Signal management

TWILIO INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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

Today's leading companies trust Twilio's Customer Engagement Platform (CEP) to
build direct, personalized relationships with their customers everywhere in the
world. Twilio enables companies to use communications and data to add
intelligence and security to every step of the customer journey, from sales to
marketing to growth, customer service and many more engagement use cases in a
flexible, programmatic way. For more information about Twilio refer to Part I,
Item 1, "Business," of our Annual Report on Form 10-K filed with the SEC on
February 22, 2022 ("Annual Report").

We have achieved significant growth in recent periods. In the three months ended
September 30, 2022 and 2021, our revenue was $983.0 million and $740.2 million,
respectively, and our net loss was $482.3 million and $224.1 million,
respectively. In the three months ended September 30, 2022 and 2021, our 10
largest Active Customer Accounts generated an aggregate of 13% and 11% of our
total revenue, respectively.

                              Key Business Metrics

                                                                          Three Months Ended
                                                                            September 30,
                                                                      2022                 2021

Number of active customer accounts (at the end of the period) (1)

                                                          280,000              250,000
Total Revenue (in thousands) (2)                                  $  983,030          $   740,176
Total Revenue Growth Rate (2)                                             33  %                65  %
Dollar-Based Net Expansion Rate (3)                                      122  %               131  %

____________________

(1) Excludes customer accounts from Zipwhip.
(2) Includes revenue from Zipwhip, acquired July 14, 2021, and other smaller acquisitions made after
July 1, 2021.
(3) Excludes the contributions from Zipwhip, acquired July 14, 2021, and other smaller acquisitions
made after July 1, 2021.


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 September 30, 2022
and 2021, revenue from Active Customer Accounts represented over 99% of total
revenue in each period. A single organization may constitute multiple unique
Active Customer Accounts if it has multiple account identifiers, each of which
is treated as a separate Active Customer Account.

Dollar­Based Net Expansion Rate. Our ability to drive growth and generate
incremental revenue depends, in part, on our ability to maintain and grow our
relationships with existing Active Customer Accounts and to increase their use
of the platform. An important way in which we have historically tracked
performance in this area is by measuring the Dollar-Based Net Expansion Rate for
Active Customer Accounts. Our Dollar-Based Net Expansion Rate increases when
such Active Customer Accounts increase their usage of a product, extend their
usage of a product to new applications or adopt a new
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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.

Our Dollar-Based Net Expansion Rate compares the revenue from all Active
Customer Accounts in a quarter to the same quarter in the prior year. To
calculate the Dollar-Based Net Expansion Rate, we first identify the cohort of
Active Customer Accounts that were Active Customer Accounts in the same quarter
of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained
by dividing the revenue generated from that cohort in a quarter, by the revenue
generated from that same cohort in the corresponding quarter in the prior year.
When we calculate Dollar-Based Net Expansion Rate for periods longer than one
quarter, we use the average of the applicable quarterly Dollar-Based Net
Expansion Rates for each of the quarters in such period. Revenue from
acquisitions does not impact the Dollar-Based Net Expansion Rate calculation
until the quarter following the one-year anniversary of the applicable
acquisition, unless the acquisition closing date is the first day of a quarter.

                   Key Components of Statements of Operations

Revenue. We derive our revenue primarily from usage­based fees earned primarily
from customers using our communications products within our Channel APIs. These
usage­based products include offerings such as Programmable Messaging,
Programmable Voice and others. Some examples of the usage­based fees that we
charge include fees related to the number of text messages sent or received
using our Programmable Messaging products, minutes of call duration activity for
our Programmable Voice products and the number of authentications for our Verify
product. In the three months ended September 30, 2022 and 2021, we generated 73%
and 72% of our revenue, respectively, from usage­based fees. We also earn
monthly flat fees from certain fee­based products, such as our Email API and our
software products, such as our cloud contact center platform Twilio Flex and our
customer data platform Twilio Segment.

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.

Cost of Revenue and Gross Margin. Cost of revenue consists primarily of fees
paid to network service providers. Cost of revenue also includes cloud
infrastructure fees, direct costs of personnel, such as salaries and stock­based
compensation for our customer support employees, and non­personnel costs, such
as depreciation and amortization expense related to data centers and hosting
equipment, amortization of capitalized internal-use software development costs
and acquired intangibles. Our arrangements with network service providers
require us to pay fees based on the volume of phone calls initiated or text
messages sent, as well as the number of telephone numbers acquired by us to
service our customers. Our arrangements with our cloud infrastructure provider
require us to pay fees based on our server capacity consumption.

