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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 March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-37806
_____________________________________________
TWLO-20210331_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 April 30, 2021, 162,370,009 shares of the registrant’s Class A common stock and 10,325,768 shares of registrant’s Class B common stock were outstanding.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
    Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 




TWILIO INC.
Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 2021
TABLE OF CONTENTS
Page
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1



Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
the impact of the coronavirus disease of 2019 (“COVID-19”) pandemic on the global economy, our customers, employees and business;
our future financial performance, including our revenue, cost of revenue, gross margin and operating expenses, ability to generate positive cash flow and ability to achieve and sustain profitability;
anticipated technology trends, such as the use of and demand for cloud communications;
our ability to continue to build and maintain credibility with the global software developer community;
our ability to attract and retain customers to use our products;
the evolution of technology affecting our products and markets;
our ability to introduce new products and enhance existing products;
our ability to comply with modified or new industry standards, laws and regulations applying to our business, including the General Data Protection Regulation (“GDPR”), the Schrems II decision invalidating the EU-US Privacy Shield, the California Consumer Privacy Act of 2018 (“CCPA”) and other privacy 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 3.625% senior notes due 2029 (“2029 Notes”), our 3.875% notes due 2031 (“2031 Notes,” and together with the 2029 Notes, the “Notes”), and our 0.25% convertible senior notes due 2023 (the “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 COVID-19 on our business, results of operations and financial condition and on our customers, employees, vendors and partners;
our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments, including our acquisition of Segment.io, Inc. (“Segment”); and
our expectations about the impact of our recent cross platform API service disruption on our business, results of operations and financial condition.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Summary of Risk Factors and Uncertainties Associated with Our Business” below, in Part II, Item 1A, “Risk Factors”, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
Summary of Risk Factors and Uncertainties Associated with Our Business
Our business is subject to numerous risks and uncertainties outside of our control. One, or a combination, of these risks and uncertainties could materially affect any of those matters as to which we have made forward-looking statements and cause our actual results or an actual event or occurrence to differ materially from those results or an event or occurrence described in a forward-looking statement. Some of the principal risks associated with our business include the following:
impact of global COVID-19 pandemic;
new and unproven market for our products and platform;
our rapid growth and ability to effectively manage our growth;
fluctuations in our quarterly results and our ability to meet securities analysts’ and investors’ expectations;
our ability to maintain and enhance our brand and increase market awareness of our company and products;
3



limitations on the use and adoption of our solutions due to privacy laws, data collection and transfer restrictions and related domestic or foreign regulations;
any loss of customers or decline in their use of our products;
our ability to attract new customers in a cost-effective manner;
our ability to develop enhancements to our products and introduce new products that achieve market acceptance;
our ability to compete effectively in the market in which we participate;
our history of losses and uncertainty about our future profitability;
our ability to increase adoption of our products by enterprises;
our ability to expand our relationships with existing technology partner customers and add new technology partner customers;
significant risks associated with expansion of our international operations;
compliance with applicable laws and regulations;
telecommunications-related regulations and future legislative or regulatory actions;
our ability to obtain or retain geographical, mobile, regional, local or toll-free numbers and to effectively process requests to port such numbers in a timely manner due to industry regulations;
our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements or preferences;
our ability to provide monthly uptime service level commitments of up to 99.95% under our agreements with customers;
any breaches of our networks or systems, or those of AWS or our service providers;
defects or errors in our products;
any loss or decline in revenue from our largest customers;
litigation by third parties for alleged infringement of their proprietary rights;
exposure to substantial liability for intellectual property infringement and other losses from indemnity provisions in various agreements;
our ability to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions;
the loss of our senior management and other key employees;
our use of open source software;
our reliance on SaaS technologies from third parties;
potentially adverse tax consequences on our global operations and structure;
excessive credit card or fraudulent activity;
unfavorable conditions in our industry or the global economy;
requirement of additional capital to support our business and its availability on acceptable terms, if at all;
exposure to foreign currency exchange rate fluctuations;
our ability to use our net operating losses to offset future taxable income;
our failure to maintain an effective system of disclosure controls and internal control over financial reporting;
the risks of pandemics, earthquakes, fire, floods and other natural catastrophic events and to interruption by man-made problems such as power disruptions, computer viruses, data security breaches or terrorism;
volatility of the trading price of our Class A common stock;
potential decline in the market price of our Class A common stock due to substantial future sales of shares;
requirement of a significant amount of cash to service our future debt; and,
our ability to raise the funds necessary for cash settlement upon conversion of the Convertible Notes or to repurchase the Convertible Notes, the 2029 Notes and 2031 Notes for cash.
4



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
TWILIO INC.
Condensed Consolidated Balance Sheets
(Unaudited)
As of As of
March 31, December 31,
2021 2020
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 2,331,774  $ 933,885 
Short-term marketable securities 3,375,284  2,105,906 
Accounts receivable, net 257,854  251,167 
Prepaid expenses and other current assets 129,063  81,377 
Total current assets 6,093,975  3,372,335 
Property and equipment, net 195,885  183,239 
Operating right-of-use asset 241,328  258,610 
Intangible assets, net 951,884  966,573 
Goodwill 4,635,177  4,595,394 
Other long-term assets 123,932  111,282 
Total assets $ 12,242,181  $ 9,487,433 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 66,511  $ 60,042 
Accrued expenses and other current liabilities 293,658  252,895 
Deferred revenue and customer deposits 93,516  87,031 
Operating lease liability, current 46,239  48,338 
Total current liabilities 499,924  448,306 
Operating lease liability, noncurrent 214,456  229,905 
Finance lease liability, noncurrent 19,933  17,856 
Long-term debt 1,218,048  302,068 
Other long-term liabilities 42,624  36,633 
Total liabilities 1,994,985  1,034,768 
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock —  — 
Class A and Class B common stock 171  164 
Additional paid-in capital 11,618,698  9,613,246 
Accumulated other comprehensive income 4,660  9,046 
Accumulated deficit (1,376,333) (1,169,791)
Total stockholders’ equity 10,247,196  8,452,665 
Total liabilities and stockholders’ equity $ 12,242,181  $ 9,487,433 
See accompanying notes to condensed consolidated financial statements.
5



TWILIO INC.
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended
March 31,
2021 2020
(In thousands, except share and per share amounts)
Revenue $ 589,988  $ 364,868 
Cost of revenue 291,684  171,333 
Gross profit 298,304  193,535 
Operating expenses:
Research and development 174,800  114,339 
Sales and marketing 210,590  116,722 
General and administrative 110,253  55,170 
Total operating expenses 495,643  286,231 
Loss from operations (197,339) (92,696)
Other expenses, net (8,313) (1,118)
Loss before provision for income taxes (205,652) (93,814)
Provision for income taxes (890) (977)
Net loss attributable to common stockholders $ (206,542) $ (94,791)
Net loss per share attributable to common stockholders, basic and diluted $ (1.24) $ (0.68)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 167,160,458  139,231,594 
See accompanying notes to condensed consolidated financial statements.

