Treasury securities 222,741  704  (5) 223,440  —  —  223,440 
Corporate debt securities and commercial paper 1,938,664  10,212  (714) 50,000  1,898,162  —  1,948,162 
Total marketable securities 2,161,405  10,916  (719) 273,440  1,898,162  —  2,171,602 
Strategic investments 8,126  —  —  —  —  8,126  8,126 
Total financial assets $ 3,205,038  $ 10,916  $ (719) $ 1,272,942  $ 1,934,167  $ 8,126  $ 3,215,235 
11

Amortized
Cost or
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value Hierarchy as of December 31, 2019 Aggregate
Fair Value
Level 1 Level 2 Level 3
Financial Assets: (In thousands)
Cash and cash equivalents:
Money market funds $ 153,252  $ —  $ —  $ 153,252  $ —  $ —  $ 153,252 
Reverse repurchase agreements 35,800  —  —  —  35,800  —  35,800 
Total included in cash and cash equivalents 189,052  —  —  153,252  35,800  —  189,052 
Marketable securities:
U.S. Treasury securities 215,847  241  (3) 216,085  —  —  216,085 
Corporate debt securities and commercial paper 1,378,487  4,516  (55) 5,000  1,377,948  —  1,382,948 
Total marketable securities 1,594,334  4,757  (58) 221,085  1,377,948  —  1,599,033 
Strategic investments 5,500  —  —  —  —  5,500  5,500 
Total financial assets $ 1,788,886  $ 4,757  $ (58) $ 374,337  $ 1,413,748  $ 5,500  $ 1,793,585 

    The Company's primary objective when investing excess cash is preservation of capital, hence the Company's marketable securities consist primarily of US Treasury securities, high credit quality corporate debt securities and commercial paper. As the Company views its marketable securities as available to support its current operations, it has classified all available for sale securities as short-term. As of September 30, 2020, for fixed income 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, 2020, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity.
The Company regularly reviews the changes to the rating of its debt securities by rating agencies as well as reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses. As of September 30, 2020, the risk of expected credit losses was not significant.
Interest earned on marketable securities was $7.1 million and $23.7 million in the three and nine months ended September 30, 2020, respectively, and $7.7 million and $11.8 million in the three and nine months ended September 30, 2019, respectively. The interest is recorded as other (expenses) income, net, in the accompanying condensed consolidated statements of operations.
The following table summarizes the contractual maturities of marketable securities:

As of September 30, 2020 As of December 31, 2019
Amortized
Cost
Aggregate
Fair Value
Amortized
Cost
Aggregate
Fair Value
Financial Assets: (In thousands)
Less than one year $ 1,182,375  $ 1,186,724  $ 859,996  $ 861,181 
One to three years 979,030  984,878  734,338  737,852 
Total $ 2,161,405  $ 2,171,602  $ 1,594,334  $ 1,599,033 

Strategic Investments
The Company holds strategic investments with a fair value of $8.1 million in equity securities of privately held companies in which the Company does not have a controlling interest or significant influence. These securities are recorded as other long-term assets in the accompanying condensed consolidated balance sheets. The Company classifies its strategic investments as Level 3 within the fair value hierarchy based on the nature of inputs and judgment involved in the valuation process.
12

Financial Liabilities
As of September 30, 2020, and December 31, 2019, the fair value of the 0.25% convertible senior notes due 2023 (the “Notes”), as further described in Note 8, was approximately $1,731.3 million and $841.3 million, respectively. The fair value of the Notes is determined based on the closing price on the last trading day of the reporting period and is classified as a Level 2 security within the fair value hierarchy.
4. Property and Equipment
Property and equipment consisted of the following:

