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MarketScreener Homepage  >  Equities  >  Nyse  >  Twilio Inc.    TWLO

TWILIO INC.

(TWLO)
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TWILIO : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/29/2020 | 03:10pm EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q. In addition to historical financial information, the
following discussion contains forward-looking statements that are based upon
current plans, expectations and beliefs that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth under Part II, Item 1A, "Risk Factors" in this Quarterly Report on
Form 10-Q.
                                    Overview
We are the leader in the Cloud Communications Platform category. We enable
developers to build, scale and operate real-time communications within their
software applications via our simple-to-use Application Programming Interfaces
("APIs"). The power, flexibility, and reliability offered by our software
building blocks empowers companies of virtually every shape and size to build
world-class engagement into their customer experience.
We offer a Customer Engagement Platform with software designed to address
specific use cases like account security and contact centers and a set of APIs
that handles the higher level communication logic needed for nearly every type
of customer engagement. These APIs are focused on the business challenges that a
developer is looking to address, allowing our customers to more quickly and
easily build better ways to engage with their customers throughout their
journey. We also offer a set of APIs that enables developers to embed voice,
messaging, video and email capabilities into their applications and are designed
to support almost all the fundamental ways humans communicate, unlocking
innovators to address just about any communication market. The Super Network is
our software layer that allows our customers' software to communicate with
connected devices globally. It interconnects with communications networks and
inbox service providers around the world and continually analyzes data to
optimize the quality and cost of communications that flow through our platform.
The Super Network also contains a set of APIs that gives our customers access to
more foundational components of our platform, like phone numbers.
Our customers' applications are able to reach users via voice, messaging, video
and email in nearly every country in the world by utilizing our platform. We
support our global business through over 25 cloud data centers across more than
seven regions around the world and have developed contractual relationships with
network service providers globally.
Our business model is primarily focused on reaching and serving the needs of
software developers, who we believe are becoming increasingly influential in
technology decisions in a wide variety of companies. We call this approach our
Business Model for Innovators, which empowers developers by reducing friction
and upfront costs, encouraging experimentation, and enabling developers to grow
as customers as their ideas succeed. We established and maintain our leadership
position by engaging directly with, and cultivating, our developer community,
which has led to the rapid adoption of our platform. We reach developers through
community events and conferences, including our SIGNAL customer and developer
conference, to demonstrate how every developer can create differentiated
applications incorporating communications using our products.
Once developers are introduced to our platform, we provide them with a low
friction trial experience. By accessing our easy-to-adopt APIs, extensive
self-service documentation and customer support team, developers build our
products into their applications and then test such applications through free
trial periods that we provide. Once they have decided to use our products beyond
the initial free trial period, customers provide their credit card information
and only pay for the actual usage of our products. Historically, we have
acquired the substantial majority of our customers through this self-service
model. As customers expand their usage of our platform, our relationships with
them often evolve to include business leaders within their organizations. Once
our customers reach a certain spending level with us, we support them with
account executives or customer success advocates within our sales organization
to ensure their satisfaction and expand their usage of our products.
We also supplement our self-service model with a sales effort aimed at engaging
larger potential customers, strategic leads and existing customers through a
direct sales approach. To help increase awareness of our products in the
enterprise, we have expanded our marketing efforts through programs like our
Twilio Engage roadshow where we seek to bring business leaders and developers
together to discuss the future of customer engagement. We have developed
products to support this effort as well, like the Twilio Enterprise Plan, which
provides capabilities for advanced security, access management and granular
administration. Our sales organization targets technical leaders and business
leaders who are seeking to leverage software to drive competitive
differentiation. As we educate these leaders on the benefits of developing
applications incorporating our products to differentiate their business, they
often consult with their developers regarding implementation. We believe that
developers are often advocates for our products as a result of our
developer-focused approach. Our sales organization includes sales development,
inside sales, field sales and sales engineering personnel.
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When potential customers do not have the available developer resources to build
their own applications, we refer them to either our technology partners who
embed our products in the solutions that they sell to other businesses (such as
contact centers and sales force and marketing automation) or our consulting
partners who provide consulting and development services for organizations that
have limited software development expertise to build our platform into their
software applications.
We generate the substantial majority of our revenue from customers based on
their usage of our software products that they have incorporated into their
applications. Our Flex contact center platform is generally offered on a per
user, per month basis or on a usage basis per agent hour. In addition, our email
API is offered on a monthly subscription basis and our Marketing Campaigns
product is priced based on the number of email contacts stored on our platform
and the number of monthly emails sent to those contacts through our Email API.
Also, customers using our Programmable Messaging or Programmable Voice APIs
typically purchase one or more telephone numbers from us, for which we charge a
monthly flat fee per number. Some customers also choose to purchase various
levels of premium customer support for a monthly fee. Customers that register in
our self-service model typically pay upfront via credit card and draw down their
balance as they purchase or use our products. Most of our customers draw down
their balance in the same month they pay up front or are charged on a monthly
subscription basis for our email-related products. As a result, our deferred
revenue and customer deposits liability at any particular time is not a
