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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-Q
_____________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended September 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-37806
_____________________________________________
TWLO-20210930_G1.JPG
TWILIO INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware 26-2574840
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
101 Spear Street, First Floor
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
(415) 390-2337
(Registrant’s telephone number, including area code)

____________________________________________
Securities registered pursuant to Section 12(b) of the act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share TWLO The New York Stock Exchange
As of October 22, 2021, 168,448,610 shares of the registrant’s Class A common stock and 9,880,181 shares of registrant’s Class B common stock were outstanding.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
    Emerging growth company

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




TWILIO INC.
Quarterly Report on Form 10-Q
For the Three Months Ended September 30, 2021
TABLE OF CONTENTS
Page
4
4
5
6
7


1



Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
the impact of the coronavirus disease of 2019 (“COVID-19”) pandemic on the global economy, our customers, employees and business;
our future financial performance, including our revenue, cost of revenue, gross margin and operating expenses, ability to generate positive cash flow and ability to achieve and sustain profitability;
anticipated technology trends, such as the use of and demand for cloud communications;
our ability to continue to build and maintain credibility with the global software developer community;
our ability to attract and retain customers to use our products;
the evolution of technology affecting our products and markets;
our ability to introduce new products and enhance existing products;
our ability to comply with modified or new industry standards, laws and regulations applying to our business, including the General Data Protection Regulation (“GDPR”), the Schrems II decision invalidating the EU-US Privacy Shield, the California Consumer Privacy Act of 2018 (“CCPA”) and other privacy or cybersecurity regulations that may be implemented in the future, and Signature-based Handling of Asserted Information Using toKENs (“SHAKEN”) and Secure Telephone Identity Revisited (“STIR”) standards (together, “SHAKEN/STIR”) and other robocalling prevention and anti-spam standards and increased costs associated with such compliance;
potential harm caused by compromises in security, data and infrastructure, including cybersecurity protections, investments and resources and costs required to prevent, detect and remediate potential cybersecurity threats, incidents and breaches of ours or our customers’ systems or information;
our ability to optimize our network service provider coverage and connectivity;
our ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on our platform;
our ability to work closely with email inbox service providers to maintain deliverability rates;
our ability to pass on our savings associated with our platform optimization efforts to our customers;
the impact and expected results from changes in our relationships with our larger customers;
our ability to attract and retain enterprises and international organizations as customers for our products;
our ability to form and expand partnerships with technology partners and consulting partners;
our ability to successfully enter into new markets and manage our international expansion;
the attraction and retention of qualified employees and key personnel;
our ability to effectively manage our growth and future expenses and maintain our corporate culture;

2



our ability to compete effectively in an intensely competitive market;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
our anticipated investments in sales and marketing, research and development and additional systems and processes to support our growth;
our ability to maintain, protect and enhance our intellectual property;
our ability to successfully defend litigation brought against us;
our ability to service the interest on our 3.625% senior notes due 2029 (“2029 Notes”), our 3.875% notes due 2031 (“2031 Notes,” and together with the 2029 Notes, the “Notes”), and repay such Notes;
our customers and other platform users violation of our policies or other misuse of our platform;
our expectations about the impact of natural disasters and public health epidemics, such as COVID-19 on our business, results of operations and financial condition and on our customers, employees, vendors and partners; and
our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Summary of Risk Factors and Uncertainties Associated with Our Business” below, in Part II, Item 1A, “Risk Factors”, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

3



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
TWILIO INC.
Condensed Consolidated Balance Sheets
(Unaudited)
As of As of
September 30, December 31,
2021 2020
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 1,497,498  $ 933,885 
Short-term marketable securities 3,896,754  2,105,906 
Accounts receivable, net 345,793  251,167 
Prepaid expenses and other current assets 165,760  81,377 
Total current assets 5,905,805  3,372,335 
Property and equipment, net 237,241  183,239 
Operating right-of-use asset 248,582  258,610 
Intangible assets, net 1,102,599  966,573 
Goodwill 5,263,051  4,595,394 
Other long-term assets 219,569  111,282 
Total assets $ 12,976,847  $ 9,487,433 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 76,293  $ 60,042 
Accrued expenses and other current liabilities 368,683  252,895 
Deferred revenue and customer deposits 121,337  87,031 
Operating lease liability, current 50,760  48,338 
Total current liabilities 617,073  448,306 
Operating lease liability, noncurrent 223,033  229,905 
Finance lease liability, noncurrent 20,254  17,856 
Long-term debt 985,547  302,068 
Other long-term liabilities 49,191  36,633 
Total liabilities 1,895,098  1,034,768 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock —  — 
Class A and Class B common stock 178  164 
Additional paid-in capital 12,910,271  9,613,246 
Accumulated other comprehensive income (405) 9,046 
Accumulated deficit (1,828,295) (1,169,791)
Total stockholders’ equity 11,081,749  8,452,665 
Total liabilities and stockholders’ equity $ 12,976,847  $ 9,487,433 
See accompanying notes to condensed consolidated financial statements.

