TWLO Twilio Inc

Q3 Total Revenue of $71.5 million, up 62% year-over-year

Q3 Base Revenue of $64.1 million, up 75% year-over-year

Q3 Dollar-Based Net Expansion Rate of 155%

Twilio Inc. (NYSE: TWLO), the leading Cloud Communications Platform company, today reported financial results for its third quarter ended September 30, 2016.

“We are pleased that our third quarter results demonstrated further success with both new and existing customers,” said Jeff Lawson, Twilio’s Co-Founder and Chief Executive Officer. “We continued to set the pace of innovation with multiple product launches during the quarter, including new subscription offerings - Voice Insights and the Twilio Enterprise Plan.”

Third Quarter 2016 Financial Highlights

• Total revenue of $71.5 million for the third quarter of 2016, up 62% from the third quarter of 2015 and 11% sequentially from the second quarter of 2016.
• Base revenue of $64.1 million for the third quarter of 2016, up 75% from the third quarter of 2015 and 14% sequentially from the second quarter of 2016.
• GAAP loss from operations of $11.3 million for the third quarter of 2016, compared with GAAP loss from operations of $8.9 million for the third quarter of 2015. Non-GAAP loss from operations of $3.4 million for the third quarter of 2016, compared with non-GAAP net loss from operations of $4.6 million for the third quarter of 2015.
• 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, compared with GAAP net loss per share attributable to common stockholders of $0.70 based on 17.8 million weighted average shares outstanding in the third quarter of 2015.
• Non-GAAP net loss per share attributable to common stockholders of $0.04 based on 83.9 million non-GAAP weighted average shares outstanding in the third quarter of 2016, compared with non-GAAP net loss per share attributable to common stockholders of $0.07 based on 71.7 million non-GAAP weighted average shares outstanding in the third quarter of 2015.

Key Metrics and Recent Business Highlights

• 34,457 Active Customer Accounts as of September 30, 2016, compared to 23,822 Active Customer Accounts as of September 30, 2015.
• Dollar-Based Net Expansion Rate was 155% for the third quarter of 2016, compared to 156% for the third quarter of 2015.
• Announced the Twilio Enterprise Plan, a new subscription product that provides advanced security, access management and granular administration aimed at meeting the needs of large, complex organizations.
• Entered into a definitive agreement to acquire the proprietary WebRTC media processing technologies built by the team behind the popular Kurento Open Source Project to accelerate the roadmap for Twilio Programmable Video. The acquisition is expected to close in the fourth quarter of fiscal 2016.
• Introduced Voice Insights, an analytics product delivering API accessible network and device metrics that provides our customers the operational visibility needed to manage their voice applications globally with confidence.
• Expanded our SIGNAL conference to London in order to further engage developers across Europe.
• Completed a follow-on offering for a total of 8,050,000 shares, including 6,358,778 from selling shareholders and 1,691,222 from Twilio.

Outlook

Twilio is providing guidance for the fourth quarter and full year ending December 31, 2016 as follows:

Quarter ending December 31, 2016:             Total Revenue (millions)   $ 72.5   to   $ 74.5 Base Revenue (millions) $ 68.0 to $ 69.0 Non-GAAP loss from operations (millions) $ 5.5 to $ 4.5 Non-GAAP net loss per share $ 0.06 to $ 0.05 Weighted average shares outstanding 86.0     Full year ending December 31, 2016:             Total Revenue (millions) $ 268.0 to $ 270.0 Base Revenue (millions) $ 238.5 to $ 239.5 Non-GAAP loss from operations (millions) $ 18.0 to $ 17.0 Non-GAAP net loss per share $ 0.23 to $ 0.21 Non-GAAP weighted average shares outstanding 79.0  

Conference Call Information

Twilio will host a conference call today, November 3, 2016, to discuss third quarter 2016 financial results 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 (877) 201-0168, or +1 (647) 788-4901 (outside the U.S. and Canada). The conference ID is 91255647. Following the completion of the call through 11:59 PM Eastern Time on November 10, 2016, a replay will be available by dialing (855) 859-2056 or +1 (404) 537-3406 (outside the U.S. and Canada) and entering passcode 91255647. 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 650 employees, with headquarters in San Francisco and other offices in Bogotá, Dublin, Hong Kong, London, Madrid, Mountain View, Munich, New York City, Singapore and Tallinn.

Forward-Looking Statements

This press release 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, 2016 and full year ending December 31, 2016; Twilio’s expectation that it will complete the acquisition of the proprietary WebRTC media processing technologies built by the team behind the Kurento Open Source Project in the fourth quarter of 2016 (the “Kurento transaction”); and Twilio’s expectations regarding its products and solutions, including its ability to attract and retain customers. 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; the ability of parties to the Kurento transaction to close the transaction, either in the fourth quarter or at all; 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 limited operating history, which makes it difficult to evaluate its prospects and future operating results; Twilio’s ability to effectively manage its growth; the market in which Twilio operates is intensely competitive, and Twilio may not continue to compete effectively.