As of As of
September 30, December 31,
2020 2019
(In thousands)
Capitalized internal-use software development costs $ 134,825  $ 100,155 
Data center equipment (1)
37,255  22,009 
Leasehold improvements 66,144  55,886 
Office equipment 31,414  25,083 
Furniture and fixtures (1)
10,602  10,095 
Software 9,910  9,176 
Total property and equipment 290,150  222,404 
Less: accumulated depreciation and amortization (116,871) (81,148)
Total property and equipment, net $ 173,279  $ 141,256 
____________________
(1) Data center equipment and furniture and fixtures contain assets under finance leases. See Note 5 for further detail.
The Company capitalized $12.2 million and $36.8 million in internal-use software development costs in the three and nine months ended September 30, 2020, respectively, and $8.8 million and $22.5 million in the three and nine months ended September 30, 2019, respectively. Of this amount, stock-based compensation was $3.7 million and $10.7 million in the three and nine months ended September 30, 2020, respectively, and $2.5 million and $5.7 million in the three and nine months ended September 30, 2019, respectively. Amortization of capitalized software development costs was $4.4 million and $13.4 million in the three and nine months ended September 30, 2020, respectively, and $4.4 million and $12.5 million in the three and nine months ended September 30, 2019, respectively.
5. Right-of-Use Asset and Lease Liabilities
The Company determines if an arrangement is a lease at inception. The Company presents the operating leases in long-term assets and current and long-term liabilities. Finance lease assets are included in property and equipment, net, and finance lease liabilities are presented in current and long-term liabilities in the accompanying condensed consolidated balance sheets.
Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not generally provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease agreements may have lease and non-lease components, which the Company accounts for as a single lease component. When estimating the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain such options will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term and variable payments are recognized in the period they are incurred. The Company’s lease agreements do not contain any residual value guarantees. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company has entered into various operating lease agreements for data centers and office space, and various financing leases agreements for data center and office equipment and furniture.
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As of September 30, 2020, the Company had 20 leased properties with remaining lease terms from less than one year to nine years, some of which include options to extend the leases for up to 5.0 years.
The components of the lease expense recorded in the accompanying condensed consolidated statements of operations were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
(In thousands)
Operating lease cost $ 12,127  $ 8,336  $ 35,048  $ 23,782 
Finance lease cost:
   Amortization of assets 2,384  1,610  6,118  4,299 
   Interest on lease liabilities 212  175  604  512 
Short-term lease cost 1,195  1,748  3,698  5,088 
Variable lease cost 2,066  1,002  5,246  2,569 
Total net lease cost $ 17,984  $ 12,871  $ 50,714  $ 36,250 

    Supplemental balance sheet information related to leases was as follows:
As of As of
September 30, December 31,
Leases Classification 2020 2019
Assets: (In thousands)
Operating lease assets
Operating right-of-use asset, net of accumulated amortization (1)
$ 192,728  $ 156,741 
Finance lease assets
Property and equipment, net of accumulated depreciation (2)
23,631  14,770 
Total leased assets $ 216,359  $ 171,511 
Liabilities:
Current
   Operating Operating lease liability, current $ 37,867  $ 27,156 
   Finance Financing lease liability, current 8,862  6,924 
Noncurrent
   Operating Operating lease liability, noncurrent 166,399  139,200 
   Finance Finance lease liability, noncurrent 16,034  8,746 
Total lease liabilities $ 229,162  $ 182,026 
____________________
(1) Operating lease assets are recorded net of accumulated amortization of $49.6 million and $23.2 million as of September 30, 2020 and December 31, 2019, respectively.
(2) Finance lease assets are recorded net of accumulated depreciation of $12.1 million and $6.0 million as of September 30, 2020 and December 31, 2019, respectively.
Supplemental cash flow and other information related to leases was as follows:
Nine Months Ended
September 30,
2020 2019
Cash paid for amounts included in the measurement of lease liabilities: (In thousands)
Operating cash flows used in operating leases $ 34,124  $ 20,316 
Operating cash flows used in finance leases (interest) $ 604  $ 491 
Financing cash flows used in finance leases $ 5,721  $ 3,927 
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Maturities of lease liabilities were as follows:
As of September 30, 2020
Operating
Leases
Finance
Leases
Year ended December 31, (In thousands)
2020 (remaining three months)
$ 11,638  $ 2,902 
2021 47,644  8,565 
2022 46,478  6,242 
2023 37,884  5,495 
2024 33,791  2,639 
Thereafter 59,892  835 
Total lease payments 237,327  26,678 
Less: imputed interest (33,061) (1,782)
Total lease obligations 204,266  24,896 
Less: current obligations (37,867) (8,862)
Long-term lease obligations $ 166,399  $ 16,034 