6



TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
March 31,
2021 2020
(In thousands)
Net loss $ (206,542) $ (94,791)
Other comprehensive loss:
Unrealized loss on marketable securities (4,176) (9,375)
Foreign currency translation (210) — 
Total other comprehensive loss (4,386) (9,375)
Comprehensive loss attributable to common stockholders $ (210,928) $ (104,166)
See accompanying notes to condensed consolidated financial statements.
7



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

Common Stock
Class A
Common Stock
Class B
Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity
Shares Amount Shares Amount
(In thousands, except share amounts)
Balance as of December 31, 2020 153,496,222  $ 151  10,551,302  $ 13  $ 9,613,246  $ 9,046  $ (1,169,791) $ 8,452,665 
Net loss —  —  —  —  —  —  (206,542) (206,542)
Exercises of vested stock options 248,008  —  211,371  —  11,564  —  —  11,564 
Vesting of restricted stock units 913,966  —  —  (1) —  —  — 
Value of equity awards withheld for tax liability (6,989) —  —  —  (2,774) —  —  (2,774)
Conversion of shares of Class B common stock into shares of Class A common stock 419,371  —  (419,371) —  —  —  —  — 
Equity component from partial settlement of 2023 convertible
senior notes
1,158,381  —  —  80,047  —  —  80,049 
Donated common stock 22,102  —  —  —  9,405  —  —  9,405 
Issuance of common stock in connection with a follow-on public offering, net of underwriter discounts 4,312,500  —  —  1,766,396  —  —  1,766,400 
Costs related to the follow-on public offering —  —  —  —  (727) —  —  (727)
Issuance of restricted stock awards 24,697  —  —  —  —  —  —  — 
Unrealized loss on marketable securities —  —  —  —  —  (4,176) —  (4,176)
Foreign currency translation —  —  —  —  —  (210) —  (210)
Stock-based compensation —  —  —  —  141,542  —  —  141,542 
Balance as of March 31, 2021 160,588,258  $ 158  10,343,302  $ 13  $ 11,618,698  $ 4,660  $ (1,376,333) $ 10,247,196 

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 
Unrealized loss on marketable securities —  —  —  —  —  (9,375) —  (9,375)
Stock-based compensation —  —  —  —  72,021  —  —  72,021 
Balance as of March 31, 2020 128,606,443  $ 126  11,356,940  $ 13  $ 5,034,278  $ (4,289) $ (773,603) $ 4,256,525 
See accompanying notes to condensed consolidated financial statements.
8



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

Three Months Ended
March 31,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net loss $ (206,542) $ (94,791)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 59,592  32,239 
Non-cash reduction to the right-of-use asset 11,711  8,023 
Net amortization of investment premium and discount 4,240  343 
Amortization of debt discount and issuance costs 3,373  6,178 
Stock-based compensation 137,155  69,025 
Amortization of deferred commissions 5,630  1,981 
Allowance for credit losses 1,985  4,170 
Value of donated common stock 9,405  2,701 
Loss on extinguishment of debt 7,602  — 
Other adjustments 3,089  1,866 
Changes in operating assets and liabilities:
Accounts receivable 5,565  (23,123)
Prepaid expenses and other current assets (29,912) (8,130)
Other long-term assets (15,232) (5,759)
Accounts payable (10,275) (20,803)
Accrued expenses and other current liabilities 28,307  44,840 
Deferred revenue and customer deposits 3,435  589 
Operating lease liabilities (12,053) (7,008)
Other long-term liabilities (2,570) 3,194 
Net cash provided by operating activities 4,505  15,535 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired and other related payments (66,926) (2,377)
Purchases of marketable securities and other investments (1,640,499) (228,025)
Proceeds from sales and maturities of marketable securities 356,824  316,992 
Capitalized software development costs (10,434) (8,626)
Purchases of long-lived and intangible assets (4,986) (6,319)
Net cash (used in) provided by investing activities (1,366,021) 71,645 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from a public equity offering 1,766,400  — 
Payments of costs related to public offerings (360) — 
Proceeds from issuance of senior notes 987,500  — 
Payments of debt issuance costs (130) — 
Principal payments on debt and finance leases (2,751) (1,954)
Proceeds from exercises of stock options 11,564  8,231 
Value of equity awards withheld for tax liabilities (2,774) (1,674)
Net cash provided by financing activities 2,759,449  4,603 
Effect of exchange rate changes on cash, cash equivalents and restricted cash (44) — 
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 1,397,889  91,783 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 933,885  253,735 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $ 2,331,774  $ 345,518 
Cash paid for income taxes, net $ 1,252  $ 257 
Cash paid for interest $ 263  $ 198 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property, equipment and intangible assets, accrued but not paid $ 3,494  $ 5,510 
Purchases of property and equipment through finance leases $ 5,266  $ — 
Value of common stock issued to settle convertible senior notes $ 422,716  $ — 
Stock-based compensation capitalized in software development costs $ 4,650  $ 3,418 
Costs related to public debt and equity offerings, accrued but not paid $ 2,681  $ — 
Costs related to proposed investment in Syniverse, accrued but not paid $ 3,262  $ — 
See accompanying notes to condensed consolidated financial statements.
9


TWILIO INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. The Company is the leading cloud communications platform and enables developers to build, scale and operate real-time customer engagement 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, Mexico, the Netherlands, Serbia, 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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K filed with the SEC on February 26, 2021 (“Annual Report”).
The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date, but may not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, stockholders' equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2021 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 deteriorate 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 months ended March 31, 2021 and 2020, no customer organization accounted for more than 10% of the Company’s total revenue.
As of March 31, 2021 and December 31, 2020, 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
March 31, 2021
Aggregate
Fair Value
Level 1 Level 2 Level 3
Financial Assets: (In thousands)
Cash and cash equivalents:
Money market funds $ 1,867,034  $ —  $ —  $ 1,867,034  $ —  $ —  $ 1,867,034 
Commercial paper 322,701  —  —  —  322,701  —  322,701 
Total included in cash and cash equivalents 2,189,735  —  —  1,867,034  322,701  —  2,189,735 
Marketable securities:
U.S. Treasury securities 236,651  248  (56) 236,843  —  —  236,843 
Corporate debt securities and commercial paper 3,134,407  5,582  (1,548) 45,000  3,093,441  —  3,138,441 
Total marketable securities 3,371,058  5,830  (1,604) 281,843  3,093,441  —  3,375,284 
Total financial assets $ 5,560,793  $ 5,830  $ (1,604) $ 2,148,877  $ 3,416,142  $ —  $ 5,565,019 
11