4



TWILIO INC.
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands, except share and per share amounts)
Revenue $ 740,176  $ 447,969  $ 1,999,095  $ 1,213,686 
Cost of revenue 375,561  217,095  1,004,929  580,146 
Gross profit 364,615  230,874  994,166  633,540 
Operating expenses:
Research and development 209,890  136,652  565,970  371,692 
Sales and marketing 264,548  140,875  713,196  387,420 
General and administrative 122,522  65,617  346,958  182,038 
Total operating expenses 596,960  343,144  1,626,124  941,150 
Loss from operations (232,345) (112,270) (631,958) (307,610)
Other expenses, net (6,613) (3,996) (39,219) (2,099)
Loss before benefit (provision) for income taxes (238,958) (116,266) (671,177) (309,709)
Benefit (provision) for income taxes 14,849  (648) 12,673  (1,919)
Net loss attributable to common stockholders $ (224,109) $ (116,914) $ (658,504) $ (311,628)
Net loss per share attributable to common stockholders, basic and diluted $ (1.26) $ (0.79) $ (3.82) $ (2.18)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 177,231,285  147,501,075  172,605,371  142,832,021 
See accompanying notes to condensed consolidated financial statements.


5



TWILIO INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Net loss $ (224,109) $ (116,914) $ (658,504) $ (311,628)
Other comprehensive (loss) income:
Unrealized (loss) gain on marketable securities (982) (3,021) (6,137) 5,499 
Foreign currency translation 31  —  (245) — 
Net change in market value of effective foreign currency forward exchange contracts (161) —  (3,069) — 
Total other comprehensive (loss) income (1,112) (3,021) (9,451) 5,499 
Comprehensive loss attributable to common stockholders $ (225,221) $ (119,935) $ (667,955) $ (306,129)
See accompanying notes to condensed consolidated financial statements.

6





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


Common Stock
Class A
Common Stock
Class B
Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity
Shares Amount Shares Amount
(In thousands, except share amounts)
Balance as of December 31, 2020 153,496,222  $ 151  10,551,302  $ 13  $ 9,613,246  $ 9,046  $ (1,169,791) $ 8,452,665 
Net loss —  —  —  —  —  —  (206,542) (206,542)
Exercises of vested stock options 248,008  —  211,371  —  11,564  —  —  11,564 
Vesting of restricted stock units 913,966  —  —  (1) —  —  — 
Value of equity awards withheld for tax liability (6,989) —  —  —  (2,774) —  —  (2,774)
Conversion of shares of Class B common stock into shares of Class A common stock 419,371  —  (419,371) —  —  —  —  — 
Equity component from partial settlement of 2023 convertible
senior notes
1,158,381  —  —  80,047  —  —  80,049 
Donated common stock 22,102  —  —  —  9,405  —  —  9,405 
Issuance of common stock in connection with a follow-on public offering, net of underwriter discounts 4,312,500  —  —  1,766,396  —  —  1,766,400 
Costs related to the follow-on public offering —  —  —  —  (727) —  —  (727)
Issuance of restricted stock awards 24,697  —  —  —  —  —  —  — 
Unrealized loss on marketable securities —  —  —  —  —  (4,176) —  (4,176)
Foreign currency translation —  —  —  —  —  (210) —  (210)
Stock-based compensation —  —  —  —  141,542  —  —  141,542 
Balance as of March 31, 2021 160,588,258  $ 158  10,343,302  $ 13  $ 11,618,698  $ 4,660  $ (1,376,333) $ 10,247,196 
Net loss —  —  —  —  —  —  (227,853) (227,853)
Exercises of vested stock options 294,430  —  63,164  —  20,351  —  —  20,351 
Vesting of restricted stock units 839,472  —  —  (1) —  —  — 
Value of equity awards withheld for tax liability (5,498) —  —  —  (1,882) —  —  (1,882)
Conversion of shares of Class B common stock into shares of Class A common stock 188,044  (188,044) (1) —  —  —  — 
Equity component from partial settlement of 2023 convertible
senior notes
3,688,584  —  —  255,590  —  —  255,594 
Settlement of capped call, net of related costs —  —  —  —  225,233  —  —  225,233 
Shares issued under ESPP 100,107  —  —  —  23,699  —  —  23,699 
Donated common stock 22,102  —  —  —  6,789  —  —  6,789 
Costs related to the follow-on public offering —  —  —  —  (50) —  —  (50)
Unrealized loss on marketable securities —  —  —  —  —  (979) —  (979)
Foreign currency translation —  —  —  —  —  (66) —  (66)
Net change in market value of effective foreign currency forward exchange contracts —  —  —  —  —  (2,908) —  (2,908)
Stock-based compensation —  —  —  —  148,988  —  —  148,988 
Balance as of June 30, 2021 165,715,499  $ 164  10,218,422  $ 12  $ 12,297,415  $ 707  $ (1,604,186) $ 10,694,112 