    Supplemental information related to the remaining lease term and discount rate was as follows:

As of September 30, 2020
Operating
Leases
Finance
Leases
Weighted average remaining lease term (in years): 5.6 3.4
Weighted average discount rate: 5.3  % 4.1  %

    As of September 30, 2020, the Company had an additional operating lease obligation totaling $8.2 million related to a lease that will commence in the fourth quarter of 2020 with a lease term of 7.1 years. The Company also had an additional finance lease obligation of $4.1 million related to a lease that will commence in the fourth quarter of 2020 with a lease term of 4.0 years.
6. Intangible Assets
Intangible assets consisted of the following:
As of September 30, 2020
Gross Accumulated
Amortization
Net
Amortizable intangible assets: (In thousands)
Developed technology $ 334,599  $ (91,768) $ 242,831 
Customer relationships 185,594  (47,120) 138,474 
Supplier relationships 4,356  (2,692) 1,664 
Trade names 20,060  (6,727) 13,333 
Patent 3,247  (342) 2,905 
Total amortizable intangible assets 547,856  (148,649) 399,207 
Non-amortizable intangible assets:
Telecommunication licenses 4,920  —  4,920 
Trademarks and other 295  —  295 
Total $ 553,071  $ (148,649) $ 404,422 

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As of December 31, 2019
Gross Accumulated
Amortization
Net
Amortizable intangible assets: (In thousands)
Developed technology $ 333,980  $ (55,390) $ 278,590 
Customer relationships 182,339  (26,347) 155,992 
Supplier relationships 4,356  (1,532) 2,824 
Trade name 20,060  (3,727) 16,333 
Patent 2,707  (262) 2,445 
Total amortizable intangible assets 543,442  (87,258) 456,184 
Non-amortizable intangible assets:
Telecommunication licenses 4,370  —  4,370 
Trademarks and other 295  —  295 
Total $ 548,107  $ (87,258) $ 460,849 

    Amortization expense was $20.4 million and $61.3 million for the three and nine months ended September 30, 2020, respectively, and $20.0 million and $52.9 million for the three and nine months ended September 30, 2019, respectively.
Total estimated future amortization expense is as follows:
As of
September 30,
2020
Year Ended December 31, (In thousands)
2020 (remaining three months) $ 19,919 
2021 80,492 
2022 77,877 
2023 74,595 
2024 69,316 
Thereafter 77,008 
Total $ 399,207 

7. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following:
As of As of
September 30, December 31,
2020 2019
(In thousands)
Accrued payroll and related $ 35,411  $ 20,462 
Accrued bonus and commission 18,218  12,898 
ESPP contributions 12,223  4,023 
Accrued cost of revenue 70,910  47,563 
Sales and other taxes payable 33,621  34,652 
Acquisition holdback 4,061  6,520 
Accrued other expense 31,378  21,563 
Total accrued expenses and other current liabilities $ 205,822  $ 147,681 
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Other long-term liabilities consisted of the following:
As of As of
September 30, December 31,
2020 2019
(In thousands)
Tax liabilities $ 9,017  $ 9,268 
Accrued other expenses 10,940  8,479 
Total other long-term liabilities $ 19,957  $ 17,747 