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 final prospectus filed on October 21, 2016 and Form 10-Q for the quarterly period ended June 30, 2016 filed on August 9, 2016. 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 were 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, non-GAAP net loss per share attributable to common stockholders, basic and diluted, and non-GAAP weighted-average shares used to compute non-GAAP net loss per share attributable to common stockholders, basic and diluted.

Non-GAAP Gross Profit and Non-GAAP Gross Margin. 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. 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, expenses related to stock repurchases and acquisition-related expenses.

Non-GAAP Loss from Operations and Non-GAAP Operating Margin. 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, expenses related to stock repurchases and acquisition-related expenses.

Non-GAAP Net Loss Attributable to Common Stockholders and Non-GAAP Net Loss Per Share Attributable to Common Stockholders, Basic and Diluted. 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, expenses related to stock repurchases, acquisition-related expenses, deemed dividends to investors in relation to tender offer and, in the case of non-GAAP net loss per share attributable to common stockholders, basic and diluted, amounts attributable to convertible preferred stock.

In order to calculate non-GAAP net loss per share attributable to common stockholders, basic and diluted, Twilio uses a non-GAAP weighted-average share count. Twilio defines non-GAAP weighted-average shares used to compute non-GAAP net loss per share attributable to common stockholders, basic and diluted, as GAAP weighted average shares used to compute net loss per share attributable to common stockholder, basic and diluted, adjusted to reflect the conversion of convertible preferred stock outstanding into Class B common stock as if it had occurred at the beginning of the period.

