Twilio Announces Third Quarter 2017 Results

Q3 Total Revenue of $100.5 million, up 41% year-over-year

Q3 Base Revenue of $92.0 million, up 43% year-over-year

Q3 Dollar-Based Net Expansion Rate of 122%

SAN FRANCISCO--()--Twilio Inc. (NYSE: TWLO), the leading Cloud Communications Platform company, today reported financial results for its third quarter ended September 30, 2017.

We hit a number of exciting milestones in Q3, including our first $100 million revenue quarter, our first enterprise license agreement for our higher level software products, and the launch of Twilio Studio,” said Jeff Lawson, Twilio’s Co-Founder and Chief Executive Officer. “With Twilio Studio, the visual builder for Twilio, we can accelerate our customers’ roadmaps and help an even larger set of users build on our platform. We are excited by the size, scale and diversity of what new and existing customers are creating with Twilio.”

Third Quarter 2017 Financial Highlights

  • Total revenue of $100.5 million for the third quarter of 2017, up 41% from the third quarter of 2016 and 5% sequentially from the second quarter of 2017.
  • Base revenue of $92.0 million for the third quarter of 2017, up 43% from the third quarter of 2016 and 5% sequentially from the second quarter of 2017.
  • GAAP loss from operations of $24.0 million for the third quarter of 2017, compared with GAAP loss from operations of $11.3 million for the third quarter of 2016. Non-GAAP loss from operations of $7.7 million for the third quarter of 2017, compared with non-GAAP loss from operations of $3.4 million for the third quarter of 2016.
  • GAAP net loss per share attributable to common stockholders of $0.25 based on 92.2 million weighted average shares outstanding in the third quarter of 2017, compared with GAAP net loss per share attributable to common stockholders of $0.13 based on 83.9 million weighted average shares outstanding in the third quarter of 2016.
  • Non-GAAP net loss per share attributable to common stockholders of $0.08 based on 92.2 million weighted average shares outstanding in the third quarter of 2017, compared with non-GAAP net loss per share attributable to common stockholders of $0.04 based on 83.9 million weighted average shares outstanding in the third quarter of 2016.

Key Metrics and Recent Business Highlights

  • 46,489 Active Customer Accounts as of September 30, 2017, compared to 34,457 Active Customer Accounts as of September 30, 2016.
  • Dollar-Based Net Expansion Rate was 122% for the third quarter of 2017, compared to 155% for the third quarter of 2016.
  • Gathered developers, executives, and partners from companies around the world to celebrate what they are building on our platform at our second annual Signal London event.
  • Advanced the Twilio Engagement Cloud through the launch of Twilio Studio in preview. Twilio Studio is a drag and drop visual editor designed to both expand the universe of people that can engage with our platform and accelerate their development time.
  • Announced our commitment to meet the new GDPR (General Data Protection Regulation) requirements coming from the EU, using this as an opportunity to raise the bar for data protection worldwide for all of our customers.
  • Expanded the reach of our Super Network by announcing the availability of Twilio phone numbers in more than 100 countries.

Outlook

Twilio is providing guidance for the fourth quarter ending December 31, 2017 and full year ending December 31, 2017 as follows:

         
Quarter ending December 31, 2017:              
Total Revenue (millions) $ 102.5 to $ 104.5
Base Revenue (millions) $ 96.5 to $ 97.5
Non-GAAP loss from operations (millions) $ 6.5 to $ 5.5
Non-GAAP net loss per share 0.06 to 0.05
Weighted average shares outstanding 93.5
 
 
Full year ending December 31, 2017:              
Total Revenue (millions) $ 386.5 to $ 388.5
Base Revenue (millions) $ 356.5 to $ 357.5
Non-GAAP loss from operations (millions) $ 23.0 to $ 22.0
Non-GAAP net loss per share 0.23 to 0.22
Non-GAAP weighted average shares outstanding 92.0

Conference Call Information

Twilio will host a conference call today, November 8, 2017, to discuss third quarter 2017 financial results, as well as the fourth quarter and full year 2017 outlook, at 2 p.m. Pacific Time, 5 p.m. Eastern Time. A live webcast of the conference call, as well as a replay of the call, will be available at https://investors.twilio.com. The conference call can also be accessed by dialing (844) 453-4207, or +1 (647) 253-8638 (outside the U.S. and Canada). The conference ID is 89077229. Following the completion of the call through 11:59 PM Eastern Time on November 15, 2017, a replay will be available by dialing (800) 585-8367 or +1 (416) 621-4642 (outside the U.S. and Canada) and entering passcode 89077229. Twilio has used, and intends to continue to use, its investor relations website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

About Twilio Inc.