Amortized
Cost or
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value Hierarchy as of
December 31, 2020
Aggregate
Fair Value
Level 1 Level 2 Level  3
Financial Assets: (In thousands)
Cash and cash equivalents:
Money market funds $ 656,749  $ —  $ —  $ 656,749  $ —  $ —  $ 656,749 
Commercial paper 2,000  —  —  —  2,000  —  2,000 
Total included in cash and cash equivalents 658,749  —  —  656,749  2,000  —  658,749 
Marketable securities:
U.S. Treasury securities 223,247  389  (1) 223,635  —  —  223,635 
Corporate debt securities and commercial paper 1,874,257  8,149  (135) 50,000  1,832,271  —  1,882,271 
Total marketable securities 2,097,504  8,538  (136) 273,635  1,832,271  —  2,105,906 
Total financial assets $ 2,756,253  $ 8,538  $ (136) $ 930,384  $ 1,834,271  $ —  $ 2,764,655 
The Company's primary objective when investing excess cash is preservation of capital, hence the Company's marketable securities primarily consist of U.S. Treasury Securities, high credit quality corporate debt securities and commercial paper. As the Company views its marketable securities as available to support current operations, it has classified all available for sale securities as short-term. As of March 31, 2021 and December 31, 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 March 31, 2021 and December 31, 2020, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity.
The Company regularly reviews 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 March 31, 2021, the risk of expected credit losses was not significant.
Interest earned on marketable securities was $3.9 million and $8.8 million in the three months ended March 31, 2021 and 2020, respectively. The interest is recorded as other expenses, net, in the accompanying condensed consolidated statements of operations.
The following table summarizes the contractual maturities of marketable securities:
As of March 31, 2021 As of December 31, 2020
Amortized
Cost
Aggregate
Fair Value
Amortized
Cost
Aggregate
Fair Value
Financial Assets: (In thousands)
Less than one year $ 1,322,778  $ 1,325,489  $ 1,126,091  $ 1,128,927 
One to three years 2,048,280  2,049,795  971,413  976,979 
Total $ 3,371,058  $ 3,375,284  $ 2,097,504  $ 2,105,906 
Strategic Investments
As of March 31, 2021 and December 31, 2020, the Company held strategic investments with a fair value of $9.3 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. There were no impairments in the three months ended March 31, 2021 and 2020.
Financial Liabilities
The Company's financial liabilities that are not measured at fair value on a recurring basis consist of its convertible senior notes due 2023 (“Convertible Notes”) and its senior notes due 2029 and 2031 (“2029 Notes” and “2031 Notes,” respectively) that are further described in Note 9.
As of March 31, 2021, the fair values of the Convertible Notes, 2029 Notes and 2031 Notes were $1.3 billion, $510.5 million and $512.8 million, respectively. The fair value of the Convertible Notes as of December 31, 2020 was $1.7 billion. The Convertible Notes, 2029 Notes and 2031 Notes are classified as level 2 financial instruments within the fair value hierarchy.
12



4. Property and Equipment
Property and equipment consisted of the following:
As of As of
March 31, December 31,
2021 2020
(In thousands)
Capitalized internal-use software development costs $ 154,117  $ 142,489 
Data center equipment (1)
49,627  43,477 
Leasehold improvements 70,663  69,756 
Office equipment 45,040  35,346 
Furniture and fixtures (1)
12,808  12,312 
Software 10,218  9,943 
Total property and equipment 342,473  313,323 
Less: accumulated depreciation and amortization (146,588) (130,084)
Total property and equipment, net $ 195,885  $ 183,239 
____________________________________
(1) Data center equipment and furniture and fixtures contain assets under finance leases. See Note 5 for further detail.
Depreciation and amortization expense was $14.4 million and $11.9 million for the three months ended March 31, 2021 and 2020, respectively.
The Company capitalized $15.1 million and $12.0 million in internal‑use software development costs in the three months ended March 31, 2021 and 2020, respectively, of which $4.7 million and $3.4 million, respectively, was stock‑based compensation expense. Amortization of capitalized software development costs was $4.5 million and $4.6 million in the three months ended March 31, 2021 and 2020, respectively.
5. Right-of-Use Asset and Lease Liabilities
The Company has entered into various operating lease agreements for office space and data centers and finance lease agreements for data center and office equipment and furniture.
As of March 31, 2021, the Company had 24 leased properties with remaining lease terms of 0.1 years to 8.0 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
March 31,
2021 2020
(In thousands)
Operating lease cost $ 14,873  $ 10,424 
Finance lease cost:
   Amortization of assets 2,680  1,904 
   Interest on lease liabilities 263  198 
Short-term lease cost 1,692  1,412 
Variable lease cost 2,900  1,296 
Total net lease cost $ 22,408  $ 15,234 
13


Supplemental balance sheet information related to leases was as follows:
As of As of
March 31, December 31,
Leases Classification 2021 2020
Assets: (In thousands)
Operating lease assets
Operating right-of-use asset, net of accumulated amortization (1)
$ 241,328  $ 258,610 
Finance lease assets
Property and equipment, net of accumulated depreciation (2)
28,357  25,771 
Total leased assets $ 269,685  $ 284,381 
Liabilities:
Current
   Operating Operating lease liability, current $ 46,239  $ 48,338 
   Finance Finance lease liability, current 9,389  9,062 
Noncurrent
   Operating Operating lease liability, noncurrent 214,456  229,905 
   Finance Finance lease liability, noncurrent 19,933  17,856 
Total lease liabilities $ 290,017  $ 305,161 
____________________________________
(1)Operating lease assets are recorded net of accumulated amortization of $65.2 million and $57.1 million as of March 31, 2021 and December 31, 2020, respectively.
(2)Finance lease assets are recorded net of accumulated depreciation of $17.7 million and $15.0 million as of March 31, 2021 and December 31, 2020, respectively.
Supplemental cash flow and other information related to leases was as follows:
Three Months Ended
March 31,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities: (In thousands)
Operating cash flows from operating leases $ 14,691  $ 9,953 
Operating cash flows from finance leases (interest) $ 263  $ 198 
Financing cash flows from finance leases $ 2,748  $ 1,881 
Weighted average remaining lease term (in years):
Operating leases 5.9 5.8
Finance leases 3.4 2.9
Weighted average discount rate:
Operating leases 4.8  % 5.7  %
Finance leases 3.7  % 5.3  %
14


Maturities of lease liabilities were as follows:
As of March 31, 2021
Operating
Leases
Finance
Leases
Year Ended December 31, (In thousands)
2021 (remaining nine months) $ 42,698  $ 7,911 
2022 57,060  8,987 
2023 48,937  8,240 
2024 44,373  4,999 
2025 32,167  547 
Thereafter 75,304  518 
Total lease payments 300,539  31,202 
Less: imputed interest (39,844) (1,880)
Total lease obligations 260,695  29,322 
Less: current obligations (46,239) (9,389)
Long-term lease obligations $ 214,456  $ 19,933 
As of March 31, 2021, the Company had an additional operating lease obligation totaling $11.0 million for a lease that will commence in the first quarter of 2023 with a lease term of 6.2 years. As of March 31, 2021, the Company had no additional finance leases with future commencement dates.
6. Business Combinations
ValueFirst Digital Media Private Limited
On March 12, 2021, the Company acquired ValueFirst Digital Media Private Limited (“ValueFirst”) for a purchase price of $70.2 million paid in cash. ValueFirst is an enterprise communications platform in India.
The acquisition was accounted for as a business combination and the preliminary purchase price was allocated to the net tangible and intangible assets as follows:
Total
(In thousands)
Net tangible assets $ 9,756 
Intangible assets (1)
30,300 
Deferred tax liability (6,179)
Goodwill 36,356 
Total preliminary purchase price $ 70,233 
____________________________________
(1) Identifiable intangible assets were comprised of the following:
Total Estimated
life
(In thousands) (In years)
Developed technology $ 6,700  7
Customer relationships 11,200  7
Carrier relationships 7,700  5
Trademark and trade name 4,700  5
Total intangible assets acquired $ 30,300 
15