Our gross margin has been and will continue to be affected by a number of
factors, including the timing and extent of our investments in our operations;
our product mix; our ability to manage our network service provider and cloud
infrastructure­related fees, including A2P SMS fees; the mix of U.S. revenue
compared to international revenue; changes in foreign exchange rates; the timing
of amortization of capitalized software development costs and acquired
intangibles; and the extent to which we periodically choose to increase prices
to our customers.


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Operating Expenses. The most significant components of operating expenses are
personnel costs, which consist of salaries, benefits, sales commissions and
bonuses and stock­based compensation. We also incur other non­personnel costs
related to our general overhead expenses. We expect that our operating costs
will increase in absolute dollars as we 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 are focusing our research and development investment in the highest impact
product areas. We are investing strategically in alignment with our vision for
the leading Customer Engagement Platform.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel
costs, including commissions for our sales employees. Sales and marketing
expenses also include expenditures related to advertising, marketing, our brand
awareness activities and developer evangelism, costs related to our SIGNAL
customer and developer conferences, credit card processing fees, professional
services fees, depreciation, amortization of acquired intangibles and an
allocation of our general overhead expenses.

We focus our sales and marketing efforts on generating awareness of our company,
platform and products, creating sales leads and establishing and promoting our
brand, both domestically and internationally. We plan to continue investing in
sales and marketing by supplementing our self­service model with an enterprise
sales approach, expanding our sales channels, driving our go­to­market
strategies, building our brand awareness and sponsoring additional marketing
events.

General and Administrative. General and administrative expenses consist
primarily of personnel costs for our accounting, finance, legal, human resources
and administrative support personnel. General and administrative expenses also
include costs related to business acquisitions, legal and other professional
services fees, certain taxes, depreciation and amortization, charitable
contributions and an allocation of our general overhead expenses. We expect that
we will incur costs associated with supporting the growth of our business and to
meet the increased compliance requirements associated with our international
expansion. We may also incur higher than usual losses related to deterioration
of quality of certain financial assets caused by the macroeconomic conditions
and uncertainty in the COVID-19 environment.

Restructuring Costs. Restructuring costs consist primarily of personnel costs,
such as employee severance payments and certain facilitation costs, associated
with our restructuring plan that is described in Note 6 to our consolidated
condensed financial statements included elsewhere in this Quarterly Report on
Form 10-Q. Restructuring costs also include stock-based compensation expense
related to vesting of stock-based awards of the impacted employees.

Impairment of Long-Lived Assets. Impairment of long-lived assets consists
primarily of impairment charges allocated to the carrying amount of certain ROU
assets and the associated leasehold improvement and property and equipment when
the carrying amounts exceed their respective fair values. The impairment changes
are described in Note 5 to our consolidated condensed financial statements
included elsewhere in this Quarterly Report on Form 10-Q.

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 we 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 non­GAAP financial information, collectively, to evaluate
our ongoing operations and for internal planning and forecasting purposes. We
believe that non­GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and comparability with past
financial performance, facilitates period­to­period comparisons of results of
operations and assists in comparisons with other companies, many of which use
similar non­GAAP financial information to supplement their GAAP results.
Non­GAAP financial information is presented for supplemental informational
purposes only, should not be considered a substitute for financial information
presented in accordance with generally accepted accounting principles and may be
different from similarly­titled non­GAAP measures used by other companies.
Whenever we use a non­GAAP financial measure, a reconciliation is provided to
the most closely applicable financial measure stated in accordance with
generally accepted accounting principles. Investors are encouraged to review the
related GAAP financial measures and the reconciliation of these non­GAAP
financial measures to their most directly comparable GAAP financial measures.

Non­GAAP Gross Profit and Non­GAAP Gross Margin. For the periods presented, we
define non­GAAP gross profit and non­GAAP gross margin as GAAP gross profit and
GAAP gross margin, respectively, adjusted to exclude, as applicable, certain
expenses as presented in the table below:

                                                              Three Months Ended
                                                                September 30,
                                                             2022            2021
         Reconciliation:                                        (In thousands)
         Gross profit                                    $ 462,075       $ 364,615
         GAAP gross margin                                      47  %           49  %

Non-GAAP adjustments:

         Share-based compensation                            6,114          

3,720

         Amortization of acquired intangibles               30,729          

31,558

         Taxes related to stock-based compensation             215          

           Non-GAAP gross profit                         $ 499,133       $ 

399,893

           Non-GAAP gross margin                                51  %       

54%


Non­GAAP Operating Expenses. For the periods presented, we define non­GAAP
operating expenses (including categories of operating expenses) as GAAP
operating expenses (and categories of operating expenses) adjusted to exclude,
as applicable, certain expenses as presented in the table below:

                                                              Three Months Ended
                                                                September 30,
                                                             2022           2021
          Reconciliation:                                       (In thousands)
          Operating expenses                              $ 919,072      $ 596,960