8. Notes Payable
Convertible Senior Notes and Capped Call Transactions
In May 2018, the Company issued $550.0 million aggregate principal amount of 0.25% convertible senior notes due 2023 in a private placement, including $75.0 million aggregate principal amount of such Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (collectively, the “Notes”). The interest on the Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2018.
The Notes may bear special interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the indenture relating to the issuance of Notes (the “indenture”) or if the Notes are not freely tradeable as required by the indenture. The Notes will mature on June 1, 2023, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the debt offering, after deducting initial purchaser discounts and debt issuance costs paid by us were $537.0 million.
Each $1,000 principal amount of the Notes is initially convertible into 14.104 shares of the Company’s Class A common stock par value $0.001, which is equivalent to an initial conversion price of approximately $70.90 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a make-whole fundamental change, as defined in the indenture, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.
Prior to the close of business on the business day immediately preceding March 1, 2023, the Notes may be convertible at the option of the holders only under the following circumstances:
(1)during any calendar quarter commencing after September 30, 2018, and only during such calendar quarter, if             the last reported sale price of the Class A common stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is more than or equal to 130% of the conversion price on each applicable trading day;
(2) during the five business days period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of Notes for such trading day was less than 98% of the product of the last reported sale price of the Class A common stock and the conversion rate on each such trading day;
(3) upon the Company’s notice that it is redeeming any or all of the Notes; or
(4) upon the occurrence of specified corporate events.
On or after March 1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Notes may, at their option, convert all or a portion of their Notes regardless of the foregoing conditions.
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at the Company’s election. It is the Company’s current intent to settle the principal amount of the Notes with cash.
17

During the three months ended September 30, 2020, the conditional conversion feature of the Notes was triggered as the last reported sale price of the Company's Class A common stock was more than or equal to 130% of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on September 30, 2020 (the last trading day of the calendar quarter), and therefore the Notes are currently convertible, in whole or in part, at the option of the holders between October 1, 2020 through December 31, 2020. Whether the Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.
The Company continues to classify the Notes as a long-term liability in its condensed consolidated balance sheet as of September 30, 2020, based on contractual settlement provisions. The Company may redeem the Notes, in whole or in part, at its option, on or after June 1, 2021 but before the 35th scheduled trading day before the maturity date, at a cash redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, if the last reported sale price of the Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including, the trading day immediately before the date the redemption notices were sent; and the trading day immediately before such notices were sent.
No sinking fund is provided for the Notes. Upon the occurrence of a fundamental change (as defined in the indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment with the Company’s existing and future liabilities that are not so subordinated; effectively subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.
The foregoing description is qualified in its entirety by reference to the text of the indenture and the form of 0.25% convertible senior notes due 2023, which were filed as exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 and are incorporated herein by reference.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $119.4 million and was determined by deducting the fair value of the liability component from the par value of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an annual effective interest rate of 5.7% over the contractual terms of the Notes.
In accounting for the transaction costs related to the Notes, the Company allocated the total amount incurred to the liability and equity components of the Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $10.2 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual terms of the Notes. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.
During the three months ended September 30, 2020, the Company settled $51.0 million aggregate principal amount of the Notes by issuing 715,819 shares of its Class A common stock and $0.9 million of cash. Of the $172.8 million total value of these transactions, $125.7 million and $47.1 million were allocated to the equity and liability components, respectively, utilizing an effective interest rate to determine the fair value of the liability component. The selected interest rate reflects the Company's incremental borrowing rate, adjusted for the Company's credit standing on nonconvertible debt with similar maturity. The extinguishment of these Notes resulted in a $3.2 million loss that is included in the other (expenses) income, net, in the accompanying condensed consolidated statement of operations.
18

The net carrying amount of the liability component of the Notes was as follows:
As of As of
September 30, December 31,
2020 2019
(In thousands)
Principal $ 498,988  $ 549,999 
Unamortized discount (61,130) (84,647)
Unamortized issuance costs (5,161) (7,162)
Net carrying amount $ 432,697  $ 458,190 