The acquired entity's results of operations were included in the Company's condensed consolidated financial statements from the date of the acquisition. Pro forma results of operations for this acquisition are not presented as the financial impact to the Company's consolidated financial statements is not material.
As of March 31, 2021, the areas not yet finalized due to information that may become available subsequent to the filing of this Quarterly Report on Form 10-Q and may result in changes in the values recorded at March 31, 2021, relate to the purchase price, valuation of acquired intangible assets, contingencies and income and other taxes.
During the three months ended March 31, 2021, the Company incurred $1.3 million of costs related to this acquisition, which were expensed as incurred and recorded in general and administrative expenses in the accompanying condensed consolidated statement of operations.
7. Goodwill and Intangible Assets
Goodwill
The Goodwill balance as of March 31, 2021 and December 31, 2020, was as follows:
Total
(In thousands)
Balance as of December 31, 2020 $ 4,595,394 
Goodwill additions and adjustments 39,783 
Balance as of March 31, 2021 $ 4,635,177 
Intangible assets
Intangible assets consisted of the following:
As of
March 31, 2021
Gross Accumulated
Amortization
Net
Amortizable intangible assets: (In thousands)
Developed technology $ 731,311  $ (139,293) $ 592,018 
Customer relationships 390,564  (74,466) 316,098 
Supplier relationships 12,071  (3,461) 8,610 
Trade names 30,268  (9,252) 21,016 
Order backlog 10,000  (4,167) 5,833 
Patent 3,503  (409) 3,094 
Total amortizable intangible assets 1,177,717  (231,048) 946,669 
Non-amortizable intangible assets:
Telecommunication licenses 4,920  —  4,920 
Trademarks and other 295  —  295 
Total $ 1,182,932  $ (231,048) $ 951,884 

16


As of
December 31, 2020
Gross Accumulated
Amortization
Net
Amortizable intangible assets: (In thousands)
Developed technology $ 724,599  $ (113,282) $ 611,317 
Customer relationships 379,344  (59,574) 319,770 
Supplier relationships 4,356  (3,044) 1,312 
Trade name 25,560  (7,921) 17,639 
Order backlog 10,000  (1,667) 8,333 
Patent 3,360  (373) 2,987 
Total amortizable intangible assets 1,147,219  (185,861) 961,358 
Non-amortizable intangible assets:
Telecommunication licenses 4,920  —  4,920 
Trademarks and other 295  —  295 
Total $ 1,152,434  $ (185,861) $ 966,573 
Amortization expense was $45.2 million and $20.3 million for the three months ended March 31, 2021 and 2020, respectively.
Total estimated future amortization expense is as follows:
As of
March 31,
2021
Year Ended December 31, (In thousands)
2021 (remaining nine months) $ 136,983 
2022 172,264 
2023 168,954 
2024 163,380 
2025 161,067 
Thereafter 144,021 
Total $ 946,669 

8. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following:
As of As of
March 31, December 31,
2021 2020
(In thousands)
Accrued payroll and related $ 55,713  $ 54,683 
Accrued bonus and commission 18,582  25,341 
Accrued cost of revenue 88,882  80,620 
Sales and other taxes payable 51,069  48,390 
ESPP contributions 16,202  6,272 
Finance lease liability, current 9,389  9,062 
Accrued other expense 53,821  28,527 
Total accrued expenses and other current liabilities $ 293,658  $ 252,895 
17


Other long-term liabilities consisted of the following:
As of As of
March 31, December 31,
2021 2020
(In thousands)
Deferred tax liability $ 19,031  $ 13,684 
Acquisition holdback 8,751  8,800 
Accrued other expenses 14,842  14,149 
Total other long-term liabilities $ 42,624  $ 36,633 

9. Notes Payable
Long-term debt consisted of the following:
As of As of
March 31, December 31,
2021 2020
(In thousands)
2029 Senior Notes (1)
Principal $ 500,000  $ — 
Unamortized discount (6,209) — 
Unamortized issuance costs (1,213) — 
Net carrying amount 492,578  — 
2031 Senior Notes (1)
Principal 500,000  — 
Unamortized discount (6,219) — 
Unamortized issuance costs (1,216) — 
Net carrying amount 492,565  — 
Convertible Senior Notes (2)
Principal 261,570  343,702 
Unamortized discount (26,455) (38,406)
Unamortized issuance costs (2,210) (3,228)
Net carrying amount 232,905  302,068 
Total long-term debt $ 1,218,048  $ 302,068 

(1) 2029 and 2031 Senior Notes
In March 2021, the Company issued $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”). Initially, none of the Company's subsidiaries guaranteed the Notes. However, under certain circumstances in the future the Notes can be guaranteed by each of the Company's material domestic subsidiaries. The 2029 Notes and 2031 Notes will mature on March 15, 2029, and March 15, 2031, respectively. Interest payments are payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2021.
The aggregate net proceeds from offering of the Notes were approximately $985.1 million, after deducting underwriting discounts and issuance costs, paid and payable by the Company. The issuance costs of $2.4 million will be amortized into interest expense using the effective interest method over the term of the Notes.
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The Company may voluntarily redeem the 2029 Notes, in whole or in part, under the following circumstances:
(1)at any time prior to March 15, 2024 with the net cash proceeds received by the Company from an equity offering at a redemption price equal to 103.625% of the principal amount, provided the aggregate principal amount of all such redemptions does not exceed 40% of the original aggregate principal amount of the 2029 Notes. Such redemption shall occur within 180 days after the closing of an equity offering and at least 50% of the then-outstanding aggregate principal amount of the 2029 Notes shall remain outstanding, unless all 2029 Notes are redeemed concurrently;
(2)at any time prior to March 15, 2024 at 100% of the principal amount, plus a “make-whole” premium;
(3)at any time on or after March 15, 2024 at a prepayment price equal to 101.813% of the principal amount;
(4)at any time on or after March 15, 2025 at a prepayment price equal to 100.906% of the principal amount; and
(5)at any time on or after March 15, 2026 at a prepayment price equal to 100.000% of the principal amount;
in each case, the redemption will include the accrued and unpaid interest, as applicable.
The Company may voluntarily redeem the 2031 Notes, in whole or in part, under the following circumstances:
(1)at any time prior to March 15, 2024 with the net cash proceeds received by the Company from an equity offering at a redemption price equal to 103.875% of the principal amount, provided the aggregate principal amount of all such redemptions does not to exceed 40% of the original aggregate principal amount of the 2031 Notes. Such redemption shall occur within 180 days after the closing of an equity offering and at least 50% of the then-outstanding aggregate principal amount of the 2031 Notes shall remain outstanding, unless all 2031 Notes are redeemed concurrently;
(2)at any time prior to March 15, 2026 at 100% of the principal amount, plus a “make-whole” premium;
(3)at any time on or after March 15, 2026 at a prepayment price equal to 101.938% of the principal amount;
(4)at any time on or after March 15, 2027 at a prepayment price equal to 101.292% of the principal amount;
(5)at any time on or after March 15, 2028 at a prepayment price equal to 100.646% of the principal amount; and
(6)at any time on or after March 15, 2029 at a prepayment price equal to 100.000% of the principal amount;
in each case, the redemption will include accrued and unpaid interest, as applicable.
The Notes are 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 that the Company may incur in the future and equal in right of payment with the Company’s existing and future liabilities that are not subordinated.
In certain circumstances involving a change of control event, the Company will be required to make an offer to repurchase all, or, at the holder's option, any part, of each holder's notes of that series at 101% of the aggregate principal amount, plus accrued and unpaid interest, as applicable.
The indenture governing the Notes (the “Indenture”) contains covenants limiting the Company's ability and the ability of its subsidiaries to: (i) create liens on certain assets to secure debt; (ii) grant a subsidiary guarantee of certain debt without also providing a guarantee of the Notes; and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its assets to another person. These covenants are subject to a number of limitations and exceptions. Certain of these covenants will not apply during any period in which the Notes are rated investment grade by either Moody's Investors Service, Inc. or Standard & Poor's Ratings Services.
19