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 the 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 its 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. 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, 2016   2015 Revenue $ 71,533 $ 44,262 Cost of revenue 31,285   19,602   Gross profit 40,248   24,660   Operating expenses: Research and development 21,106 11,602 Sales and marketing 15,873 12,067 General and administrative 14,545   9,935   Total operating expenses 51,524   33,604   Loss from operations (11,276 ) (8,944 ) Other income (expenses), net 138   (28 ) Loss before provision for income taxes (11,138 ) (8,972 ) Provision for income taxes (116 ) (36 ) Net loss (11,254 ) (9,008 ) Deemed dividend to investors in relation to tender offer -   (3,392 ) Net loss attributable to common stockholders $ (11,254 ) $ (12,400 )   Net loss per share attributable to common stockholders, basic and diluted $ (0.13 ) $ (0.70 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 83,887,901   17,805,486     TWILIO INC. Condensed Consolidated Balance Sheets (In thousands) (Unaudited)               As of   As of September 30, December 31, Assets 2016 2015 Current assets: Cash and cash equivalents $ 252,225 $ 108,835 Accounts receivable, net 29,352 19,094 Prepaid expenses and other current assets 18,266   8,546   Total current assets 299,843 136,475 Restricted cash 8,613 1,170 Property and equipment, net 25,975 14,058 Intangible assets, net 2,560 2,292 Goodwill 3,165 3,165 Other long-term assets 410   356   Total assets $ 340,566   $ 157,516     Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 6,217 $ 2,299 Accrued expenses and other current liabilities 50,541 31,998 Deferred revenue 9,492   6,146   Total current liabilities 66,250 40,443 Other long-term liabilities 10,042   448   Total liabilities 76,292   40,891   Commitments and contingencies Stockholders’ equity: Convertible preferred stock - 239,911 Common stock 85 17 Additional paid-in capital 438,311 22,103 Accumulated deficit (174,122 ) (145,406 ) Total stockholders’ equity 264,274   116,625   Total liabilities and stockholders’ equity $ 340,566   $ 157,516     TWILIO INC. Condensed Consolidated Statements of Cash Flow (In thousands) (Unaudited)               Nine Months Ended September 30, 2016   2015 Operating Activities: Net loss $ (28,716 ) $ (27,244 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization 5,292 2,816 Stock-based compensation 15,649 5,808 Provision for doubtful accounts 1,017 322 Tax benefit related to acquisition - (108 ) Write-off of internally developed software 188 87 Changes in assets and liabilities: Accounts receivable (11,275 ) (8,321 ) Prepaid expenses and other current assets (11,561 ) 424 Other long-term assets (59 ) (81 ) Accounts payable 2,317 1,104 Accrued expenses and other current liabilities 18,625 9,628 Deferred revenue 3,346 1,362 Other long-term liabilities 9,596   (157 ) Net cash provided by (used in) operating activities $ 4,419   $ (14,360 )   Investing Activities: Increase in restricted cash (7,439 ) - Capitalized software development costs (8,447 ) (6,080 ) Purchases of property and equipment (5,282 ) (1,243 ) Purchases of intangible assets (646 ) (353 ) Acquisitions, net of cash acquired -   (1,761 ) Net cash used in investing activities $ (21,814 ) $ (9,437 )   Financing Activities: Proceeds from initial public offering, net of underwriting discounts 160,426 - Payments of costs related to initial public offering (3,936 ) - Net proceeds from issuance of convertible preferred stock - 125,863 Proceeds from exercises of stock options 4,753 2,102 Value of equity awards withheld for tax liabilities (518 ) - Tax benefit related to stock-based compensation 62 - Repurchases of common stock (2 ) (20,801 ) Net cash provided by financing activities $ 160,785   $ 107,164     Net increase in cash and cash equivalents 143,390 83,367 Cash and cash equivalents at beginning of period 108,835   32,627   Cash and cash equivalents at end of period $ 252,225   $ 115,994     TWILIO INC. Reconciliation to Non-GAAP Financial Measures (In thousands, except share and per share amounts) (Unaudited)   Three Months Ended September 30, 2016   2015   Gross profit $ 40,248 $ 24,660 Non-GAAP adjustments: Stock-based compensation 84 17 Amortization of acquired intangibles 70   70   Non-GAAP gross profit $ 40,402   $ 24,747     Non-GAAP gross margin 56 % 56 %   Research and development $ 21,106 $ 11,602 Non-GAAP adjustments: Stock-based compensation (3,741 ) (980 ) Amortization of acquired intangibles (38 ) (38 ) Stock repurchase -   (834 ) Non-GAAP research and development $ 17,327   $ 9,750     Non-GAAP research and development as % of revenue 24 % 22 %   Sales and marketing $ 15,873 $ 12,067 Non-GAAP adjustments: Stock-based compensation (1,432 ) (691 ) Stock repurchase -   (76 ) Non-GAAP sales and marketing $ 14,441   $ 11,300     Non-GAAP sales and marketing as % of revenue 20 % 26 %   General and administrative $ 14,545 $ 9,935 Non-GAAP adjustments: Stock-based compensation (2,391 ) (553 ) Amortization of acquired intangibles (28 ) (27 ) Stock repurchase - (1,055 ) Acquisition related expenses (137 ) -   Non-GAAP general and administrative $ 11,989   $ 8,300     Non-GAAP general and administrative as % of revenue 17 % 19 %   Loss from Operations and margin $ (11,276 ) $ (8,944 ) Non-GAAP adjustments: Stock-based compensation 7,648 2,241 Amortization of acquired intangibles 136 135 Stock repurchase - 1,965 Acquisition related expenses 137   -   Non-GAAP loss from operations $ (3,355 ) $ (4,603 )   Non-GAAP operating margin -5 % -10 %   TWILIO INC. Reconciliation to Non-GAAP Financial Measures (In thousands, except share and per share amounts)   Three Months Ended (Unaudited) September 30, 2016   2015 Net loss attributable to common stockholders $ (11,254 ) $ (12,400 ) Non-GAAP adjustments: Stock-based compensation 7,648 2,241 Amortization of acquired intangibles 136 135 Stock repurchase - 1,965 Acquisition related expenses 137 - Deemed dividend to investors in relation to tender offer -   3,392   Non-GAAP net loss attributable to common stockholders $ (3,333 ) $ (4,667 )   Non-GAAP net loss attributable to common stockholders as % of revenue -5 % -11 %     Net loss per share attributable to common stockholders, basic and diluted $ (0.13 ) $ (0.70 ) Non-GAAP adjustments: Stock-based compensation 0.09 0.13 Amortization of acquired intangibles 0.00 0.01 Stock repurchase - 0.11 Acquisition related expenses 0.00 - Deemed dividend to investors in relation to tender offer - 0.19 Convertible preferred stock -   0.19   Non-GAAP net loss per share attributable to common stockholders, basic and diluted $ (0.04 ) $ (0.07 )    

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

83,887,901   17,805,486    

Weighted-average shares of convertible preferred stock issued and outstanding

-   53,850,410     Non-GAAP weighted-average shares used to compute Non-GAAP net loss per share attributable to common stockholders, basic and diluted 83,887,901   71,655,896     TWILIO INC. Key Metrics (Unaudited)    

Three Months Ended

March 31,     June 30,     Sept. 30,     Dec. 31,     March 31,     June 30,     Sept. 30, 2015 2015 2015 2015 2016 2016 2016   Number of Active Customers (as of end date of period) 19,340 21,226 23,822 25,347 28,648 30,780 34,457 Base Revenue (in thousands) $25,931 $30,694 $36,729 $43,497 $49,834 $56,370 $64,099 Base Revenue Growth Rate 70% 75% 77% 97% 92% 84% 75% Dollar-Based Net Expansion Rate 145% 149% 156% 172% 170% 164% 155%

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Twilio Inc.Investor Contact:Greg Kleinerir@Twilio.comorMedia Contact:Kay Kintonpress@Twilio.com