Non-GAAP adjustments:

          Share-based compensation                         (187,507)      

(160,323)

          Amortization of acquired intangibles              (20,920)       

(24,203)

          Acquisition related expenses                         (121)        

(1,620)

Tax related to share-based compensation (4,210) (10,734)

          Charitable contribution                            (1,911)        

(8,389)

          Restructuring costs                               (72,451)             -
          Impairment of long-lived assets                   (97,722)             -
          Non-GAAP operating expenses                     $ 534,230      $

391 691

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Non­GAAP (Loss) Income from Operations and Non­GAAP Operating Margin. For the
periods presented, we define non­GAAP (loss) income from operations and non­GAAP
operating margin as GAAP loss from operations and GAAP operating margin,
respectively, adjusted to exclude, as applicable, certain expenses as presented
in the table below:

                                                              Three Months Ended
                                                                September 30,
                                                            2022             2021
        Reconciliation:                                         (In thousands)
        Loss from operations                            $ (456,997)      $ (232,345)
        Operating margin                                       (46) %           (31) %
        Non-GAAP adjustments:
        Share-based compensation                           193,621          

164,043

        Amortization of acquired intangibles                51,649          

55,761

        Acquisition related expenses                           121          

1,620

        Taxes related to stock-based compensation            4,425          

10,734

        Charitable contribution                              1,911          

8,389

        Restructuring costs                                 72,451                -
        Impairment of long-lived assets                     97,722                -
        Non-GAAP (loss) income from operations          $  (35,097)      $ 

8,202

        Non-GAAP operating margin                               (4) %             1  %


                             Results of Operations

Our results of operations may be significantly affected by many factors, such as
changes in global economic conditions and customer demand and spending,
inflation, labor market constraints, uncertainty regarding the impacts of
fluctuations in foreign exchange rates, world events, existing and new domestic
and foreign laws and regulations, as well as those factors outlined in Part II,
Item 1A, "Risk Factors."

Our revenue is primarily derived from usage-based fees we charge for certain of
our products, which can lead to variability and at times create significant
differences between forecasts and actual results. In addition, our product mix
and mix of international and domestic customers may significantly impact our
gross margin. Because usage trends by geographic region and by customer are
inherently difficult to estimate, our actual results could differ significantly
from our estimates, particularly if market and industry specific conditions
continue to shift.

In September 2022, we announced our decision to commit to a Restructuring Plan
that was designed to reduce operating costs, improve operating margins and shift
our selling capacity to accelerate software sales. The Restructuring Plan
includes elimination of approximately 11% of our workforce. We recorded an
aggregate restructuring charge of $72.5 million in the third quarter of 2022 and
expect to record additional charges of approximately $10.0 million to $15.0
million until all activities under our Restructuring Plan are completed. Refer
to Note 6 of our unaudited condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q for further details on this
event.

In May 2022, we announced our decision to become a remote-first company, whereby
employees would have the flexibility to work remotely on a permanent basis. As
part of our new operating strategy, in the third quarter, we permanently closed
several of our office locations which resulted in an impairment of several
long-lived assets, including our operating leases, leasehold improvement and
property and equipment. We recorded a total impairment charge of $97.7 million
in the third quarter of 2022 and expect to record an estimated additional charge
of approximately $5.0 million to $10.0 million in the first quarter of 2023.

In May 2022, we acquired a 44.55% equity interest in Syniverse Corporation
("Syniverse") for $750.0 million in cash. In the three months ended September
30, 2022, we recorded $13.4 million of our proportionate share of Syniverse's
net loss and the amortization of the excess investment basis, as well as $4.2
million of our proportionate share of Syniverse's other comprehensive loss into
our unaudited condensed consolidated statements of operations and comprehensive
loss, respectively, included elsewhere in this Quarterly report on Form 10-Q.
For further description of this transaction, refer to Notes 2 and 8 to our
unaudited condensed consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q
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In July 2022, we adopted a new sabbatical program for our tenured employees,
whereby every three years employees may apply for a paid sabbatical leave of
four consecutive weeks. Employees who had already accumulated more than three
years of tenure with us as of the program's effective date on July 1, 2022,
became immediately eligible for their sabbatical leaves. As of September 30,
2022, we recorded a $29.2 million liability related to the adoption and
subsequent activity under this program. In the quarters subsequent to the
adoption, we do not expect the impact from this program to be significant to our
results of operations.

We continue to execute against our two primary priorities of accelerating
software sales and delivering non-GAAP operating profit starting in 2023. To
this end, our hiring efforts are focused on areas that we believe will unlock
significant value and present strong opportunities for continued growth, such as
Twilio Segment, Twilio Engage and Twilio Flex, and we have frozen the vast
majority of new hires and backfills outside of these areas. We are also shifting
more of our selling capacity to software, while looking to leverage more of our
self-service capability for customers that don't need direct account coverage.