For the three months ended March 31, 2021, the interest expense recognized related to the 2029 Notes and 2031 Notes was as follows:
2029 Notes 2031 Notes
(In thousands)
Contractual interest expense $ 1,120  $ 1,197 
Amortization of debt discount and issuance costs 49  37 
Total interest expense $ 1,169  $ 1,234 
As of March 31, 2021, the Company was in compliance with all of its financial covenants under the Indenture.
(2) 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 “Convertible Notes”). The interest on the Convertible Notes is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2018.
The Convertible 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 Convertible Notes (the “Convertible Notes Indenture”) or if the Convertible Notes are not freely tradeable as required by the Convertible Notes Indenture. The Convertible 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 approximately $537.0 million.
Each $1,000 principal amount of the Convertible 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 Convertible Notes 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 Convertible 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 Convertible 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 Convertible 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 Convertible 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 Convertible Notes may, at their option, convert all or a portion of their Convertible Notes regardless of the foregoing conditions.
Upon conversion, the Company may 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 Convertible Notes in shares of Class A common stock if a conversion were to occur.
20


During the three months ended March 31, 2021, the conditional conversion feature of the Convertible 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 March 31, 2021 (the last trading day of the calendar quarter), and therefore the Convertible Notes are currently convertible, in whole or in part, at the option of the holders between April 1, 2021 through June 30, 2021. Whether the Convertible 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 Convertible Notes as a long-term liability in its condensed consolidated balance sheet as of March 31, 2021, based on contractual settlement provisions. The Company may redeem the Convertible 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 Convertible 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 Convertible Notes. Upon the occurrence of a fundamental change (as defined in the Convertible Notes Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Convertible 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 Convertible 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 Convertible Notes 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 Convertible Notes, the Company separated the Convertible 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 Convertible 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 Convertible Notes.
In accounting for the transaction costs related to the Convertible Notes, the Company allocated the total amount incurred to the liability and equity components of the Convertible 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 Convertible Notes. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.
In the three months ended March 31, 2021, the Company converted $82.1 million aggregate principal amount of the Convertible Notes by issuing 1,158,381 shares of its Class A common stock. Of the $422.7 million total value of these transactions, $342.7 million and $80.1 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 Convertible Notes resulted in a $7.6 million loss that is included in other expenses, net, in the accompanying condensed consolidated statement of operations.
21


The net carrying amount of the equity component of the Convertible Notes was as follows:
As of As of
March 31, December 31,
2021 2020
(In thousands)
Proceeds allocated to the conversion options (debt discount) $ 56,801  $ 74,636 
Issuance costs (2,819) (2,819)
Net carrying amount $ 53,982  $ 71,817 
The following table sets forth the interest expense recognized related to the Convertible Notes:
Three Months Ended
March 31,
2021 2020
(In thousands)
Contractual interest expense $ 170  $ 344 
Amortization of debt issuance costs 259  484 
Amortization of debt discount 3,028  5,694 
Total interest expense $ 3,457  $ 6,522 
In connection with the offering of the Convertible 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 Convertible 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 7,757,200 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 Convertible 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 sheets.
10. Supplemental Balance Sheet Information
A roll‑forward of the Company’s reserves is as follows:
(a)Allowance for doubtful accounts:
Three Months Ended
March 31,
2021 2020
(In thousands)
Balance, beginning of period $ 12,046  $ 6,287 
Additions 3,381  4,261 
Write-offs (2,036) (1,463)
Balance, end of period $ 13,391  $ 9,085 
Percentage of revenue % %
22


(b)Customer credit reserve:
Three Months Ended
March 31,
2021 2020
(In thousands)
Balance, beginning of period $ 16,783  $ 6,784 
Additions 15,466  8,174 
Deductions against reserve (14,998) (5,271)
Balance, end of period $ 17,251  $ 9,687 
Percentage of revenue % %

11. 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
March 31,
2021 2020
Revenue by geographic area: (In thousands)
United States $ 421,531  $ 261,813 
International 168,457  103,055 
Total $ 589,988  $ 364,868 
Percentage of revenue by geographic area:
United States 71  % 72  %
International 29  % 28  %
Long-lived assets outside of the United States were not significant.
12. 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 eight years. See Note 5 to these condensed consolidated financial statements for additional detail on the Company's operating and finance lease commitments.
Additionally, the Company has noncancellable contractual commitments with its cloud infrastructure provider, network service providers and other vendors. In the three months ended March 31, 2021, the Company entered into several such agreements with terms up to three years for a total purchase commitment of $426.9 million.
In February 2021, the Company entered into a Framework Agreement with Syniverse Corporation (“Syniverse”) and Carlyle Partners V Holdings, L.P. (“Carlyle”) (the “Framework Agreement”), pursuant to which Syniverse will issue to the Company shares of Syniverse common stock in consideration for an investment by the Company of up to $750.0 million. In connection with the closing of the investment, the Company and Syniverse will enter into a wholesale agreement, in which Syniverse will process, route and deliver application-to-person messages originating and/or terminating between the Company's customers and mobile network operators. The investment is expected to result in the Company holding a significant minority equity ownership position in Syniverse, subject to certain adjustments based on the terms of the final agreement. This proposed transaction closing is subject to consummation of certain other transactions by Syniverse, as defined in the Framework Agreement, and other customary closing conditions, including regulatory approvals. The closing is expected to occur before the end of 2021. As of March 31, 2021, the Company has deferred $3.3 million of costs related to this proposed transaction that are recorded in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.
23


(b)Legal Matters
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.
As of March 31, 2021 and December 31, 2020, 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 sheets. 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 March 31, 2021 and December 31, 2020, the liability recorded for these taxes was $26.6 million and $25.6 million, respectively.