    The net carrying amount of the equity component of the Notes was as follows:
As of As of
September 30, December 31,
2020 2019
(In thousands)
Proceeds allocated to the conversion options (debt discount) $ 108,357  $ 119,435 
Reacquisition of equity component upon conversion $ (114,608) $ — 
Issuance costs (2,819) (2,819)
Net carrying amount $ (9,070) $ 116,616 

    The following table sets forth the interest expense recognized related to the Notes:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
(In thousands)
Contractual interest expense $ 312  $ 344  $ 1,000  $ 1,032 
Amortization of debt issuance costs 476  471  1,444  1,387 
Amortization of debt discount 5,600  5,536  16,988  16,302 
Total interest expense related to the Notes $ 6,388  $ 6,351  $ 19,432  $ 18,721 

    In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the “capped calls”). The capped calls each have an initial strike price of approximately $70.90 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The capped calls have initial cap prices of $105.04 per share, subject to certain adjustments. The capped calls cover, subject to anti-dilution adjustments, approximately 7,757,158 shares of Class A common stock. The capped calls are generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The capped calls expire on the earlier of (i) the last day on which any convertible securities remain outstanding and (ii) June 1, 2023, subject to earlier exercise. The capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the capped calls are subject to certain specified additional disruption events that may give rise to a termination of the capped calls, including changes in law, insolvency filings, and hedging disruptions. The capped call transactions are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $58.5 million incurred to purchase the capped call transactions was recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheet.

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9. Supplemental Balance Sheet Information
A roll-forward of the Company’s reserves is as follows:
(a)Allowance for doubtful accounts:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
(In thousands)
Balance, beginning of period $ 10,248  $ 4,773  $ 6,287  $ 4,945 
Additions 1,312  676  8,472  1,116 
Write-offs (832) (114) (4,031) (726)
Balance, end of period $ 10,728  $ 5,335  $ 10,728  $ 5,335 

Percentage of revenue % % % %

(b)Customer credit reserve:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
(In thousands)
Balance, beginning of period $ 11,531  $ 3,076  $ 6,784  $ 3,015 
Additions 12,164  5,861  33,714  11,404 
Deductions against reserve (12,915) (3,834) (29,718) (9,316)
Balance, end of period $ 10,780  $ 5,103  $ 10,780  $ 5,103 

Percentage of revenue % % % %

10. Revenue by Geographic Area
Revenue by geographic area is based on the IP address or the mailing address at the time of registration. The following table sets forth revenue by geographic area:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
Revenue by geographic area: (In thousands)
United States $ 328,056  $ 210,986  $ 881,984  $ 572,537 
International 119,913  84,080  331,702  230,707 
Total $ 447,969  $ 295,066  $ 1,213,686  $ 803,244 

Percentage of revenue by geographic area:
United States 73  % 72  % 73  % 71  %
International 27  % 28  % 27  % 29  %
Long-lived assets outside the United States were not significant.

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11. Commitments and Contingencies