We continue to see strong demand for our portfolio of products that make up our
customer engagement platform and overall our business has remained resilient.
However, we have seen a more pronounced impact to our business from
macro-economics factors than we have in prior quarters. We generate a portion of
our revenue from certain sectors of the economy that have experienced recent
softness due to macro-economic headwinds, including cryptocurrencies, consumer
on-demand, retail, e-commerce, and social media, we are starting to see some
instances of delays in purchasing decisions and longer sales cycles.

The following tables set forth our results of operations for the periods
presented and as a percentage of our total revenue for those periods. We have
included Zipwhip in our results of operations prospectively after its closing
date of July 14, 2021, and all other acquisitions from the respective closing
dates of each acquisition. The period-to-period comparison of our historical
results are not indicative of the results that may be expected in the future.

                                                         Three Months Ended                            Nine Months Ended
                                                            September 30,                                September 30,
                                                     2022                   2021                  2022                  2021
Condensed Consolidated Statements of
Operations Data:                                               (In thousands, except share and per share amounts)
Revenue                                        $     983,030          $     740,176          $  2,801,747          $  1,999,095
Cost of revenue (1) (2)                              520,955                375,561             1,469,312             1,004,929
Gross profit                                         462,075                364,615             1,332,435               994,166
Operating expenses:
Research and development (1) (2)                     284,735                209,890               804,987               565,970
Sales and marketing (1) (2)                          328,833                264,548               951,697               713,196
General and administrative (1) (2)                   135,331                122,522               392,319               346,958
Restructuring costs (1)                               72,451                      -                72,451                     -
Impairment of long-lived assets                       97,722                      -                97,722                     -
Total operating expenses                             919,072                596,960             2,319,176             1,626,124
Loss from operations                                (456,997)              (232,345)             (986,741)             (631,958)
Other expenses, net:
Share of losses from equity method
investment                                           (13,376)                     -               (13,376)                    -
Other, net                                            (8,374)                (6,613)              (23,290)              (39,219)
Total other expenses, net                            (21,750)                (6,613)              (36,666)              (39,219)
Loss before (provision for) benefit from
income taxes                                        (478,747)              (238,958)           (1,023,407)             (671,177)
(Provision for) benefit from income
taxes                                                 (3,580)                14,849                (3,316)               12,673
Net loss attributable to common
stockholders                                   $    (482,327)         $    

(224,109) $(1,026,723) ($658,504)
Net loss per share attributable to common shares

   stockholders, basic and diluted             $       (2.63)         $     

(1.26) $(5.63) $(3.82)
Weighted average shares used in the net calculation

loss per share attributable to common shares

   stockholders, basic and diluted               183,692,564            177,231,285           182,319,735           172,605,371









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(1) Includes stock-based compensation expense as follows:

                                             Three Months Ended            Nine Months Ended
                                               September 30,                 September 30,
                                            2022           2021           2022           2021
                                                              (In thousands)
         Cost of revenue                 $   6,114      $   3,720      $  14,631      $   9,461
         Research and development           90,787         69,242        279,680        185,072
         Sales and marketing                58,747         53,843        184,825        143,419
         General and administrative         37,973         37,238        111,850        107,414
         Restructuring costs                15,274              -         15,274              -
         Total                           $ 208,895      $ 164,043      $ 606,260      $ 445,366

____________________________________

(2) Includes amortization of intangible assets acquired as follows:

                                             Three Months Ended            Nine Months Ended
                                               September 30,                 September 30,
                                             2022           2021          2022           2021
                                                              (In thousands)
         Cost of revenue                 $   30,729      $ 31,558      $  92,601      $  84,104
         Research and development               420           462          1,260            840
         Sales and marketing                 20,500        23,741         61,412         61,197
         General and administrative               -             -              7            125
         Total                           $   51,649      $ 55,761      $ 155,280      $ 146,266


                                                          Three Months Ended                           Nine Months Ended
                                                            September 30,                                September 30,
                                                     2022                   2021                  2022                   2021
Consolidated Statements of Operations, as
a percentage of revenue: **
Revenue                                                 100  %                 100  %                100  %                 100  %
Cost of revenue                                          53                     51                    52                     50
Gross profit                                             47                     49                    48                     50
Operating expenses:
Research and development                                 29                     28                    29                     28
Sales and marketing                                      33                     36                    34                     36
General and administrative                               14                     17                    14                     17
Restructuring costs                                       7                      -                     3                      -
Impairment of long-lived assets                          10                      -                     3                      -
Total operating expenses                                 93                     81                    83                     81
Loss from operations                                    (46)                   (31)                  (35)                   (32)
Other expenses, net
Share of losses from equity method
investment                                               (1)                     -                         *                  -
Other, net                                               (1)                    (1)                   (1)                    (2)
Total other expenses, net                                (2)                    (1)                   (1)                    (2)
Loss before (provision for) benefit from
income taxes                                            (49)                   (32)                  (37)                   (34)
(Provision for) benefit from income taxes                     *                  2                         *                  1