7





TWILIO INC.
Condensed Consolidated Statements of Stockholders Equity, continued
(Unaudited)
Common Stock
Class A
Common Stock
Class B
Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity
Shares Amount Shares Amount
(In thousands, except share amounts)
Balance as of June 30, 2021 165,715,499  $ 164  10,218,422  $ 12  $ 12,297,415  $ 707  $ (1,604,186) $ 10,694,112 
Net loss —  —  —  —  —  —  (224,109) (224,109)
Exercises of vested stock options 222,066  —  83,484  —  15,993  —  —  15,993 
Vesting of restricted stock units 834,148  —  —  (1) —  —  — 
Value of equity awards withheld for tax liability (5,530) —  —  —  (1,896) —  —  (1,896)
Conversion of shares of Class B common stock into shares of Class A common stock 388,725  —  (388,725) —  —  —  —  — 
Donated common stock 22,102  —  —  —  8,389  —  —  8,389 
Cost adjustments related to the follow-on public offering —  —  —  —  90  —  —  90 
Shares issued in acquisition 1,116,390  —  —  419,036  —  —  419,037 
Value of equity awards assumed in acquisition —  —  —  —  1,511  —  —  1,511 
Shares issued in acquisition subject to future vesting 59,533  —  —  —  —  —  —  — 
Unrealized loss on marketable securities —  —  —  —  —  (982) —  (982)
Foreign currency translation —  —  —  —  —  31  —  31 
Net change in market value of effective foreign currency forward exchange contracts —  —  —  —  —  (161) —  (161)
Stock-based compensation —  —  —  —  169,734  —  —  169,734 
Balance as of September 30, 2021 168,352,933  $ 166  9,913,181  $ 12  $ 12,910,271  $ (405) $ (1,828,295) $ 11,081,749 
See accompanying notes to condensed consolidated financial statements.

8





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

9





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

Nine Months Ended
September 30,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net loss $ (658,504) $ (311,628)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization 189,669  98,070 
Non-cash reduction to the right-of-use asset 36,249  27,240 
Net amortization of investment premium and discount 24,880  2,909 
Amortization of debt discount and issuance costs 5,457  18,432 
Stock-based compensation 445,366  237,822 
Amortization of deferred commissions 20,798  8,556 
Tax benefit related to release of valuation allowance (15,569) (716)
Allowance for credit losses 11,371  8,417 
Value of donated common stock 24,583  12,430 
Loss on extinguishment of debt 28,965  3,155 
Other adjustments 8,626  (142)
Changes in operating assets and liabilities:
Accounts receivable (81,186) (58,340)
Prepaid expenses and other current assets (59,929) (8,733)
Other long-term assets (66,501) (64,777)
Accounts payable (8,665) 86 
Accrued expenses and other current liabilities 84,730  59,594 
Deferred revenue and customer deposits 27,004  7,799 
Operating lease liabilities (36,274) (25,161)
Other long-term liabilities (1,019) 2,740 
Net cash (used in) provided by operating activities (19,949) 17,753 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired and other related payments (490,880) (2,786)
Purchases of marketable securities and other investments (3,225,799) (1,465,158)
Proceeds from sales and maturities of marketable securities 1,334,444  892,365 
Capitalized software development costs (35,926) (26,114)
Purchases of long-lived and intangible assets (33,575) (19,252)
Net cash used in investing activities (2,451,736) (620,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from a public equity offering 1,766,400  1,408,750 
Payments of costs related to public offerings (464) (433)
Proceeds from issuance of senior notes 987,500  — 
Payments of debt issuance costs (2,751) — 
Proceeds from settlement of capped call, net of settlement costs 228,412  — 
Principal payments on debt and finance leases (4,852) (6,688)
Proceeds from exercises of stock options and shares issued in ESPP 71,607  79,157 
Value of equity awards withheld for tax liabilities (6,552) (4,227)
Net cash provided by financing activities 3,039,300  1,476,559 
Effect of exchange rate changes on cash, cash equivalents and restricted cash (157) — 
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 567,458  873,367 