(a)     Lease and Other Commitments
The Company entered into various non-cancelable operating lease agreements for its facilities with remaining lease terms from less than one year to slightly over nine years. See Note 5 to these unaudited condensed consolidated financial statements for additional detail on the Company's operating and finance lease commitments.
In the three and nine months ended September 30, 2020, the Company entered into several non-cancelable vendor agreements with terms up to three years for a total purchase commitment of $28.1 million and $51.0 million, respectively.
(b)     Legal Matters
On December 1, 2016, the Company filed a patent infringement lawsuit against Telesign Corporation (“Telesign”) in the United States District Court, Northern District of California, alleging infringement of United States Patent No. 8,306,021 (“021”), United States Patent No. 8,837,465 (“465”), United States Patent No. 8,755,376 (“376”), United States Patent No. 8,736,051 (“051”), United States Patent No. 8,737,962 (“962”), United States Patent No. 9,270,833 (“833”), and United States Patent No. 9,226,217 (“217”). Telesign filed a motion to dismiss the complaint on January 25, 2017. In two orders, issued on March 31, 2017 and April 17, 2017, the court granted Telesign’s motion to dismiss with respect to the ‘962, ‘833, ‘051 and ‘217 patents, but denied Telesign’s motion to dismiss as to the ‘021, ‘465 and ‘376 patents. On August 23, 2017, Telesign petitioned the U.S. Patent and Trademark Office (“U.S. PTO”) for inter partes review of the ‘021, ‘465, and ‘376 patents. On March 9, 2018, the U.S. PTO denied Telesign’s petition for inter partes review of the ‘021 patent and granted Telesign’s petitions for inter partes review of the ‘465 and ‘376 patents. On March 6, 2019, the U.S. PTO found all challenged claims of the ‘465 and ‘376 patents unpatentable. The Company appealed the decisions to the United States Court of Appeals for the Federal Circuit who, on June 10, 2020, affirmed the U.S. PTO's rulings. The district court litigation had been stayed pending resolution of the inter partes reviews (and appeals from them). The appeals are now concluded and the district court has reopened the case and set trial on the ’021 Patent for July 2021. The Company is seeking a judgment of infringement, a judgment of willful infringement, monetary and injunctive relief, enhanced damages, and an award of costs and expenses against Telesign.
In addition to the litigation discussed above, from time to time, the Company may be subject to legal actions and claims in the ordinary course of business. The Company has received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend the Company, its partners and its customers by determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
Legal fees and other costs related to litigation and other legal proceedings are expensed as incurred and are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

(c)     Indemnification Agreements
The Company has signed indemnification agreements with all of its board members and executive officers. The agreements indemnify the board members and executive officers from claims and expenses on actions brought against the individuals separately or jointly with the Company for certain indemnifiable events. Indemnifiable events generally mean any event or occurrence related to the fact that the board member or the executive officer was or is acting in his or her capacity as a board member or an executive officer for the Company or was or is acting or representing the interests of the Company.
In the ordinary course of business and in connection with our financing and business combinations transactions, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to business partners, customers and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties and other liabilities relating to or arising from the Company’s various products, or its acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments. The terms of such obligations may vary.
21

As of September 30, 2020 and December 31, 2019, no amounts were accrued related to any outstanding indemnification agreements.

(d)     Other Taxes
The Company conducts operations in many tax jurisdictions within and outside the United States. In many of these jurisdictions, non-income-based taxes, such as sales, use, telecommunications and other local taxes are assessed on the Company’s operations. Prior to March 2017, the Company had not billed nor collected these taxes from its customers and, in accordance with U.S. GAAP, recorded a provision for its tax exposure in these jurisdictions when it was both probable that a liability had been incurred and the amount of the exposure could be reasonably estimated. These estimates included several key assumptions including, but not limited to, the taxability of the Company’s services, the jurisdictions in which its management believes it had nexus, and the sourcing of revenues to those jurisdictions. Starting in March 2017, the Company began collecting these taxes from customers in certain jurisdictions and since then has expanded to collect taxes in most jurisdictions where the Company operates. The Company is also in discussions with certain jurisdictions regarding its prior sales and other taxes, if any, that it may owe. In the event any of these jurisdictions disagrees with management’s assumptions and analysis, the assessment of the Company's tax exposure could differ materially from management's current estimates. For example, one jurisdiction has assessed the Company for $38.8 million in taxes, including interest and penalties, which exceeded the $11.5 million the Company had accrued for the period covered by this assessment. The Company believes that this assessment is incorrect and has disputed it, paid the full amount as required by law, and is seeking a refund or settlement. The payment made in excess of the accrued amount is reflected as a deposit in the Company's accompanying condensed consolidated balance sheet. If a reasonable settlement cannot be reached in the near future, the Company will challenge the jurisdiction’s assessment in court. However, litigation is uncertain and a ruling against the Company may adversely affect its financial position and results of operation.
As of September 30, 2020 and December 31, 2019, the liability recorded for these taxes was $25.3 million and $27.0 million, respectively.
12. Stockholders’ Equity
Preferred Stock
As of September 30, 2020 and December 31, 2019, the Company had authorized 100,000,000 shares of preferred stock, par value $0.001, of which no shares were issued and outstanding.
Common Stock
As of September 30, 2020 and December 31, 2019, the Company had authorized 1,000,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each par value $0.001 per share. As of September 30, 2020, 140,173,591 shares of Class A common stock and 10,729,264 shares of Class B common stock were issued and outstanding. As of December 31, 2019, 126,882,172 shares of Class A common stock and 11,530,627 shares of Class B common stock were issued and outstanding.
The Company had reserved shares of common stock for issuance as follows:
As of As of
September 30, December 31,
2020 2019
Stock options issued and outstanding 4,946,920  7,705,848 
Nonvested restricted stock units issued and outstanding 8,026,189  8,490,517 
Class A common stock reserved for Twilio.org 729,367  795,673 
Stock-based awards available for grant under 2016 Plan 19,275,512  14,957,734 
Stock-based awards available for grant under 2016 ESPP 5,042,439  3,848,953 
Class A common stock reserved for the convertible senior notes 9,756,346  10,472,165 
Total 47,776,773  46,270,890 