Twilio's mission is to fuel the future of communications. Developers and businesses use Twilio to make communications relevant and contextual by embedding messaging, voice, and video capabilities directly into their software applications. Founded in 2008, Twilio has over 900 employees, with headquarters in San Francisco and other offices in Bogotá, Dublin, Hong Kong, London, Madrid, Malmö, Mountain View, Munich, New York City, Singapore and Tallinn.

Forward-Looking Statements

This press release and the accompanying conference call contains forward-looking statements within the meaning of the federal securities laws, 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,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “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 press release include, but are not limited to, statements about: Twilio’s outlook for the quarter ending December 31, 2017 and full year ending December 31, 2017; Twilio’s commitment to comply with the new EU General Data Protection Regulation going into effect in 2018; and Twilio’s expectations regarding its products and solutions. You should not rely upon forward-looking statements as predictions of future events.

The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors that may cause Twilio’s actual results, performance, or achievements to differ materially from those described in the forward-looking statements, including, among other things: adverse changes in general economic or market conditions; changes in the market for communications; Twilio’s ability to adapt its products to meet evolving market and customer demands and rapid technological change; Twilio’s ability to generate sufficient revenues to achieve or sustain profitability; Twilio’s ability to retain customers and attract new customers; Twilio’s limited operating history, which makes it difficult to evaluate its prospects and future operating results; Twilio’s ability to effectively manage its growth; and Twilio’s ability to compete effectively in an intensely competitive market.

The forward-looking statements contained in this press release are also subject to additional risks, uncertainties, and factors, including those more fully described in Twilio’s most recent filings with the Securities and Exchange Commission, including its Form 10-Q for the quarter ended June 30, 2017 filed on August 10, 2017. Further information on potential risks that could affect actual results will be included in the subsequent periodic and current reports and other filings that Twilio makes with the Securities and Exchange Commission from time to time. Moreover, Twilio operates in a very competitive and rapidly changing environment, and new risks and uncertainties may emerge that could have an impact on the forward-looking statements contained in this press release.

Forward-looking statements represent Twilio’s management’s beliefs and assumptions only as of the date such statements are made. Twilio undertakes no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

Use of Non-GAAP Financial Measures

To provide investors and others with additional information regarding Twilio’s results, the following non-GAAP financial measures are disclosed: non-GAAP gross profit and gross margin, non-GAAP operating expenses, non-GAAP loss from operations and operating margin, non-GAAP net loss attributable to common stockholders, and non-GAAP net loss per share attributable to common stockholders, basic and diluted.

Non-GAAP Gross Profit and Non-GAAP Gross Margin. For the periods presented, Twilio defines non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, adjusted to exclude stock-based compensation and amortization of acquired intangibles.

Non-GAAP Operating Expenses. For the periods presented, Twilio defines non-GAAP operating expenses (including categories of operating expenses) as GAAP operating expenses (and categories of operating expenses) adjusted to exclude, as applicable, stock-based compensation, amortization of acquired intangibles, acquisition-related expenses, and payroll taxes related to stock-based compensation.

Non-GAAP Loss from Operations and Non-GAAP Operating Margin. For the periods presented, Twilio defines non-GAAP loss from operations and non-GAAP operating margin as GAAP loss from operations and GAAP operating margin, respectively, adjusted to exclude stock-based compensation, amortization of acquired intangibles, acquisition-related expenses, and payroll taxes related to stock-based compensation.

Non-GAAP Net Loss Attributable to Common Stockholders and Non-GAAP Net Loss Per Share Attributable to Common Stockholders, Basic and Diluted. For the periods presented, Twilio defines non-GAAP net loss attributable to common stockholders and non-GAAP net loss per share attributable to common stockholders, basic and diluted, as GAAP net loss attributable to common stockholders and GAAP net loss per share attributable to common stockholders, basic and diluted, respectively, adjusted to exclude stock-based compensation, amortization of acquired intangibles, acquisition-related expenses, and payroll taxes related to stock-based compensation.