10





TWILIO INC.
Condensed Consolidated Statements of Cash Flows, continued
(Unaudited)
Nine Months Ended
September 30,
2021 2020
(In thousands)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 933,885  253,735 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $ 1,501,343  $ 1,127,102 
Cash paid for income taxes, net $ 4,439  $ 1,962 
Cash paid for interest $ 19,545  $ 1,290 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property, equipment and intangible assets, accrued but not paid $ 6,758  $ 1,261 
Purchases of property and equipment through finance leases $ 11,876  $ 15,047 
Value of common stock issued and stock awards assumed in acquisition $ 420,548  $ — 
Value of common stock issued to settle convertible senior notes $ 1,704,969  $ 171,840 
Stock-based compensation capitalized in software development costs $ 14,938  $ 10,711 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents $ 1,497,498  $ 1,127,102 
Restricted cash in other current assets 2,733  — 
Restricted cash in other long-term assets 1,112  — 
Total cash, cash equivalents and restricted cash $ 1,501,343  $ 1,127,102 
See accompanying notes to condensed consolidated financial statements.

11


TWILIO INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. The Company is the leading cloud communications platform and enables developers to build, scale and operate real-time customer engagement within their software applications via simple-to-use Application Programming Interfaces (“API”). The power, flexibility and reliability offered by the Company’s software building blocks empower entities of virtually every shape and size to build world-class engagement into their customer experience.
The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries in Australia, Bermuda, Brazil, Canada, Colombia, Czech Republic, Estonia, France, Germany, Hong Kong, India, Ireland, Japan, Mexico, the Netherlands, Poland, Serbia, Singapore, Spain, Sweden, the United Kingdom and the United States.
2. Summary of Significant Accounting Policies
(a)Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021 (“Annual Report”).
The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date, but may not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2021 or any future period.
(b)Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c)Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, allowances for doubtful accounts and customer credit reserves; recoverability of long-lived and intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments; therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.

12


(d)Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company maintains cash, cash equivalents and marketable securities with financial institutions that management believes are financially sound and have minimal credit risk exposure although the balances will exceed insured limits.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customer deteriorates substantially, the Company’s results of operations could be adversely affected. To reduce credit risk, management performs credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. During the three and nine months ended September 30, 2021 and 2020, no customer organization accounted for more than 10% of the Company’s total revenue.
As of September 30, 2021 and December 31, 2020, no customer organization represented more than 10% of the Company’s gross accounts receivable.
(e)Changes to Significant Accounting Policies

Derivatives and Hedging

The Company is exposed to a wide variety of risks arising from its business operations and overall economic conditions. These risks include exposure to fluctuations in various foreign currencies against its functional currency and can impact the value of cash receipts and payments. The Company minimizes its exposure to these risks through management of its core business activities, specifically, the amounts, sources and duration of its assets and liabilities, and the use of derivative financial instruments. In the second quarter of 2021, the Company started using foreign currency derivative forward contracts and in the future may also use foreign currency option contacts.

Foreign currency derivative forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date. These agreements are typically cash settled in U.S. dollars for their fair value at or close to their settlement date. Foreign currency option contracts will require the Company to pay a premium for the right to sell a specified amount of foreign currency prior to the maturity date of the option. The Company does not enter into derivative financial instruments trading for speculative purposes.

Derivative instruments are carried at fair value and recorded as either an asset or a liability until they mature. Gains and losses resulting from changes in fair value of these instruments are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. For derivative instruments designated as cash flow hedges, gains or losses are initially recorded in other comprehensive income (“OCI”) in the balance sheet, then reclassified into the statement of operations in the period in which the derivative instrument matures. These realized gains and losses are recorded within the same financial statement line item as the hedged transaction.
The Company’s foreign currency derivative contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.
There have been no other changes to the Company’s significant accounting policies as described in its Annual Report.