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Public Equity Offering
In August 2020, the Company completed a public equity offering in which it sold 5,819,838 shares of its Class A common stock at a public offering price of $247.00 per share. The Company received total proceeds of $1.4 billion, net of underwriting discounts and offering expenses paid and payable by the Company.
13. Stock-Based Compensation 
2008 Stock Option Plan
The Company maintained a stock plan, the 2008 Stock Option Plan, as amended and restated (the “2008 Plan”), which allowed the Company to grant incentive (“ISO”), non-statutory (“NSO”) stock options and restricted stock units (“RSU”) to its employees, directors and consultants to participate in the Company’s future performance through stock-based awards at the discretion of the board of directors. Under the 2008 Plan, options to purchase the Company’s common stock could not be granted at a price less than fair value in the case of ISOs and NSOs. Fair value was determined by the board of directors, in good faith, with input from valuation consultants. On June 22, 2016, the plan was terminated in connection with the Company’s IPO. Accordingly, no shares are available for future issuance under the 2008 Plan. The 2008 Plan continues to govern outstanding equity awards granted thereunder. The Company’s right of first refusal for outstanding equity awards granted under the 2008 Plan terminated upon completion of the IPO. Options granted include provisions for early exercisability.
2016 Stock Option Plan
The Company’s 2016 Stock Option and Incentive Plan (the “2016 Plan”) became effective on June 21, 2016. The 2016 Plan provides for the grant of ISOs, NSOs, restricted stock, RSUs, stock appreciation rights, unrestricted stock awards, performance share awards, dividend equivalent rights and cash-based awards to employees, directors and consultants of the Company. A total of 11,500,000 shares of the Company’s Class A common stock were initially reserved for issuance under the 2016 Plan. These available shares automatically increase each January 1, beginning on January 1, 2017, by 5% of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. On January 1, 2020 and 2019, the shares available for grant under the 2016 Plan were automatically increased by 6,920,640 and 5,004,011 shares, respectively.
Under the 2016 Plan, the stock options are granted at a price per share not less than 100% of the fair market value per share of the underlying common stock on the date of grant. Under both plans, stock options generally expire 10 years from the date of grant and vest over periods determined by the board of directors. The vesting period for new-hire options and restricted stock units is generally a four year term from the date of grant, at a rate of 25% after one year, then monthly or quarterly, respectively, on a straight-line basis thereafter. In July 2017, the Company began granting restricted stock units to existing employees that vest in equal quarterly installments over a four year service period.
SendGrid Equity Awards Assumed in Acquisition
In connection with its acquisition of SendGrid, Inc. ("SendGrid"), the Company assumed all stock options and restricted stock units issued under SendGrid’s 2009, 2012 or 2017 Stock Incentive Plans that were outstanding on the date of acquisition. The assumed equity awards will continue to be outstanding and will be governed by the provisions of their respective plans. Additionally, the Company assumed shares of SendGrid common stock that were reserved and available for issuance under SendGrid's 2017 Equity Incentive Plan, on an as converted basis. These shares can be utilized for future equity grants under the Company’s 2016 Plan, to the extent permitted by New York Stock Exchange rules.
2016 Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“2016 ESPP”), as amended, initially became effective on June 21, 2016. A total of 2,400,000 shares of the Company’s Class A common stock were initially reserved for issuance under the 2016 ESPP. These available shares automatically increase each January 1, beginning on January 1, 2017, by the lesser of 1,800,000 shares of the common stock, 1% of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee. On January 1, 2020 and 2019, the shares available for grant under the 2016 ESPP were automatically increased by 1,384,128 and 1,000,802 shares, respectively.
The 2016 ESPP allows eligible employees to purchase shares of the Company’s Class A common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. The 2016 ESPP provides for separate six-month offering periods beginning in May and November of each fiscal year.
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On each purchase date, eligible employees purchase the Company’s stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company’s Class A common stock on the offering date or (ii) the fair market value of the Company’s Class A common stock on the purchase date.
In the three months ended September 30, 2020 and 2019, no shares of Class A common stock were purchased under the 2016 ESPP, respectively, and 103,374 shares are expected to be purchased in the fourth quarter of 2020. As of September 30, 2020, total unrecognized compensation cost related to the 2016 ESPP was $1.6 million, which will be amortized over a weighted-average period of 0.1 years.
Stock Options
Stock option activity under the Company's 2008 Plan and 2016 Plan as well as respective Stock Incentive Plans assumed in the SendGrid acquisition was as follows:
Number of
options
outstanding
Weighted-
average
exercise
price
(Per share)
Weighted-
average
remaining
contractual
term
(In years)
Aggregate
intrinsic
value
(In thousands)
Outstanding options as of December 31, 2019 7,150,848  $ 28.79  6.47 $ 511,971 
Granted 599,909  127.74 
Exercised (3,110,685) 20.15 
Forfeited and canceled (248,152) 71.27 
Outstanding options as of September 30, 2020 4,391,920  $ 46.02  6.61 $ 883,089 
Options vested and exercisable as of September 30, 2020 2,678,454  $ 19.05  5.54 $ 610,799 