24


13. Stockholders’ Equity
Preferred Stock
As of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, 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 March 31, 2021, 160,588,258 shares of Class A common stock and 10,343,302 shares of Class B common stock were issued and outstanding. As of December 31, 2020, 153,496,222 shares of Class A common stock and 10,551,302 shares of Class B common stock were issued and outstanding. Holders of Class A and Class B common stock are entitled to one vote per share and 10 votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting and conversion rights.
The Company had reserved shares of common stock for issuance as follows:
As of As of
March 31, December 31,
2021 2020
Stock options issued and outstanding 5,216,385  5,625,735 
Unvested restricted stock units issued and outstanding 6,758,222  7,523,882 
Class A common stock reserved for Twilio.org 685,163  707,265 
Stock-based awards available for grant under 2016 Plan 26,871,942  18,942,205 
Stock-based awards available for grant under 2016 ESPP 6,581,756  4,941,281 
Class A common stock reserved for the convertible senior notes 6,411,350  7,569,731 
Total 52,524,818  45,310,099 
Public Equity Offerings
In February 2021, the Company completed public equity offerings in which it sold 4,312,500 shares of its Class A common stock at a public offering price of $409.60 per share. The Company received total proceeds of $1.8 billion, net of offering expenses paid and payable by the Company.
14. Stock-Based Compensation 
The Company's 2016 Stock Option and Incentive Plan (the “2016 Plan”) provides for granting stock options, restricted stock units ("RSU"), restricted stock awards (“RSA”), stock appreciation rights, unrestricted stock awards, performance share awards, dividend equivalent rights and cash-based awards to its employees, directors and consultants. Certain of the Company's outstanding equity awards were granted under equity incentive plans that are no longer active but continue to govern the outstanding equity awards granted thereunder.
The Company also offers an Employee Stock Purchase Plan ("ESPP") to eligible employees. The ESPP provides for separate six-month offering periods beginning in May and November of each year.
On January 1, 2021, the shares available for grant under the 2016 Plan and ESPP were automatically increased by 8,202,376 shares and 1,640,475 shares, respectively.
25


Stock-options and restricted stock units and awards activity under the Company's equity incentive plans was as follows:
Stock 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, 2020 5,070,735  $ 51.71  6.85 $ 1,454,222 
Granted 108,429  378.11 
Exercised (459,379) 25.17 
Forfeited and canceled (58,400) 62.63 
Outstanding options as of March 31, 2021 4,661,385  $ 61.78  6.67 $ 1,304,466 
Options vested and exercisable as of March 31, 2021 2,609,089  $ 26.89  5.35 $ 818,926 
Three Months Ended
March 31,
2021 2020
(In thousands, except per share amounts)
Aggregate intrinsic value of stock options exercised (1)
$ 165,559  $ 68,359 
Total estimated grant date fair value of options vested $ 31,979  $ 23,335 
Weighted-average grant date fair value per share of options granted $ 205.36  $ 60.47 
____________________________________
(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.
Additionally, as of March 31, 2021, the Company had outstanding 555,000 shares of performance-based stock options with a weighted average exercise price of $31.72, of which 543,437 were vested and exercisable. All performance conditions have been met.
Restricted Stock Units and Awards
Number of
awards
outstanding
Weighted-
average
grant date
fair value
(Per share)
Aggregate
intrinsic
value
(In thousands)
Unvested RSUs as of December 31, 2020 7,523,882  $ 131.76  $ 2,542,858 
Granted 314,291  389.26 
Vested (919,022) 84.12 
Forfeited and canceled (160,929) 124.66 
Unvested RSUs as of March 31, 2021 6,758,222  $ 150.39  $ 2,302,932 
Additionally, as of March 31, 2021, the Company granted 24,697 shares of RSAs with a weighted average grant date fair value of $359.80 per share and aggregate intrinsic value of $8.9 million.
As of March 31, 2021, the Company had 258,554 shares of its Class A common stock in escrow that are subject to future vesting over a period of 2.5 years with a weighted average grant date fair value of $273.38 per share and aggregate intrinsic value of $88.1 million.
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As of March 31, 2021, total unrecognized compensation cost was as follows:
Unrecognized Compensation Cost Weighted-average remaining period
(In thousands) (In years)
Unvested stock options $ 225,119  2.4
Unvested restricted stock units and awards 923,508  2.9
Class A shares in escrow subject to future vesting 58,889  2.5
ESPP 2,119  0.1
Total $ 1,209,635 
Valuation Assumptions
The fair value of employee stock options was estimated on the date of grant using the following assumptions in the Black-Scholes option pricing model:
Three Months Ended
March 31,
Employee Stock Options: 2021 2020
Fair value of common stock
$377.6 - $409.2
$117.9 - $126.7
Expected term (in years)
6.08
6.08
Expected volatility
58.3% - 58.4%
51.9%
Risk-free interest rate
0.8% - 1.0%
1.3% - 1.4%
Dividend rate
—%
—%
Stock-Based Compensation Expense
The Company recorded total stock-based compensation expense as follows:
Three Months Ended
March 31,
2021 2020
(In thousands)
Cost of revenue $ 2,717  $ 1,837 
Research and development 56,959  33,209 
Sales and marketing 41,636  19,943 
General and administrative 35,843  14,036 
Total $ 137,155  $ 69,025 