13


3. Fair Value Measurements
Financial Assets
The following tables provide the financial assets and liabilities measured at fair value on a recurring basis:
Amortized
Cost or
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value Hierarchy as of
September 30, 2021
Aggregate
Fair Value
Level 1 Level 2 Level 3
Financial Assets: (In thousands)
Cash and cash equivalents:
Money market funds $ 1,087,268  $ —  $ —  $ 1,087,268  $ —  $ —  $ 1,087,268 
Commercial paper 74,209  —  —  —  74,209  —  74,209 
Total included in cash and cash equivalents 1,161,477  —  —  1,087,268  74,209  —  1,161,477 
Marketable securities:
U.S. Treasury securities 349,951  73  (353) 349,671  —  —  349,671 
Non-U.S. Government securities 242,258  (249) 242,013  —  —  242,013 
Corporate debt securities and commercial paper 3,302,309  4,141  (1,380) 27,000  3,278,070  —  3,305,070 
Total marketable securities 3,894,518  4,218  (1,982) 618,684  3,278,070  —  3,896,754 
Total financial assets $ 5,055,995  $ 4,218  $ (1,982) $ 1,705,952  $ 3,352,279  $ —  $ 5,058,231 
Financial Liabilities:
Accrued expenses and other current liabilities:
Foreign currency derivative liabilities $ —  $ —  $ (3,069) $ —  $ (3,069) $ —  $ (3,069)
Total financial liabilities $ —  $ —  $ (3,069) $ —  $ (3,069) $ —  $ (3,069)
Amortized
Cost or
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value Hierarchy as of
December 31, 2020
Aggregate
Fair Value
Level 1 Level 2 Level  3
Financial Assets: (In thousands)
Cash and cash equivalents:
Money market funds $ 656,749  $ —  $ —  $ 656,749  $ —  $ —  $ 656,749 
Commercial paper 2,000  —  —  —  2,000  —  2,000 
Total included in cash and cash equivalents 658,749  —  —  656,749  2,000  —  658,749 
Marketable securities:
U.S. Treasury securities 223,247  389  (1) 223,635  —  —  223,635 
Corporate debt securities and commercial paper 1,874,257  8,149  (135) 50,000  1,832,271  —  1,882,271 
Total marketable securities 2,097,504  8,538  (136) 273,635  1,832,271  —  2,105,906 
Total financial assets $ 2,756,253  $ 8,538  $ (136) $ 930,384  $ 1,834,271  $ —  $ 2,764,655 
The Company’s primary objective when investing excess cash is preservation of capital, hence the Company’s marketable securities primarily consist of U.S. Treasury Securities, high credit quality corporate debt securities and commercial paper. As the Company views its marketable securities as available to support current operations, it has classified all available for sale securities as short-term. As of September 30, 2021 and December 31, 2020, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of September 30, 2021 and December 31, 2020, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity.
The Company regularly reviews changes to the rating of its debt securities by rating agencies as well as reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses. As of September 30, 2021, the risk of expected credit losses was not significant.
Interest earned on marketable securities was $16.2 million and $39.5 million in the three and nine months ended September 30, 2021, respectively, and $7.1 million and $23.7 million in the three and nine months ended September 30, 2020, respectively. The interest is recorded as other expenses, net, in the accompanying condensed consolidated statements of operations.

14


The following table summarizes the contractual maturities of marketable securities:
As of September 30, 2021 As of December 31, 2020
Amortized
Cost
Aggregate
Fair Value
Amortized
Cost
Aggregate
Fair Value
Financial Assets: (In thousands)
Less than one year $ 1,119,954  $ 1,121,537  $ 1,126,091  $ 1,128,927 
One to three years 2,774,564  2,775,217  971,413  976,979 
Total $ 3,894,518  $ 3,896,754  $ 2,097,504  $ 2,105,906 
Strategic Investments
As of September 30, 2021 and December 31, 2020, the Company held strategic investments with a carrying value of $66.3 million and $9.3 million, respectively, in equity securities of privately held companies and restricted equity securities of a publicly held company. The Company does not have a controlling interest in nor can it exercise significant influence over any of these companies. These securities are recorded as other long-term assets in the accompanying condensed consolidated balance sheets. There were no impairments or other adjustments recorded in the three and nine months ended September 30, 2021 or 2020.
Financial Liabilities
The Company’s financial liabilities that are not measured at fair value on a recurring basis consist of its senior notes due 2029 and 2031 (“2029 Notes” and “2031 Notes,” respectively). The Company’s convertible senior notes due 2023 (“Convertible Notes”) were fully redeemed in June 2021 and were no longer outstanding as of the end of the second quarter of 2021. Refer to Note 10 for further details on these financial liabilities.
As of September 30, 2021, the fair values of the 2029 Notes and 2031 Notes were $512.9 million and $513.4 million, respectively. The 2029 Notes and 2031 Notes are classified as Level 2 financial instruments within the fair value hierarchy.
4. Derivative Instruments and Hedging Activities
As of September 30, 2021, the Company had outstanding foreign currency forward contracts designated as cash flow hedges with total buy and sell notional values of $63.4 million and $76.7 million, respectively. The notional value represents the amount that will be purchased or sold upon maturity of the forward contract. As of September 30, 2021, these contracts had maturities of less than 6 months and the $3.1 million fair value of the associated liability was recorded in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet.
Losses associated with these foreign currency forward contracts were as follows:
Condensed Consolidated Statement of Operations and Statement of Comprehensive Loss Three Months Ended
September 30,
Nine Months Ended
September 30,
2021 2021
(In thousands)
Losses recognized in OCI Net change in market value of effective foreign currency forward exchange contracts $ (161) $ (3,069)
Losses recognized in income due to instruments maturing Cost of revenue $ (2,464) $ (2,931)
The Company is subject to master netting agreements with certain counterparties of the foreign exchange contracts, under which it is permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is the Company’s policy to present the derivatives at gross in its consolidated balance sheet. The Company’s foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. The Company manages its exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring its outstanding positions. As of September 30, 2021, the Company did not have any offsetting arrangements.