meaningful indicator of future revenue. As our customers' usage grows, some of
our customers enter into contracts and are invoiced monthly in arrears. Many of
these customer contracts have terms of 12 months and typically include some
level of minimum revenue commitment. Most customers with minimum revenue
commitment contracts generate a significant amount of revenue in excess of their
minimum revenue commitment in any period. Historically, the aggregate minimum
commitment revenue from customers with whom we have contracts has constituted a
minority of our revenue in any period, and we expect this to continue in the
future.
Our developer-focused products are delivered to customers and users through our
Super Network, which uses software to optimize communications on our platform.
We interconnect with communications networks and inbox service providers
globally to deliver our products, and therefore we have arrangements with
network service providers in many regions in the world. Historically, a
substantial majority of our cost of revenue has been network service provider
fees. We continue to optimize our network service provider coverage and
connectivity through continuous improvements in routing and sourcing in order to
lower the usage expenses we incur for network service provider fees. As we
benefit from our platform optimization efforts, we sometimes pass these savings
on to customers in the form of lower usage prices on our products in an effort
to drive increased usage and expand the reach and scale of our platform. In the
near term, we intend to operate our business to expand the reach and scale of
our platform and to grow our revenue, rather than to maximize our gross margins.
We have achieved significant growth in recent periods. In the three months ended
September 30, 2020 and 2019, our revenue was $448.0 million and $295.1 million,
respectively, and our net loss was $116.9 million and $87.7 million,
respectively. In the three months ended September 30, 2020 and 2019, our 10
largest Active Customer Accounts generated an aggregate of 14% and 13% of our
total revenue, respectively.
Public Equity Offering
In August 2020, we completed a public equity offering in which we sold 5,819,838
shares of our Class A common stock at a public offering price of $247.00 per
share. We received total proceeds of $1.4 billion after deducting underwriting
discounts and offering expenses paid and payable by us.
Proposed Acquisition of Segment
On October 12, 2020, we entered into a definitive agreement to acquire
Segment.io, Inc. ("Segment") pursuant to an Agreement and Plan of Reorganization
(the "Merger Agreement"). Segment is a cloud-based customer data platform.
Upon consummation of the transactions contemplated by the Merger Agreement, all
outstanding shares of Segment capital stock, vested restricted stock units,
vested stock options and warrants will be cancelled in exchange for an aggregate
consideration of $3.2 billion, subject to certain exceptions and adjustments, in
the form of shares of our Class A common stock or cash, as provided by the
Merger Agreement. We will also assume or substitute the unvested stock options
and unvested restricted stock units held by employees of Segment who remain or
become our employees following the closing.
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The proposed transaction is expected to close in the fourth quarter of 2020. The
closing of this transaction is subject to certain customary closing conditions
and approvals. During the nine months ended September 30, 2020, we incurred $0.8
million in expenses related to this proposed transaction. If consummated, the
acquisition of Segment may have a significant impact on our liquidity, financial
condition and results of operations. The following discussion and analysis of
our results of operations and our liquidity and capital resources focuses on our
existing operations exclusive of the impact of the proposed acquisition of
Segment. Any forward-looking statements contained herein do not take into
account the impact of such proposed acquisition.
                                COVID-19 UPDATE
A novel coronavirus disease ("COVID-19") was declared a global pandemic during
the first quarter of 2020 and has resulted in the imposition of numerous,
unprecedented, national and international measures to try to contain the virus,
including travel bans and restrictions, shutdowns, quarantines, shelter-in-place
and social distancing orders. To prioritize the health and safety of our
employees, customers and our community at large, we postponed SIGNAL, our annual
developer and customer conference, to September 30, 2020, and converted it to a
virtual event. In addition, we have either cancelled or shifted other planned
events to virtual-only experiences and may determine to alter, postpone or
cancel additional customer, employee or industry events in the future. Since
mid-March, we have also taken several precautionary measures to protect our
employees and contingent workers and help minimize the spread of the virus,
including temporarily closing our worldwide offices, requiring all employees and
contingent workers to work from home and suspending all business travel
worldwide for our employees for the time being.
The broader implications of COVID-19 on our results of operations and overall
financial performance remain uncertain. The COVID-19 pandemic and its adverse
effects have become more prevalent in the locations where we, our customers,
suppliers or third-party business partners conduct business. In the three months
ended September 30, 2020, usage levels from customers in the travel, hospitality
and ridesharing industries remained below their pre-COVID-19 levels with a
slight rebound from the previous quarter. We also continued to experience
increased usage in other areas, including healthcare, education, consumer
on-demand, and retail. We acknowledge that there may be additional impacts to
the economy and our business as a result of COVID-19. We expect that there may
be some volatility in customer demand and buying habits as the pandemic
continues, and we may experience constrained supply or curtailed customer demand
that could materially and adversely impact our business, results of operations
and financial performance in future periods. Specifically, we may experience
impact from delayed sales cycles, including customers and prospective customers
delaying contract signing or contract renewals, or reducing budgets or minimum
commitments related to the products and services that we offer and changes to
consumer behavior that may affect customers who use our products and service for
confirmations, notifications, and other use cases. While we are continuing our
recruiting efforts, it is possible that the pace of our hiring may slow during
the COVID-19 pandemic. See the risk factor titled "The global COVID-19 pandemic
may adversely impact our business, results of operations and financial
performance" in Part II, Item 1A, "Risk Factors" of this Quarterly Report on
Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic
on our business, financial condition and results of operations.
                              Key Business Metrics
                                                                                Three Months Ended
                                                                                   September 30,
                                                                             2020                2019