Net loss attributable to shares

   stockholders                                         (49  %)                (30  %)               (37  %)                (33  %)


____________________________________

* Less than 0.5% of revenue.
** Columns may not add up to 100% due to rounding.
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Comparison of the three months ended September 30, 2022 and 2021

Revenue

                                         Three Months Ended
                                           September 30,
                                        2022           2021                      Change
                                                 (Dollars in thousands)

                Total Revenue        $ 983,030      $ 740,176            $ 242,854        33  %


In the three months ended September 30, 2022, total revenue increased by $242.9
million, or 33%, compared to the same period last year. This increase was
primarily attributable to an increase in the usage of our products, particularly
our Programmable Messaging, Programmable Voice, Email, Segment and Flex; the
adoption of additional products by our existing customers; and revenue
contributions from our acquisition of Zipwhip and other businesses. The change
in usage from our existing customers was reflected in our Dollar­Based Net
Expansion Rate of 122% for the three months ended September 30, 2022. The
increase in usage was also attributable to a 12% increase in the number of
Active Customer Accounts, from over 250,000 as of September 30, 2021, to over
280,000 as of September 30, 2022.

In the three months ended September 30, 2022, U.S. revenue and international
revenue represented $650.5 million or 66%, and $332.5 million, or 34%,
respectively, of total revenue. In the three months ended September 30, 2021,
U.S. revenue and international revenue represented $498.0 million, or 67%, and
$242.2 million, or 33%, respectively, of total revenue. The increase in
international revenue was attributable to the growth in usage of our products,
particularly our Programmable Messaging products, by our existing international
customers; an 11% increase in the number of international Active Customer
Accounts driven in part by our focus on expanding our sales to customers outside
of the United States; and revenue contribution from our recent acquisitions.

Revenue Cost and Gross Margin

                                         Three Months Ended
                                           September 30,
                                        2022            2021                Change
                                                    (Dollars in thousands)
               Cost of revenue      $ 520,955       $ 375,561       $ 145,394        39  %
               Gross margin                47  %           49  %


In the three months ended September 30, 2022, cost of revenue increased by
$145.4 million, or 39%, compared to the same period last year. The increase in
cost of revenue was primarily attributable to a $111.8 million increase in
network service providers' costs, which included the additional A2P fees imposed
by certain carriers, and a $9.6 million increase in cloud infrastructure fees,
all to support the growth in usage of our products.

Within three months September 30, 2022, the gross margin percentage decreased compared to the same period last year. This decline was primarily driven by continued strong growth in our low-margin international courier business. These decreases were partially offset by certain operational improvements.

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Operating Expenses

                                                  Three Months Ended
                                                    September 30,
                                                 2022           2021                      Change
                                                          (Dollars in thousands)
        Research and development              $ 284,735      $ 209,890            $  74,845        36  %
        Sales and marketing                     328,833        264,548               64,285        24  %
        General and administrative              135,331        122,522               12,809        10  %
        Restructuring costs                      72,451              -               72,451       100  %
        Impairment of long-lived assets          97,722              -               97,722       100  %
        Total operating expenses              $ 919,072      $ 596,960            $ 322,112        54  %


In the three months ended September 30, 2022, research and development expenses
increased by $74.8 million, or 36%, compared to the same period last year. The
increase was primarily attributable to a $70.1 million increase in personnel
costs, largely as a result of a 32% average increase in our research and
development headcount, excluding the impact of our Restructuring Plan, as we
continued to focus on enhancing our Twilio Segment and Flex products and
strengthening our platform infrastructure.

In the three months ended September 30, 2022, sales and marketing expenses
increased by $64.3 million, or 24%, compared to the same period last year. The
increase was primarily attributable to a $58.5 million increase in personnel
costs, largely as a result of a 27% average increase in sales and marketing
headcount, excluding the impact of our Restructuring Plan, as we continued to
expand our sales efforts globally.

In the three months ended September 30, 2022, general and administrative
expenses increased by $12.8 million, or 10%, compared to the same period last
year. The increase was primarily attributable to a $7.0 million increase in
personnel costs, largely as a result of a 17% average increase in general and
administrative headcount, excluding the impact of our Restructuring Plan, to
support the growth of our business globally. The increase was also attributable
to a $9.3 million increase in our bad debt expense and a $1.6 million increase
in software subscription expense driven by the increased headcount. These
increases were partially offset by a $6.5 million decrease in charitable
contribution expense that we made through Twilio.org.