15


5. Property and Equipment
Property and equipment consisted of the following:
As of As of
September 30, December 31,
2021 2020
(In thousands)
Capitalized internal-use software development costs $ 185,037  $ 142,489 
Data center equipment (1)
64,104  43,477 
Leasehold improvements 80,897  69,756 
Office equipment 56,291  35,346 
Furniture and fixtures (1)
15,646  12,312 
Software 10,491  9,943 
Total property and equipment 412,466  313,323 
Less: accumulated depreciation and amortization (175,225) (130,084)
Total property and equipment, net $ 237,241  $ 183,239 
____________________________________
(1) Data center equipment and furniture and fixtures contain assets under finance leases. See Note 6 for further detail.
Supplemental depreciation and amortization disclosures are as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Depreciation and amortization expense $ 14,546  $ 12,843  $ 43,198  $ 36,674 
Capitalized internal-use software development costs $ 17,999  $ 12,172  $ 49,527  $ 36,738 
Stock based compensation costs included in capitalized internal-use software development costs $ 5,198  $ 3,696  $ 14,938  $ 10,711 
Amortization of capitalized internal-use software development costs $ 4,419  $ 4,380  $ 13,270  $ 13,389 
6. Right-of-Use Asset and Lease Liabilities
The Company has entered into various operating lease agreements for office space and data centers and finance lease agreements for data center and office equipment and furniture.
As of September 30, 2021, the Company had 32 leased properties with remaining lease terms ranging from 0.2 years to 8.0 years, some of which include options to extend the leases for up to 5.0 years.

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The components of the lease expense recorded in the accompanying condensed consolidated statements of operations were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021 2020 2021 2020
(In thousands)
Operating lease cost $ 16,141  $ 12,127  $ 45,519  $ 35,048 
Finance lease cost:
Amortization of assets 2,905  2,384  8,389  6,118 
Interest on lease liabilities 282  212  805  604 
Short-term lease cost 802  1,195  3,340  3,698 
Variable lease cost 2,389  2,066  7,322  5,246 
Total net lease cost $ 22,519  $ 17,984  $ 65,375  $ 50,714 
Supplemental balance sheet information related to leases was as follows:
As of As of
September 30, December 31,
Leases Classification 2021 2020
Assets: (In thousands)
Operating lease assets
Operating right-of-use asset, net of accumulated amortization (1)
$ 248,582  $ 258,610 
Finance lease assets
Property and equipment, net of accumulated depreciation (2)
29,027  25,771 
Total leased assets $ 277,609  $ 284,381 
Liabilities:
Current
   Operating Operating lease liability, current $ 50,760  $ 48,338 
   Finance Finance lease liability, current 10,150  9,062 
Noncurrent
   Operating Operating lease liability, noncurrent 223,033  229,905 
   Finance Finance lease liability, noncurrent 20,254  17,856 
Total lease liabilities $ 304,197  $ 305,161 
____________________________________
(1)Operating lease assets are recorded net of accumulated amortization of $88.9 million and $57.1 million as of September 30, 2021 and December 31, 2020, respectively.
(2)Finance lease assets are recorded net of accumulated depreciation of $23.4 million and $15.0 million as of September 30, 2021 and December 31, 2020, respectively.

