Twilio Announces First Quarter 2019 Results

Twilio (NYSE: TWLO), the leading cloud communications platform, today
reported financial results for its first quarter ended March 31, 2019.

“A growing number of customers around the world are rewarding us with
their business as they utilize our platform to create better ways to
engage with their customers,” said Jeff Lawson, Twilio’s Co-Founder and
Chief Executive Officer. “In addition, the early customer reaction
regarding the acquisition of SendGrid has validated our strategy of
powering the future of customer engagement on one platform, and we look
forward to building this future together on behalf of our customers.”

First Quarter 2019 Financial Highlights

• Total revenue of $233.1 million for the first quarter of 2019, up 81%
  from the first quarter of 2018 and 14% sequentially from the fourth
  quarter of 2018. Total Revenue includes revenue from Twilio SendGrid
  starting on February 1, 2019 (the date of acquisition).
• Base revenue of $220.9 million for the first quarter of 2019, up 88%
  from the first quarter of 2018 and 19% sequentially from the fourth
  quarter of 2018. Base Revenue includes revenue from Twilio SendGrid
  starting on February 1, 2019 (the date of acquisition).
• GAAP loss from operations of $87.6 million for the first quarter of
  2019, compared with GAAP loss from operations of $24.3 million for the
  first quarter of 2018. Non-GAAP income from operations of $3.4 million
  for the first quarter of 2019, compared with non-GAAP loss from
  operations of $4.7 million for the first quarter of 2018.
• GAAP net loss per share attributable to common stockholders, basic and
  diluted, of $0.31 based on 116.6 million weighted average shares
  outstanding in the first quarter of 2019, compared with GAAP net loss
  per share attributable to common stockholders, basic and diluted, of
  $0.25 based on 94.7 million weighted average shares outstanding in the
  first quarter of 2018.
• Non-GAAP net income per share attributable to common stockholders,
  diluted, of $0.05 based on 130.1 million non-GAAP weighted average
  shares outstanding in the first quarter of 2019, compared with
  non-GAAP net loss per share attributable to common stockholders,
  diluted, of $0.04 based on 94.7 million weighted average shares
  outstanding in the first quarter of 2018.

Key Metrics and Recent Business Highlights

• 154,797 Active Customer Accounts as of March 31, 2019, compared to
  53,985 Active Customer Accounts as of March 31, 2018. Active Customer
  Accounts in the current period include the contribution from Twilio
  SendGrid customer accounts.
• Dollar-Based Net Expansion Rate was 146% for the first quarter of
  2019, compared to 132% for the first quarter of 2018. Twilio SendGrid
  results do not impact the calculation of this metric in the current
  period.
• 2,114 employees as of March 31, 2019.
• Introduced new Expert Services offerings to provide customers with
  options for additional support, education, detailed data and
  analytics, and expert guidance to help optimize their email programs
  and drive business results.
• Launched Twilio for Salesforce on the Salesforce AppExchange to allow
  organizations using Salesforce to easily send and receive SMS messages
  directly from their Salesforce CRM.
• Added a new authentication method in the Twilio Authy two-factor
  authentication API that enables Transactional TOTP, or time-based
  one-time passcodes, in support of Payment Services Directive 2 (PSD2)
  requirements in Europe.
• Announced support for Accelerated Mobile Pages (AMP) for email, a new
  technology being implemented by Google that enables a more dynamic and
  interactive experience for Gmail.

Outlook

Twilio is providing guidance for the second quarter ending June 30, 2019
and full year ending December 31, 2019 as follows (guidance includes
outlook for SendGrid from February 1, 2019, the date of acquisition):

Conference Call Information

Twilio will host a conference call today, April 30, 2019, to discuss
first quarter financial results, as well as the second quarter and full
year 2019 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
7757278. Following the completion of the call through 11:59 p.m. Eastern
Time on May 7, 2019, a replay will be available by dialing (800)
585-8367 or +1 (416) 621-4642 (outside the U.S. and Canada) and entering
passcode 7757278. 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.

Millions of developers around the world have used Twilio to unlock the
magic of communications to improve any human experience. Twilio has
democratized communications channels like voice, text, chat, video and
email by virtualizing the world’s communications infrastructure through
APIs that are simple enough for any developer to use, yet robust enough
to power the world’s most demanding applications. By making
communications a part of every software developer’s toolkit, Twilio is
enabling innovators across every industry — from emerging leaders to the
world’s largest organizations — to reinvent how companies engage with
their customers.

Forward-Looking Statements

This press release and the accompanying conference call contain
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 June 30, 2019
and full year ending December 31, 2019, Twilio’s expectations regarding
its products and solutions, and Twilio’s acquisition of SendGrid. 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
comply with modified or new industry standards, laws and regulations
applying to our business; 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; Twilio’s
ability to compete effectively in an intensely competitive market, and
risks that the anticipated benefits of the acquisition of SendGrid may
not be fully realized or may take longer to realize than expected.

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-K for the year ended
December 31, 2018 filed on March 1, 2019. 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 income (loss) from operations and operating margin,
non-GAAP net income (loss) attributable to common stockholders, and
non-GAAP net income (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 Income (Loss) from Operations and Non-GAAP Operating
Margin. For the periods presented, Twilio defines
non-GAAP income (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 Income (Loss) Attributable to Common Stockholders and
Non-GAAP Net Income (Loss) Per Share Attributable to Common
Stockholders, Basic and Diluted. For the periods presented, Twilio
defines non-GAAP net income (loss) attributable to common stockholders
and non-GAAP net income (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, payroll taxes related to stock-based
compensation, amortization of debt discount and issuance costs, income
tax benefit related to acquisition, and provision for income tax effects
related to Non-GAAP adjustments.

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 income (loss)
from operations to GAAP loss from operations or non-GAAP net income
(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
account 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 account
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) is with a customer that
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 customers.

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.

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