Number of Active Customer Accounts (as of end date of period) (1) 208,000

             172,092
Total revenue (in thousands) (1)                                         $  447,969$  295,066
Total Revenue Growth Rate (1)                                                    52  %               75  %
Dollar-Based Net Expansion Rate (2)                                             137  %              132  %

____________________

(1) Includes the contribution from our Twilio SendGrid business, acquired on February 1, 2019. Effective
December 31, 2019, we round down the number of Active Customer Accounts to the nearest thousand.
(2) As previously announced in our Annual Report on Form 10-K filed with the SEC on March 2, 2020,
commencing with the three-month period ended March 31, 2020, we calculate our Dollar-Based Net Expansion
Rate by comparing total revenue from a cohort of Active Customer Accounts in a period to the same period
in the prior year (the "New DBNE Definition"). To facilitate comparison between the periods presented,
Dollar-Based Net Expansion Rate as presented in the table above has been calculated as if the New DBNE
Definition had been in effect during that period. As a result of the New DBNE Definition, unless
specifically identified as being calculated using total revenue, any Dollar-Based Net Expansion Rates
disclosed by our Company in SEC filings, press releases and presentations prior to the date of our press
release for the three months ended March 31, 2020, will not be directly comparable to our Dollar-Based Net
Expansion Rates going forward. Commencing with the three month period ended March 31, 2020, Dollar-Based
Net Expansion Rate includes the contribution from Twilio SendGrid from February 1, 2019 (the date of the
acquisition).