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Supplemental cash flow and other information related to leases was as follows:
Nine Months Ended
September 30,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities: (In thousands)
Operating cash flows from operating leases $ 44,551  $ 34,124 
Operating cash flows from finance leases (interest) $ 788  $ 604 
Financing cash flows from finance leases $ 8,343  $ 5,721 
Weighted average remaining lease term (in years):
Operating leases 5.7 5.6
Finance leases 3.1 3.4
Weighted average discount rate:
Operating leases 4.5  % 5.3  %
Finance leases 3.5  % 4.1  %
Maturities of lease liabilities were as follows:
As of September 30, 2021
Operating
Leases
Finance
Leases
Year Ended December 31, (In thousands)
2021 (remaining three months) $ 14,742  $ 2,920 
2022 63,245  10,681 
2023 55,476  9,934 
2024 50,857  6,693 
2025 37,706  1,394 
Thereafter 89,223  518 
Total lease payments 311,249  32,140 
Less: imputed interest (37,456) (1,736)
Total lease obligations 273,793  30,404 
Less: current obligations (50,760) (10,150)
Long-term lease obligations $ 223,033  $ 20,254 
As of September 30, 2021, the Company had an additional operating lease obligation totaling $11.0 million for a lease that will commence in the first quarter of 2023 with a lease term of 6.2 years and additional finance lease obligations totaling $10.5 million for three leases that will commence in the fourth quarter of 2021 with lease terms of 4.0 years. The Company carries letters of credit securing certain of its lease commitments.
7. Business Combinations
Zipwhip, Inc.
In July 2021, the Company acquired all outstanding shares of Zipwhip, Inc. (“Zipwhip”), a leading provider of toll-free messaging in the United States, for a purchase price of $838.4 million. The purchase price included $418.0 million of cash, $419.0 million fair value of 1.1 million shares of the Company's Class A common stock and $1.5 million fair value of the pre-combination services of Zipwhip employees reflected in the unvested equity awards assumed by the Company at closing. Additionally, at closing, the Company issued 59,533 shares of its Class A common stock which are subject to vesting over a period of 3 years. Vesting of these shares will be recorded in the stock-based compensation expense.
Part of the cash consideration paid at closing was to settle the vested equity awards of Zipwhip employees. The

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Company assumed all unvested and outstanding equity awards of Zipwhip continuing employees, as converted into its own equity awards, at the conversion ratio provided in the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). This transaction also included a $19.1 million of additional cash consideration for certain employees, which will vest as these employees provide services in the post-acquisition period. This amount will be recorded in the operating expenses over a period of 3 years as the services are provided.
The acquisition was accounted for as a business combination and the total preliminary purchase price of $838.4 million was allocated to the net tangible and intangible assets and liabilities based on their preliminary fair values on the acquisition date with the excess recorded as goodwill. These estimates were derived from information currently available. The determination of the fair values and estimated lives of depreciable tangible and identifiable intangible assets requires significant judgment. As of September 30, 2021, the primary areas that are not yet finalized include determination of the purchase price, valuation of acquired intangible assets, contingencies and income and other taxes.
The fair value of the 1.2 million aggregate number of shares of the Company's Class A common stock issued at closing was determined based on the closing market price of the Company's Class A common stock on the acquisition date. The fair value of the $30.7 million unvested equity awards assumed on the acquisition date was determined (a) for options, by using the Black-Scholes option pricing model with the applicable assumptions as of the acquisition date; (b) for restricted stock units, by using the closing market price of the Company's Class A common stock on the acquisition date. These awards will continue to vest as Zipwhip employees continue to provide services in the post-acquisition period. The fair value of these awards will be recorded into the stock-based compensation expense over the respective vesting period of each award.
The purchase price components are summarized in the following table:
Total
(In thousands)
Fair value of Class A common stock transferred $ 419,037 
Cash consideration 417,900 
Fair value of the pre-combination service through equity awards 1,511 
Total purchase price $ 838,448 