In the three months ended September 30, 2022, we incurred $72.5 million in
restructuring costs as a result of our Restructuring Plan approved by the
compensation and talent management committee of our board of directors during
the third quarter of 2022. For further detail refer to Note 6 to our unaudited
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q.

In the three months ended September 30, 2022, we incurred $97.7 million in
impairment charges related to our operating lease assets and other long-lived
assets. The impairment charges were triggered by our remote-first operating
strategy as a result of which we permanently closed several office locations
during the third quarter of 2022. For further detail refer to Note 5 to our
unaudited condensed consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q.









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Comparison of the nine months ended September 30, 2022 and 2021

Revenue

                           Nine Months Ended
                             September 30,
                         2022             2021                      Change
                                   (Dollars in thousands)

Total Revenue        $ 2,801,747      $ 1,999,095            $ 802,652      40%


In the nine months ended September 30, 2022, total revenue increased by $802.7
million, or 40%, compared to the same period last year. This increase was
primarily attributable to an increase in the usage of our products, particularly
our Programmable Messaging, Programmable Voice, Email, Segment and Flex; the
adoption of additional products by our existing customers; the additional A2P
fees imposed by certain carriers; and revenue contributions from our acquisition
of Zipwhip and other businesses. The change in usage from our existing customers
was reflected in our Dollar­Based Net Expansion Rate of 124% for the nine months
ended September 30, 2022. The increase in usage was also attributable to a 12%
increase in the number of Active Customer Accounts, from over 250,000 as of
September 30, 2021, to over 280,000 as of September 30, 2022.

In the nine months ended September 30, 2022, U.S. revenue and international
revenue represented $1.8 billion or 66%, and $964.4 million, or 34%,
respectively, of total revenue. In the nine months ended September 30, 2021,
U.S. revenue and international revenue represented $1.4 billion, or 69%, and
$626.7 million, or 31%, respectively, of total revenue. The increase in
international revenue was attributable to the growth in usage of our products,
particularly our Programmable Messaging products, by our existing international
customers; a 11% increase in the number of international Active Customer
Accounts driven in part by our focus on expanding our sales to customers outside
of the United States; and revenue contribution from our recent acquisitions.

Revenue Cost and Gross Margin

                            Nine Months Ended
                              September 30,
                          2022              2021                 Change
                                       (Dollars in thousands)
Cost of revenue      $ 1,469,312       $ 1,004,929       $ 464,383        46  %
Gross margin                  48  %             50  %


In the nine months ended September 30, 2022, cost of revenue increased by $464.4
million, or 46%, compared to the same period last year. The increase in cost of
revenue was primarily attributable to a $377.3 million increase in network
service providers' costs, which included the additional A2P fees imposed by
certain carriers, a $27.2 million increase in cloud infrastructure fees, all to
support the growth in usage of our products, and an $8.5 million increase in
amortization expense related to our acquired intangible assets.

In the nine months ended September 30, 2022, the gross margin percentage
declined compared to the same period last year. This decline was primarily
driven by continued strong growth of our lower margin international messaging
business and the additional A2P fees imposed by certain carriers, which we pass
to our customers at cost, and an increase in amortization expense related to our
acquired intangible assets. These declines were partially offset by certain
operational improvements.
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Operating Expenses

                                            Nine Months Ended
                                              September 30,
                                          2022             2021                       Change
                                                    (Dollars in thousands)
Research and development              $   804,987      $   565,970            $ 239,017        42  %
Sales and marketing                       951,697          713,196              238,501        33  %
General and administrative                392,319          346,958               45,361        13  %
Restructuring costs                        72,451                -               72,451       100  %
Impairment of long-lived assets            97,722                -               97,722       100  %
Total operating expenses              $ 2,319,176      $ 1,626,124            $ 693,052        43  %


In the nine months ended September 30, 2022, research and development expenses
increased by $239.0 million, or 42%, compared to the same period last year. The
increase was primarily attributable to a $223.9 million increase in personnel
costs, largely as a result of a 42% average increase in our research and
development headcount, excluding the impact of our Restructuring Plan, as we
continued to focus on enhancing our Twilio Segment and Flex products and
strengthening our platform infrastructure.

In the nine months ended September 30, 2022, sales and marketing expenses
increased by $238.5 million, or 33%, compared to the same period last year. The
increase was primarily attributable to a $196.0 million increase in personnel
costs, largely as a result of a 41% average increase in sales and marketing
headcount, excluding the impact of our Restructuring Plan, as we continued to
expand our sales efforts globally, and a $14.2 million increase in advertising
expenses.