Twilio’s management uses the foregoing non-GAAP financial information, collectively, to evaluate its ongoing operations and for internal planning and forecasting purposes. Twilio’s management believes 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, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. Whenever Twilio uses a non-GAAP financial measure, a reconciliation is provided to the most directly comparable financial measure stated in accordance with GAAP. 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.

With respect to Twilio’s guidance as provided under “Outlook” above, Twilio has not reconciled its expectations as to non-GAAP loss from operations to GAAP loss from operations or non-GAAP net loss per share to GAAP net loss per share because stock-based compensation expense cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.

Operating Metrics

Twilio reviews a number of operating metrics to evaluate its business, measure performance, identify trends, formulate business plans, and make strategic decisions. These include the number of Active Customer Accounts, Base Revenue, and Dollar-Based Net Expansion Rate.

Number of Active Customer Accounts. Twilio believes that the number of Active Customer Accounts is an important indicator of the growth of its business, the market acceptance of its platform and future revenue trends. Twilio defines an Active Customer Account at the end of any period as an individual account, as identified by a unique account identifier, for which Twilio has recognized at least $5 of revenue in the last month of the period. Twilio believes that use of its platform by customers at or above the $5 per month threshold is a stronger indicator of potential future engagement than trial usage of its platform or usage at levels below $5 per month. 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.

Base Revenue. Twilio monitors Base Revenue as one of the more reliable indicators of future revenue trends. Base Revenue consists of all revenue other than revenue from large Active Customer Accounts that have never entered into 12-month minimum revenue commitment contracts with Twilio, which the Company refers to as Variable Customer Accounts. While almost all of Twilio’s customers exhibit some level of variability in the usage of its products, based on the experience of Twilio’s management, Twilio believes that Variable Customer Accounts are more likely to have significant fluctuations in usage of its products from period to period, and therefore that revenue from Variable Customer Accounts may also fluctuate significantly from period to period. This behavior is best evidenced by the decision of such customers not to enter into contracts with Twilio that contain minimum revenue commitments, even though they may spend significant amounts on the use of the Company’s products and they may be foregoing more favorable terms often available to customers that enter into committed contracts with Twilio. This variability adversely affects Twilio’s ability to rely upon revenue from Variable Customer Accounts when analyzing expected trends in future revenue.

For historical periods through March 31, 2016, Twilio defined a Variable Customer Account as an Active Customer Account that (i) had never signed a minimum revenue commitment contract with the Company for a term of at least 12 months and (ii) has met or exceeded 1% of the Company’s revenue in any quarter in the periods presented through March 31, 2016. To allow for consistent period-to-period comparisons, in the event a customer qualified as a Variable Customer Account as of March 31, 2016, or a previously Variable Customer Account ceased to be an Active Customer Account as of such date, Twilio included such customer as a Variable Customer Account in all periods presented. For reporting periods starting with the three months ended June 30, 2016, Twilio defines a Variable Customer Account as a customer account that (a) has been categorized as a Variable Customer Account in any prior quarter, as well as (b) any new customer account that (i) has never signed a minimum revenue commitment contract with Twilio for a term of at least 12 months and (ii) meets or exceeds 1% of the Company’s revenue in a quarter. Once a customer account is deemed to be a Variable Customer Account in any period, they remain a Variable Customer Account in subsequent periods unless they enter into a minimum revenue commitment contract with Twilio for a term of at least 12 months.

Dollar-Based Net Expansion Rate. Twilio’s ability to drive growth and generate incremental revenue depends, in part, on the Company’s ability to maintain and grow its relationships with existing Active Customer Accounts and to increase their use of the platform. An important way in which Twilio tracks its performance in this area is by measuring the Dollar-Based Net Expansion Rate for Active Customer Accounts, other than Variable Customer Accounts. Twilio’s 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. Twilio’s Dollar-Based Net Expansion Rate decreases when such Active Customer Accounts cease or reduce their usage of a product or when the Company lowers 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, for reporting periods starting with the three months ended December 31, 2016, 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. Twilio believes that measuring Dollar-Based Net Expansion Rate on revenue generated from Active Customer Accounts, other than Variable Customer Accounts, provides a more meaningful indication of the performance of the Company’s efforts to increase revenue from existing customer accounts.