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Number of Active Customer Accounts. We believe that the number of Active
Customer Accounts is an important indicator of the growth of our business, the
market acceptance of our platform and future revenue trends. We define an Active
Customer Account at the end of any period as an individual account, as
identified by a unique account identifier, for which we have recognized at least
$5 of revenue in the last month of the period. We believe that use of our
platform by customers at or above the $5 per month threshold is a stronger
indicator of potential future engagement than trial usage of our platform or
usage at levels below $5 per month. In the three months ended September 30, 2020
and 2019, revenue from Active Customer Accounts represented over 99% of total
revenue in each period. A single organization may constitute multiple unique
Active Customer Accounts if it has multiple account identifiers, each of which
is treated as a separate Active Customer Account. Effective December 31, 2019,
we round down the number of Active Customer Accounts to the nearest thousand.
Dollar-Based Net Expansion Rate. Our ability to drive growth and generate
incremental revenue depends, in part, on our ability to maintain and grow our
relationships with existing Active Customer Accounts and to increase their use
of the platform. An important way in which we have historically tracked
performance in this area is by measuring the Dollar-Based Net Expansion Rate for
Active Customer Accounts. Our Dollar-Based Net Expansion Rate increases when
such Active Customer Accounts increase their usage of a product, extend their
usage of a product to new applications or adopt a new product. Our Dollar-Based
Net Expansion Rate decreases when such Active Customer Accounts cease or reduce
their usage of a product or when we lower usage prices on a product. As our
customers grow their businesses and extend the use of our platform, they
sometimes create multiple customer accounts with us for operational or other
reasons. As such, 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. We believe that measuring Dollar-Based Net
Expansion Rate provides a more meaningful indication of the performance of our
efforts to increase revenue from existing customers.
For historical periods through December 31, 2019, our Dollar-Based Net Expansion
Rate compared the revenue from Active Customer Accounts, other than large Active
Customer Accounts that have never entered into 12-month minimum revenue
commitment contracts with us, in a quarter to the same quarter in the prior
year. For reporting periods starting with the three months ended March 31, 2020,
our Dollar-Based Net Expansion Rate compares the total revenue from all Active
Customer Accounts in a quarter to the same quarter in the prior year. To
calculate the Dollar-Based Net Expansion Rate, we first identify the cohort of
Active Customer Accounts that were Active Customer Accounts in the same quarter
of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained
by dividing the revenue generated from that cohort in a quarter, by the revenue
generated from that same cohort in the corresponding quarter in the prior year.
When we calculate Dollar-Based Net Expansion Rate for periods longer than one
quarter, we use the average of the applicable quarterly Dollar-Based Net
Expansion Rates for each of the quarters in such period. As a result of the
change in calculation of Dollar-Based Net Expansion Rate, unless specifically
identified as being calculated based on total revenue, any Dollar-Based Net
Expansion Rates disclosed by our Company in SEC filings, press releases and
presentations prior to the date of our press release for the three months ended
March 31, 2020, will not be directly comparable to our Dollar-Based Net
Expansion Rates going forward.
The table below sets forth our historical Dollar-Based Net Expansion Rates as
calculated based on total revenue.
                                                                   Three Months Ended
Dec 31, 2019        Sep 30, 2019        Jun 30, 2019        Mar 31, 2019        Dec 31, 2018        Sep 30, 2018        Jun 30, 2018        Mar 31, 2018
       125  %              132  %              141  %              142  %              150  %              147  %              138  %              138  %

                                                                   Three Months Ended
Dec 31, 2017        Sep 30, 2017        Jun 30, 2017        Mar 31, 2017        Dec 31, 2016        Sep 30, 2016        Jun 30, 2016
       123  %              125  %              132  %              128  %              141  %              140  %              148  %