In the nine months ended September 30, 2022, general and administrative expenses
increased by $45.4 million, or 13%, compared to the same period last year. The
increase was primarily attributable to a $38.9 million increase in personnel
costs, as a result of a 33% average increase in general and administrative
headcount, excluding the impact of our Restructuring Plan. Additionally, the
increase was attributable to a $10.7 million increase in bad debt expense and a
$6.4 million increase in professional services fees. The increase was partially
offset by a $16.1 million decrease in charitable contributions that we made
through Twilio.org.

In the nine months ended September 30, 2022we hired $72.5 million and
$97.7 million restructuring costs and impairment of long-lived assets, respectively. For more details, refer to the analysis provided in the Comparison of three-month periods September 30, 2022 and 2021.

                        Liquidity and Capital Resources

Our principal sources of liquidity have been (i) the net proceeds of $979.0
million, $1.4 billion and $1.8 billion, net of underwriting discounts and
offering expenses paid by us, from our public equity offerings in June 2019,
August 2020 and February 2021, respectively; (ii) the aggregate net proceeds of
approximately $984.7 million, after deducting purchaser discounts and debt
issuance costs paid by us, from the issuance of our 2029 Notes and 2031 Notes in
March 2021; (iii) the net proceeds of $228.4 million, after deducting
transaction costs paid by us, from settlement of our capped call arrangements in
June 2021; and (iv) the payments received from customers using our products.

Our primary uses of cash include operating costs, such as personnel-related
costs, network service provider costs, cloud infrastructure costs,
facility-related spending, as well as acquisitions and investments. Our
principal contractual and other commitments consist of obligations under our
2029 Notes and 2031 Notes, our operating leases for office space and contractual
commitments to our cloud infrastructure and network service providers. Refer to
Note 11 and Note 13(a) to our unaudited condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q for detailed
discussions of our obligations and commitments related to debt and other
purchase obligations.

We may, from time to time, consider acquisitions of, or investments in,
complementary businesses, products, services, capital infrastructure or
technologies which might affect our liquidity requirements, cause us to secure
additional financing or issue additional equity or debt securities. There can be
no assurance that additional credit lines or financing instruments will be
available in amounts or on terms acceptable to us, if at all.
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We believe that our cash, cash equivalents and marketable securities balances,
as well as the cash flows generated by our operations, will be sufficient to
satisfy our anticipated cash needs for working capital and capital expenditures
for the next 12 months and beyond. However, our belief may prove to be
incorrect, and we could utilize our available financial resources sooner than we
currently expect. Our future capital requirements and the adequacy of available
funds will depend on many factors, including those set forth in Part II,
Item 1A, "Risk Factors." We may be required to seek additional equity or debt
financing in order to meet these future capital requirements. In the event that
additional financing is required from outside sources, we may not be able to
raise it on terms acceptable to us, or at all. If we are unable to raise
additional capital when desired, our business, results of operations and
financial condition would be adversely affected. Additionally, cash from
operations could also be affected by various risks and uncertainties in
connection with the impact of an economic downturn or recession, the COVID-19
pandemic, significant market volatility in the global economy, timing and
ability to collect payments from our customers and other risks detailed in Part
II, Item 1A, "Risk Factors."

Cash Flows

The following table summarizes our cash flows:

                                                                              Nine Months Ended
                                                                                September 30,
                                                                         2022                 2021
                                                                               (In thousands)
Cash used in operating activities                                    $ (195,913)         $    (19,949)
Cash used in investing activities                                      (682,153)           (2,451,736)
Cash provided by financing activities                                    33,252             3,039,300

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

                                                             146                  (157)

Net increase (decrease) in cash, cash equivalents and restricted cash

                                                      $ 

(844,668) $567,458

Cash flow from operating activities

In the nine months ended September 30, 2022, cash used in operating activities
consisted primarily of our net loss of $1.0 billion adjusted for non-cash items,
including $606.3 million of stock-based compensation expense reflecting the
impact of our Restructuring Plan, $207.9 million of depreciation and
amortization expense, $100.7 million of impairment of operating lease assets and
other long-lived assets, $38.7 million of non-cash reduction in our operating
right-of-use asset, $41.3 million amortization of deferred commissions, $27.9
million of net amortization of investment premium and discount, and $235.8
million of cumulative changes in operating assets and liabilities. With respect
to changes in operating assets and liabilities, accounts receivable and prepaid
expenses increased $202.4 million primarily due to revenue growth, timing of
cash receipts and pre-payments of our cloud infrastructure fees and certain
operating expenses. Accounts payable and other current liabilities increased
$134.0 million primarily due to increases in transaction volumes, the impacts
from our Restructuring Plan and the new sabbatical employee benefit introduced
by us effective in the current quarter. Operating lease liabilities decreased
$42.2 million due to payments made against our operating lease obligations.
Other long-term assets increased $111.7 million primarily due to an increase in
the sales commissions balances related to the growth of our business. The
impairment of operating lease assets and other long lived assets and the details
of the Restructuring Plan are described further in Note 5 and Note 6,
respectively, to our unaudited condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q.