Twilio’s Dollar-Based Net Expansion Rate compares the revenue from Active Customer Accounts, other than Variable Customer Accounts, in a quarter to the same quarter in the prior year. To calculate the Dollar-Based Net Expansion Rate, the Company first identifies the cohort of Active Customer Accounts, other than Variable 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 Twilio calculates Dollar-Based Net Expansion Rate for periods longer than one quarter, it uses the average of the applicable quarterly Dollar-Based Net Expansion Rates for each of the quarters in such period.

Source: Twilio Inc.

TWILIO INC.        
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
September 30,
2017   2016  
Revenue $ 100,542 $ 71,533
Cost of revenue 48,254   31,285  
Gross profit 52,288   40,248  
Operating expenses:
Research and development 31,674 21,106
Sales and marketing 25,778 15,873
General and administrative 18,867   14,545  
Total operating expenses 76,319   51,524  
Loss from operations (24,031 ) (11,276 )
Other income, net 1,000   138  
Loss before provision for income taxes (23,031 ) (11,138 )
Provision for income taxes (422 ) (116 )
Net loss attributable to common stockholders $ (23,453 ) $ (11,254 )
 
Net loss per share attributable to common stockholders, basic and diluted $ (0.25 ) $ (0.13 )
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 92,156,768   83,887,901  

   
TWILIO INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
  As of As of
September 30, December 31,
Assets 2017 2016
Current assets:
Cash and cash equivalents $ 91,906 $ 305,665
Short-term marketable securities 192,031 -
Accounts receivable, net 37,258 26,203
Prepaid expenses and other current assets 26,420   21,512  
Total current assets 347,615 353,380
Restricted cash 7,450 7,445
Property and equipment, net 47,718 37,552
Intangible assets, net 21,274 10,268
Goodwill 17,407 3,565
Other long-term assets 2,084   484  
Total assets $ 443,548   $ 412,694  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 7,117 $ 4,174
Accrued expenses and other current liabilities 55,283 59,308
Deferred revenue 13,599   10,222  
Total current liabilities 75,999 73,704
Long-term liabilities 12,549   9,543  
Total liabilities 88,548   83,247  
Commitments and contingencies
Stockholders’ equity:
Common stock 93 87
Additional paid-in capital 584,390 516,090
Accumulated other comprehensive income 2,036 -
Accumulated deficit (231,519 ) (186,730 )
Total stockholders’ equity 355,000   329,447  
Total liabilities and stockholders’ equity $ 443,548   $ 412,694  

     
TWILIO INC.
Condensed Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
    Nine Months Ended
September 30,
2017   2016  
Operating Activities:
Net loss $ (44,789 ) $ (28,716 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 13,406 5,292
Amortization of bond premium 153 -
Stock-based compensation 35,973 15,649
Provision for doubtful accounts 407 1,017
Gain on lease termination (295 ) -
Write-off of internally developed software 96 188
Changes in assets and liabilities:
Accounts receivable (9,173 ) (11,275 )
Prepaid expenses and other current assets (4,947 ) (11,561 )
Other long-term assets (1,512 ) (59 )
Accounts payable 1,411 2,317
Accrued expenses and other current liabilities (1,454 ) 18,625
Deferred revenue 3,364 3,346
Long-term liabilities 306   9,596  
Net cash provided by (used in) operating activities $ (7,054 ) $ 4,419  
 
Investing Activities:
(Increase) decrease in restricted cash 1,170 (7,439 )
Purchases of marketable securities (280,569 ) -
Maturities of marketable securities 87,325 -
Capitalized software development costs (12,281 ) (8,447 )
Purchases of property and equipment (8,613 ) (5,282 )
Purchases of intangible assets (206 ) (646 )
Acquisition, net of cash acquired (22,621 ) -  
Net cash used in investing activities $ (235,795 ) $ (21,814 )
 
Financing Activities:
Proceeds from initial public offering, net of underwriting discounts - 160,426
Payments of costs related to public offerings (430 ) (3,936 )
Proceeds from exercises of stock options 22,504 4,751
Proceeds from shares issued in ESPP 7,404 -
Tax benefit related to stock-based compensation - 62
Value of equity awards withheld for tax liabilities (476 ) (518 )
Net cash provided by financing activities $ 29,002   $ 160,785  
 
Effect of exchange rate changes on cash and cash equivalents 88 -
 
Net increase (decrease) in cash and cash equivalents (213,759 ) 143,390
Cash and cash equivalents at beginning of period 305,665   108,835  
Cash and cash equivalents at end of period $ 91,906   $ 252,225  