15. Net Loss Per Share Attributable to Common Stockholders
Basic and diluted net loss per common share is presented in conformity with the two-class method required for participating securities and is described in detail in the Company's Annual Report.
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The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented:
Three Months Ended
March 31,
2021 2020
Net loss attributable to common stockholders (in thousands) $ (206,542) $ (94,791)
Weighted-average shares used to compute net loss per share attributable to
     common stockholders, basic and diluted
167,160,458  139,231,594 
Net loss per share attributable to common stockholders, basic and diluted $ (1.24) $ (0.68)
The following outstanding shares of common stock equivalents were excluded from the calculation of the diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive:
As of March 31,
2021 2020
Stock options issued and outstanding 5,216,385  7,492,970 
Restricted stock units issued and outstanding 6,758,222  8,039,823 
Class A common stock reserved for Twilio.org 685,163  773,571 
Class A common stock committed under 2016 ESPP 101,030  212,028 
Convertible senior notes (1)
3,689,177  2,747,996 
Class A common stock in escrow 75,612  — 
Class A common stock in escrow and restricted stock awards subject to future
     vesting
289,618  — 
Total 16,815,207  19,266,388 
____________________________________
(1) Since, effective with the fourth quarter 2020, the Company expects to settle the principal amount of its outstanding convertible senior notes in shares of the Company's Class A common stock, as of March 31, 2021, the Company used the if-converted method for calculating any potential dilutive effect of the debt settlement on diluted net income per share, if applicable. Prior to the fourth quarter 2020, the Company expected to settle the principal amount of its outstanding convertible senior notes in cash and any excess in shares of the Company's Class A common stock. Hence, as of March 31, 2020, the Company used the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread has a dilutive impact on diluted net income per share of Class A common stock when the average market price of the Company's Class A common stock for a given period exceeds the conversion price of $70.90 per share for the Convertible Notes. The conversion spread is calculated using the average market price of Class A common stock during the period, consistent with the treasury stock method.
16. Income Taxes        
The Company computes its provision for interim periods by applying an estimated annual effective tax rate to anticipated annual pretax income or loss. The estimated annual effective tax rate is applied to the Company's year to date income or loss, and is adjusted for discrete items recorded in the period. The Company recorded an income tax provision of $0.9 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively.
The provision for income taxes recorded in the three months ended March 31, 2021 and 2020 consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business, partially offset by an income tax benefit from the reversal of U.S. deferred tax liabilities related to acquired intangibles from prior year business combinations. The primary difference between the effective tax rate and the federal statutory rate is the full valuation allowance the Company established on the federal, state, and certain foreign net operating losses and credits. The Company continues to maintain a full valuation allowance against its U.S. federal and state net deferred tax assets.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. 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 II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.
Overview
We are the leader in the cloud communications platform category. We enable developers to build, scale and operate real‑time 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. These APIs are focused on the business challenges that a developer is looking to address, allowing our customers to more quickly and easily build better ways to engage with their customers throughout their journey. We also offer a set of APIs that enable developers to embed voice, messaging, video and email capabilities into their applications, and are designed to support almost all the fundamental ways humans communicate, unlocking innovators to address just about any communication market. The Super Network is our software layer that allows our customers’ software to communicate with connected devices globally. It interconnects with communications networks and inbox service providers around the world and continually analyzes data to optimize the quality and cost of communications that flow through our platform. The Super Network also contains a set of APIs giving our customers access to more foundational components of our platform, like phone numbers.
Our customers’ applications are able to reach users via voice, messaging, video and email in nearly every country in the world by utilizing our platform. We support our global business through over 25 cloud data centers across more than seven regions around the world and have developed contractual relationships with network service providers globally.
Our business model is primarily focused on reaching and serving the needs of software developers, who we believe are becoming increasingly influential in technology decisions in a wide variety of companies. We call this approach our Business Model for Innovators, which empowers developers by reducing friction and upfront costs, encouraging experimentation, and enabling developers to grow as customers as their ideas succeed. We established and maintain our leadership position by engaging directly with, and cultivating, our developer community, which has led to the rapid adoption of our platform. We reach developers through community events and conferences, including our SIGNAL customer and developer conference, to demonstrate how every developer can create differentiated applications incorporating communications using our products.
Once developers are introduced to our platform, we provide them with a low friction trial experience. By accessing our easy‑to‑adopt APIs, extensive self‑service documentation and customer support team, developers build our products into their applications and then test such applications through free trial periods that we provide. Once they have decided to use our products beyond the initial free trial period, customers provide their credit card information and only pay for the actual usage of our products. As customers' use of our products grows larger, some enter into negotiated contracts with terms that dictate pricing, and typically include some level of minimum revenue commitments. Historically, we have acquired the substantial majority of our customers through this self‑service model. As customers expand their usage of our platform, our relationships with them often evolve to include business leaders within their organizations. Once our customers reach a certain spending level with us, we support them with account executives or customer success advocates within our sales organization to ensure their satisfaction and expand their usage of our products.
We also supplement our self‑service model with a sales effort aimed at engaging larger potential customers and existing customers through a direct sales approach. To help increase our awareness in the enterprise, we have expanded our marketing efforts through programs like our Twilio Engage roadshow, where we seek to bring business leaders and developers together to discuss the future of customer engagement. We have developed products to support this effort as well, like the Twilio Enterprise Plan, which provides capabilities for advanced security, access management and granular administration. Our sales organization targets technical leaders and business leaders who are seeking to leverage software to drive competitive differentiation. As we educate these leaders on the benefits of developing applications incorporating our products to differentiate their business, they often consult with their developers regarding implementation. We believe that developers are often advocates for our products as a result of our developer‑focused approach. Our sales organization includes sales development, inside sales, field sales and sales engineering personnel.
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When potential customers do not have the available developer resources to build their own applications, we refer them to either our technology partners who embed our products in the solutions that they sell to other businesses (such as contact centers and sales force and marketing automation), or our consulting partners who provide consulting and development services for organizations that have limited software development expertise to build our platform into their software applications.
We generate the substantial majority of our revenue from customers based on their usage of our software products that they have incorporated into their applications. Our Flex contact center platform is generally offered on a per user, per month basis or on a usage basis per agent hour. In addition, our email API is offered on a monthly subscription basis and our Marketing Campaigns product is priced based on the number of email contacts stored on our platform and the number of monthly emails sent to those contacts through our Email API. Also, customers using our Programmable Messaging or Programmable Voice APIs typically purchase one or more telephone numbers from us, for which we charge a monthly flat fee per number. Some customers also choose to purchase various levels of premium customer support for a monthly fee. Customers that register in our self‑service model typically pay upfront via credit card and draw down their balance as they purchase or use our products. Most of our customers draw down their balance in the same month they pay up front or are charged on a monthly subscription basis for our email-related products. As a result, our deferred revenue and customer deposits liability at any particular time is not a meaningful indicator of future revenue. As our customers’ usage grows, some of our customers enter into contracts and are invoiced monthly in arrears. Most of these customer contracts have terms of approximately 12 months and typically include some level of minimum revenue commitment. Most customers with minimum revenue commitment contracts generate a significant amount of revenue in excess of their minimum revenue commitment in any period. Historically, the aggregate minimum commitment revenue from customers with whom we have contracts has constituted a minority of our revenue in any period, and we expect this to continue in the future.
Our developer‑focused products are delivered to customers and users through our Super Network, which uses software to optimize communications on our platform. We interconnect with communications networks and inbox service providers globally to deliver our products, and therefore we have arrangements with network service providers in many regions in the world. Historically, a substantial majority of our cost of revenue has been network service provider fees. We continue to optimize our network service provider coverage and connectivity through continuous improvements in routing and sourcing in order to lower the usage expenses we incur for network service provider fees. As we benefit from our platform optimization efforts, we sometimes pass these savings on to customers in the form of lower usage prices on our products in an effort to drive increased usage and expand the reach and scale of our platform. In the near term, we intend to operate our business to expand the reach and scale of our platform and to grow our revenue, rather than to maximize our gross margins.
We have achieved significant growth in recent periods. In the three months ended March 31, 2021 and 2020, our revenue was $590.0 million and $364.9 million, respectively, and our net loss was $206.5 million and $94.8 million, respectively. In the three months ended March 31, 2021 and 2020, our 10 largest Active Customer Accounts generated an aggregate of 12% and 15% of our total revenue, respectively.
Investment in Syniverse Corporation
In February 2021, we entered into a Framework Agreement with Syniverse Corporation (“Syniverse”) and Carlyle Partners V Holdings, L.P. (“Carlyle”) (the “Framework Agreement”), pursuant to which Syniverse will issue to us shares of Syniverse common stock in consideration for an investment by us of up to $750.0 million. In connection with the closing of the investment, we and Syniverse will enter into a wholesale agreement, in which Syniverse will process, route and deliver application-to-person messages originating and/or terminating between our customers and mobile network operators. The investment is expected to result in us holding a significant minority equity ownership position in Syniverse, subject to certain adjustments based on the terms of the final agreement. This proposed transaction closing is subject to consummation of certain other transactions by Syniverse, as defined in the Framework Agreement, and other customary closing conditions, including regulatory approvals. The closing is expected to occur before the end of 2021.
Acquisition of ValueFirst Digital Media Private Limited
On March 12, 2021, we acquired ValueFirst Digital Media Private Limited, an enterprise communications platform in India, for a purchase price of $70.2 million paid in cash. Refer to Note 6 of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details related to this acquisition.
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Public Equity Offering
In February 2021, we completed a public equity offering in which we sold 4,312,500 shares of our Class A common stock at a public offering price of $409.60 per share. We received aggregate proceeds of $1.8 billion after deducting offering expenses paid and payable by us.
Issuance of 2029 and 2031 Senior Notes
In March 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 debt offering of the Notes were approximately $985.1 million, after deducting underwriting discounts and issuance costs paid and payable by us. Refer to Note 9 of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details related to these transactions.
COVID-19 UPDATE
A novel coronavirus disease (“COVID-19”) was declared a global pandemic during the first quarter of 2020 and has resulted in the imposition of numerous, unprecedented, national and international measures to try to contain the virus, including travel bans and restrictions, shutdowns, quarantines, shelter-in-place and social distancing orders. To prioritize the health and safety of our employees, customers and our community at large, we have either cancelled or shifted other planned events to virtual-only experiences and may determine to alter, postpone or cancel additional customer, employee or industry events in the future. Since mid-March 2020, we have also taken several precautionary measures to protect our employees and contingent workers and help minimize the spread of the virus, including temporarily closing our worldwide offices, requiring all employees and contingent workers to work from home and suspending all business travel worldwide for our employees for the time being.
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 have been prevalent in the locations where we, our customers, suppliers or third-party business partners conduct business. In the three months ended March 31, 2021, we experienced stable or increased usage in industries most impacted by COVID-19, including travel, hospitality, and ridesharing, among others. We acknowledge that there may be additional impacts to the economy and our business as a result of COVID-19. We expect that there may be some volatility in customer demand and buying habits as the pandemic continues, and we may experience constrained supply or curtailed customer demand that could materially and adversely impact our business, results of operations and financial performance in future periods. Specifically, we may experience impact from delayed sales cycles, including customers and prospective customers delaying contract signing or contract renewals, or reducing budgets or minimum commitments related to the products and services that we offer and changes to consumer behavior that may affect customers who use our products and service for confirmations, notifications, and other use cases. While we are continuing our recruiting efforts, it is possible that the pace of our hiring may slow during the COVID-19 pandemic. See the risk factor titled “The global COVID-19 pandemic may adversely impact our business, results of operations and financial performance” in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on our business, financial condition and results of operations.
Key Business Metrics
Three Months Ended
March 31,
2021 2020
Number of Active Customer Accounts (as of end date of period) (1)
235,000  190,000 
Total Revenue (in thousands) (1)
$ 589,988  $ 364,868 
Total Revenue Growth Rate (1)
62  % 57  %
Dollar-Based Net Expansion Rate (2)
133  % 143  %
____________________
(1) Includes the contributions from our ValueFirst business, acquired March 12, 2021, and Twilio Segment business, acquired November 2, 2020.
(2) Revenue from ValueFirst and Twilio Segment will not impact this calculation until the one-year anniversary of the acquisition.
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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 three months ended March 31, 2021 and 2020, 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.
Dollar‑Based 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.
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.
Key Components of Statements of Operations
Revenue. We derive our revenue primarily from usage‑based fees earned from customers using the software products within our Solutions APIs and Channel APIs. These usage‑based software products include offerings, such as Programmable Voice, Programmable Messaging and Programmable Video. Some examples of the usage‑based fees for which we charge include minutes of call duration activity for our Programmable Voice products, number of text messages sent or received using our Programmable Messaging products and number of authentications for our Account Security products. In the three months ended March 31, 2021 and 2020, we generated 71% and 74% of our revenue, respectively, from usage‑based fees. We also earn monthly flat fees from certain fee‑based products, such as our Email API, Marketing Campaigns, Flex seats, telephone numbers, short codes and customer support.
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 define U.S. revenue as revenue from customers with IP addresses or mailing addresses at the time of registration in the United States, and we define international revenue as revenue from customers with IP addresses or mailing addresses at the time of registration outside of the United States.
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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 stock‑based compensation for our customer support employees, and non‑personnel 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 infrastructure‑related fees, including Application to Person SMS fees, the mix of U.S. revenue compared to international revenue, changes in foreign exchange rates and 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 stock‑based compensation. We also incur other non‑personnel 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.
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 through our developer evangelist team and self‑service model, 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 self‑service model with an enterprise sales approach, expanding our sales channels, driving our go‑to‑market 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 and executives. General and administrative expenses also include costs related to business acquisitions, legal and other professional services fees, certain taxes, depreciation and amortization 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 sales and other taxes to which we are subject in the United States and internationally based on the manner we sell and deliver our products.
Provision for Income Taxes. Our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items occurring in the quarter. 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.