In the nine months ended September 30, 2021, cash used in operating activities
consisted primarily of our net loss of $658.5 million adjusted for non-cash
items, including $445.4 million of stock-based compensation expense, $189.7
million of depreciation and amortization expense, $24.9 million of net
amortization of investment premium and discount; $24.6 million of donated common
stock, $29.0 million loss on extinguishment of our convertible notes, $36.2
million of non-cash reduction to our operating right-of-use asset, $20.8 million
amortization of deferred commissions, and $141.8 million of cumulative changes
in operating assets and liabilities. With respect to changes in operating assets
and liabilities, accounts receivable and prepaid expenses increased $141.1
million primarily due to the timing of cash receipts from certain of our larger
customers, pre-payments of our cloud infrastructure fees and certain operating
expenses. Accounts payable and other current liabilities increased $76.1 million
primarily due to increases in transaction volumes. Operating lease liabilities
decreased $36.3 million due to payments made against our operating lease
obligations. Other long-term assets increased $66.5 million primarily due to an
increase in the sales commissions balances related to the growth of our
business.
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Cash flow from investing activities

In the nine months ended September 30, 2022, cash used in investing activities
was $682.2 million primarily consisting of $584.8 million of purchases of
marketable securities and other investments, net of maturities and sales; $32.9
million of net cash paid to acquire other businesses, $35.9 million related to
capitalized software development costs and $28.6 million related to purchases of
long-lived assets.

In the nine months ended September 30, 2021, cash used in investing activities
was $2.5 billion primarily consisting of $1.9 billion of purchases of marketable
securities and other investments, net of maturities and sales, $490.9 million of
net cash paid to acquire other businesses, $35.9 million related to capitalized
software development costs and $33.6 million related to purchases of long-lived
assets.

Cash flow from financing activities

In the nine months ended September 30, 2022, cash provided by financing
activities was $33.3 million primarily consisting of $43.8 million in proceeds
from stock options exercised by our employees and shares issued under our
employee stock purchase plan, offset by $9.4 million in principal payments on
debt and finance leases.

In the nine months ended September 30, 2021, cash provided by financing
activities was $3.0 billion primarily consisting of $1.8 billion in net proceeds
from our public equity offering, $984.7 million in net proceeds from the
issuance of our 2029 Notes and 2031 Notes, $228.4 million in net proceeds from
the settlement of the capped call transactions related to our convertible notes
fully redeemed in the second quarter of 2021, and $71.6 million in proceeds from
stock options exercised by our employees and shares issued under our employee
stock purchase plan. This was offset by $4.9 million in principal payments made
on finance leases and $6.6 million related to the value of equity awards
withheld to settle tax liabilities.


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                   Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America. The preparation of these unaudited condensed consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, expenses and related
disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our
estimates are based on historical experience and various other assumptions that
we believe to be reasonable under the circumstances. Our actual results could
differ from these estimates.

There have been no changes to our critical accounting policies as described in our Annual Report on Form 10-K filed with the SECOND on February 22, 2022.

                Recent Accounting Pronouncements Not Yet Adopted

Refer to Note 2 to the unaudited condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q for a discussion of
recent accounting pronouncements not yet adopted.

Information available

Our filings are available to be viewed and downloaded free of charge through our
investor relations website after we file them with the Securities and Exchange
Commission ("SEC"). Our filings include our Annual Report on Form 10-K, as
amended, Quarterly Reports on Form 10-Q, our Proxy Statement for our annual
meeting of stockholders, Current Reports on Form 8-K and other filings with the
SEC. Our investor relations website is located at http://investors.twilio.com.
The SEC also maintains a website that contains periodic and current reports,
proxy statements and other information about issuers, like us, that file
electronically with the SEC. The address of that website is www.sec.gov.

We webcast our earnings calls and certain events we participate in or host with
members of the investment community on our investor relations website.
Additionally, we provide notifications of news or announcements regarding our
financial performance, including SEC filings, investor events, press and
earnings releases, and blogs as part of our investor relations website. Further
corporate governance information, including our corporate governance guidelines
and code of business conduct and ethics, is also available on our investor
relations website under the heading "Governance." The contents of our websites
are not intended to be incorporated by reference into this Quarterly Report on
Form 10-Q or in any other report or document we file with the SEC, and any
references to our websites are intended to be inactive textual references only.

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