     
TWILIO INC.
Reconciliation to Non-GAAP Financial Measures
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
September 30,
2017   2016  
 
Gross profit $ 52,288 $ 40,248
Non-GAAP adjustments:
Stock-based compensation 180 84
Amortization of acquired intangibles 1,250   70  
Non-GAAP gross profit $ 53,718   $ 40,402  
 
Non-GAAP gross margin 53 % 56 %
 
Research and development $ 31,674 $ 21,106
Non-GAAP adjustments:
Stock-based compensation (6,493 ) (3,741 )
Amortization of acquired intangibles (25 ) (38 )
Payroll taxes related to stock-based compensation (315 ) -  
Non-GAAP research and development $ 24,841   $ 17,327  
 
Non-GAAP research and development as % of revenue 25 % 24 %
 
Sales and marketing $ 25,778 $ 15,873
Non-GAAP adjustments:
Stock-based compensation (2,603 ) (1,432 )
Amortization of acquired intangibles (220 ) -
Payroll taxes related to stock-based compensation (148 ) -  
Non-GAAP sales and marketing $ 22,807   $ 14,441  
 
Non-GAAP sales and marketing as % of revenue 23 % 20 %
 
General and administrative $ 18,867 $ 14,545
Non-GAAP adjustments:
Stock-based compensation (4,912 ) (2,391 )
Amortization of acquired intangibles (20 ) (28 )
Acquisition related expenses (35 ) (137 )
Payroll taxes related to stock-based compensation (132 ) -  
Non-GAAP general and administrative $ 13,768   $ 11,989  
 
Non-GAAP general and administrative as % of revenue 14 % 17 %
 
Loss from operations and margin $ (24,031 ) $ (11,276 )
Non-GAAP adjustments:
Stock-based compensation 14,188 7,648
Amortization of acquired intangibles 1,515 136
Acquisition related expenses 35 137
Payroll taxes related to stock-based compensation 595   -  
Non-GAAP loss from operations $ (7,698 ) $ (3,355 )
 
Non-GAAP operating margin (8 %) (5 %)

     

TWILIO INC.

Reconciliation to Non-GAAP Financial Measures

(In thousands, except share and per share amounts)

 

Three Months Ended

(Unaudited)

 

September 30,

2017

 

2016

 

Net loss attributable to common stockholders

$

(23,453

)

$

(11,254

)

Non-GAAP adjustments:
Stock-based compensation 14,188 7,648
Amortization of acquired intangibles 1,515 136
Acquisition related expenses 35 137
Payroll taxes related to stock-based compensation 595   -  
Non-GAAP net loss attributable to common stockholders $ (7,120 ) $ (3,333 )
 

Non-GAAP net loss attributable to common stockholders as % of revenue

(7 %) (5 %)
 
 

Net loss per share attributable to common stockholders, basic and diluted*

$ (0.25 ) $ (0.13 )
Non-GAAP adjustments:
Stock-based compensation 0.15 0.09
Amortization of acquired intangibles 0.02 0.00
Acquisition related expenses 0.00 0.00
Payroll taxes related to stock-based compensation 0.01   -  
Non-GAAP net loss per share attributable to common stockholders, basic and diluted $ (0.08 ) $ (0.04 )
 
 

Weighted-average shares used to compute Non-GAAP net loss per share attributable to common stockholders, basic and diluted

92,156,768 83,887,901
 
* Some columns may not add due to rounding

     
 
 
TWILIO INC.
Key Metrics
(Unaudited)
 
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
  2016     2016     2016     2016     2017     2017     2017  
 
Number of Active Customers (as of period end date) 28,648 30,780 34,457 36,606 40,696 43,431 46,489
Base Revenue (in thousands) $ 49,834 $ 56,370 $ 64,099 $ 75,245 $ 80,643 $ 87,583 $ 91,965
Base Revenue Growth Rate 92 % 84 % 75 % 73 % 62 % 55 % 43 %
Dollar-Based Net Expansion Rate 170 % 164 % 155 % 155 % 141 % 131 % 122 %

Contacts

Twilio Inc.
Investor Contact:
Greg Kleiner
ir@Twilio.com
or
Media Contact:
Caitlin Epstein
press@Twilio.com

Contacts

Twilio Inc.
Investor Contact:
Greg Kleiner
ir@Twilio.com
or
Media Contact:
Caitlin Epstein
press@Twilio.com