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The following table presents the preliminary purchase price allocation recorded in the Company's consolidated balance sheet as of September 30, 2021:
Total
(In thousands)
Cash and cash equivalents $ 21,610 
Accounts receivable and other current assets 11,481 
Property and equipment, net 2,950 
Operating right-of-use asset 23,545 
Intangible assets (1)
244,500 
Other assets 370 
Goodwill 600,070 
Accounts payable and other liabilities (20,239)
Deferred revenue (4,526)
Operating lease liability, noncurrent (23,169)
Deferred tax liability (18,144)
Total purchase price $ 838,448 
____________________________________
(1) Identifiable intangible assets are comprised of the following:
Total Estimated
life
(In thousands) (In years)
Developed technology $ 56,800  7
Customer relationships 147,700  10
Supplier relationships 39,600  5
Trade names 400  5
Total intangible assets acquired $ 244,500 
The Company acquired a net deferred tax liability of $18.1 million in this business combination that is included in long-term liabilities in the accompanying consolidated balance sheet.
Goodwill generated from this acquisition primarily represents the value that is expected from the increased scale and synergies as a result of the integration of both businesses. Goodwill is not deductible for tax purposes.
The estimated fair value of the intangible assets acquired was determined by the Company. The Company engaged a third‑party expert to assist with the valuation analysis. The Company used a relief-from-royalty method to estimate the fair values of the developed technology and trade names, a multi-period excess earnings method to estimate the fair values of customer relationships and a with-and-without method to estimate the fair value of the supplier relationships.
Most of the net tangible assets were valued at their respective carrying amounts as of the acquisition date, as the Company believes that these amounts approximate their current fair values, except for operating right-of-use assets. The value of the acquired operating right-of-use assets was reduced by $1.7 million to its respective fair value on the acquisition date.
The acquired entity's results of operations were included in the Company's consolidated financial statements from the date of acquisition, July 14, 2021. For the three months ended September 30, 2021, Zipwhip contributed net operating revenue of $23.6 million, which is reflected in the accompanying consolidated statement of operations. Due to the integrated nature of the Company's operations, the Company believes that it is not practicable to separately identify earnings of Zipwhip on a stand-alone basis. Pro forma results of operations for this acquisition are not presented as the financial impact to the Company's consolidated financial statements is not material.
During the three and nine months ended September 30, 2021, the Company incurred costs related to this acquisition of $1.6 million and $4.2 million, respectively, that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operations.

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During the first and second quarter of 2021, the Company acquired ValueFirst Digital Media Private Limited and Ionic Security, Inc. for an aggregate purchase price of $100.2 million of which $37.0 million was allocated to intangible assets and $63.4 million was allocated to goodwill.
8. Goodwill and Intangible Assets
Goodwill
The Goodwill balance as of September 30, 2021 and December 31, 2020, was as follows:
Total
(In thousands)
Balance as of December 31, 2020 $ 4,595,394 
Goodwill additions and adjustments 667,657 
Balance as of September 30, 2021 $ 5,263,051 
Intangible assets
Intangible assets consisted of the following:
As of
September 30, 2021
Gross Accumulated
Amortization
Net
Amortizable intangible assets: (In thousands)
Developed technology $ 794,831  $ (194,285) $ 600,546 
Customer relationships 538,264  (108,953) 429,311 
Supplier relationships 51,671  (6,916) 44,755 
Trade names 30,669  (12,327) 18,342 
Order backlog 10,000  (9,167) 833 
Patent 4,071  (474) 3,597 
Total amortizable intangible assets 1,429,506  (332,122) 1,097,384 
Non-amortizable intangible assets:
Telecommunication licenses 4,920  —  4,920 
Trademarks and other 295  —  295 
Total $ 1,434,721  $ (332,122) $ 1,102,599 


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As of
December 31, 2020
Gross Accumulated
Amortization
Net
Amortizable intangible assets: (In thousands)
Developed technology $ 724,599  $ (113,282) $ 611,317 
Customer relationships 379,344  (59,574) 319,770 
Supplier relationships 4,356  (3,044) 1,312 
Trade name 25,560  (7,921) 17,639 
Order backlog 10,000  (1,667) 8,333 
Patent 3,360  (373) 2,987 
Total amortizable intangible assets 1,147,219  (185,861) 961,358 
Non-amortizable intangible assets:
Telecommunication licenses 4,920  —  4,920 
Trademarks and other 295  —  295 
Total $ 1,152,434  $ (185,861) $ 966,573 
Amortization expense was $55.7 million and $146.3 million for the three and nine months ended September 30, 2021, respectively, and $20.4 million and $61.3 million for the three and nine months ended September 30, 2020, respectively.
Total estimated future amortization expense is as follows:
As of
September 30,
2021
Year Ended December 31, (In thousands)
2021 (remaining three months) $ 52,554 
2022 204,832 
2023 201,522 
2024 195,948 
2025 192,374 
Thereafter 250,154 
Total $ 1,097,384 

9. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following:
As of As of
September 30, December 31,
2021 2020
(In thousands)
Accrued payroll and related $ 66,094  $ 54,683 
Accrued bonus and commission 36,155  25,341 
Accrued cost of revenue 115,996  80,620 
Sales and other taxes payable 63,660  48,390 
ESPP contributions 19,354  6,272 
Finance lease liability, current 10,150  9,062 
Accrued other expense 57,274  28,527 
Total accrued expenses and other current liabilities $ 368,683  $ 252,895 

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Other long-term liabilities consisted of the following:
As of As of
September 30, December 31,
2021 2020
(In thousands)
Deferred tax liability $ 20,446