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Non-GAAP Financial Measures:
We use the following non‑GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non‑GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period‑to‑period comparisons of results of operations, and assists in comparisons with other companies, many of which use similar non‑GAAP financial information to supplement their GAAP results. Non‑GAAP 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 similarly‑titled non‑GAAP measures used by other companies. Whenever we use a non‑GAAP 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 non‑GAAP financial measures to their most directly comparable GAAP financial measures.
Non‑GAAP Gross Profit and Non‑GAAP Gross Margin. For the periods presented, we define non‑GAAP gross profit and non‑GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below:
Three Months Ended
March 31,
2021 2020
Reconciliation: (In thousands)
Gross profit $ 298,304  $ 193,535 
Non-GAAP adjustments:
Stock-based compensation 2,717  1,837 
Amortization of acquired intangibles 26,342  12,381 
    Non-GAAP gross profit $ 327,363  $ 207,753 
    Non-GAAP gross margin 55  % 57  %
Non‑GAAP Operating Expenses. For the periods presented, we define non‑GAAP 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:
Three Months Ended
March 31,
2021 2020
Reconciliation: (In thousands)
Operating expenses $ 495,643  $ 286,231 
Non-GAAP adjustments:
Stock-based compensation (134,438) (67,188)
Amortization of acquired intangibles (18,809) (7,911)
Acquisition-related expenses (2,764) (302)
Charitable contributions (9,405) (2,701)
Payroll taxes related to stock-based compensation (20,171) (6,453)
Non-GAAP operating expenses $ 310,056  $ 201,676 
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Non‑GAAP Income from Operations and Non‑GAAP Operating Margin. For the periods presented, we define non‑GAAP income from operations and non‑GAAP 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:
Three Months Ended
March 31,
2021 2020
Reconciliation: (In thousands)
Loss from operations $ (197,339) $ (92,696)
Non-GAAP adjustments:
Stock-based compensation 137,155  69,025 
Amortization of acquired intangibles 45,151  20,292 
Acquisition-related expenses 2,764  302 
Charitable contributions 9,405  2,701 
Payroll taxes related to stock-based compensation 20,171  6,453 
Non-GAAP income from operations $ 17,307  $ 6,077 
Non-GAAP operating margin % %

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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. The period-to-period comparison of our historical results are not necessarily indicative of the results that may be expected in the future.
Three Months Ended
March 31,
2021 2020
Condensed Consolidated Statements of Operations Data: (In thousands)
Revenue $ 589,988  $ 364,868 
Cost of revenue (1) (2)
291,684  171,333 
Gross profit 298,304  193,535 
Operating expenses:
Research and development (1) (2)
174,800  114,339 
Sales and marketing (1) (2)
210,590  116,722 
General and administrative (1) (2)
110,253  55,170