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020 2019 2020 2019
(In thousands, except per share amounts)
Aggregate intrinsic value of stock options exercised (1)
$ 89,808  $ 67,952  $ 496,198  $ 355,776 
Total estimated grant date fair value of options vested $ 12,090  $ 20,959  $ 53,110  $ 62,657 
Weighted-average grant date fair value per share of options granted $ —  $ —  $ 64.06  $ 58.16 
____________________
(1) Aggregate intrinsic value represents the difference between the fair value of the Company’s Class A common stock as reported on the New York Stock Exchange and the exercise price of outstanding “in-the-money” options.
On February 28, 2017, the Company granted a total of 555,000 shares of performance-based stock options in three distinct awards to an employee with grant date fair values of $13.48, $10.26 and $8.41 per share for a total grant value of $5.9 million. The first half of each award vests upon satisfaction of a performance condition and the remainder vests thereafter in equal monthly installments over a two year period. All performance conditions have been met. The stock options are amortized over a derived service period, as adjusted, of 3.1 years, 3.9 years and 4.4 years, respectively. The stock options value and the derived service period were estimated using the Monte-Carlo simulation model. The following table summarizes the details of the performance options:
Number of
options
outstanding
Weighted-
average
exercise
price
(Per share)
Weighted-
average
remaining
contractual
term
(In years)
Aggregate
intrinsic
value
(In thousands)
Outstanding options as of December 31, 2019 555,000