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                   Key Components of Statements of Operations
Revenue. We derive our revenue primarily from usage-based fees earned from
customers using the software products within our Solutions APIs and Channel
APIs. These usage-based software products include offerings, such as
Programmable Voice, Programmable Messaging and Programmable Video. Some examples
of the usage-based fees for which we charge include minutes of call duration
activity for our Programmable Voice products, number of text messages sent or
received using our Programmable Messaging products and number of authentications
for our Account Security products. In the three months ended September 30, 2020
and 2019, we generated 77% and 74% of our revenue, respectively, from
usage-based fees. We also earn monthly flat fees from certain fee-based
products, such as our Email API, Marketing Campaigns, Flex seats, telephone
numbers, short codes and customer support.
When customers first begin using our platform, they typically pay upfront via
credit card in monthly prepaid amounts and draw down their balances as they
purchase or use our products. As customers grow their usage of our products,
they automatically receive tiered usage discounts. Our larger customers often
enter into contracts, for at least 12 months that contain minimum revenue
commitments, which may contain more favorable pricing. Customers on such
contracts typically are invoiced monthly in arrears for products used.
Amounts that have been charged via credit card or invoiced are recorded in
revenue, deferred revenue or customer deposits, depending on whether the revenue
recognition criteria have been met. Our deferred revenue and customer deposits
liability balance is not a meaningful indicator of our future revenue at any
point in time because very few of our contracts with invoiced customers contain
terms requiring any form of prepayment.
We define U.S. revenue as revenue from customers with IP addresses or mailing
addresses at the time of registration in the United States, and we define
international revenue as revenue from customers with IP addresses or mailing
addresses at the time of registration outside of the United States.
Cost of Revenue and Gross Margin. Cost of revenue consists primarily of fees
paid to network service providers. Cost of revenue also includes cloud
infrastructure fees, direct costs of personnel, such as salaries and stock-based
compensation for our customer support employees, and non-personnel costs, such
as depreciation and amortization expense related to data centers and hosting
equipment, amortization of capitalized internal use software development costs
and acquired intangibles. Our arrangements with network service providers
require us to pay fees based on the volume of phone calls initiated or text
messages sent, as well as the number of telephone numbers acquired by us to
service our customers. Our arrangements with our cloud infrastructure provider
require us to pay fees based on our server capacity consumption.
Our gross margin has been and will continue to be affected by a number of
factors, including the timing and extent of our investments in our operations,
our product mix, our ability to manage our network service provider and cloud
infrastructure-related fees, including Application to Person SMS fees, the mix
of U.S. revenue compared to international revenue, changes in foreign exchange
rates and the timing of amortization of capitalized software development costs
and acquired intangibles and the extent to which we periodically choose to pass
on our cost savings from platform optimization efforts to our customers in the
form of lower usage prices.
Operating Expenses. The most significant components of operating expenses are
personnel costs, which consist of salaries, benefits, sales commissions and
bonuses and stock-based compensation. We also incur other non-personnel costs
related to our general overhead expenses. We expect that our operating costs
will increase in absolute dollars as we add additional employees and invest in
our infrastructure to grow our business.
Research and Development. Research and development expenses consist primarily of
personnel costs, outsourced engineering services, cloud infrastructure fees for
staging and development, amortization of capitalized internal use software
development costs, depreciation and an allocation of our general overhead
expenses. We capitalize the portion of our software development costs that meets
the criteria for capitalization.
We continue to focus our research and development efforts on adding new features
and products, including new use cases, improving our platform and increasing the
functionality of our existing products.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel
costs, including commissions for our sales employees. Sales and marketing
expenses also include expenditures related to advertising, marketing, our brand
awareness activities and developer evangelism, costs related to our SIGNAL
customer and developer conferences, credit card processing fees, professional
services fees, depreciation, amortization of acquired intangibles and an
allocation of our general overhead expenses.
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We focus our sales and marketing efforts on generating awareness of our company,
platform and products through our developer evangelist team and self-service
model, creating sales leads and establishing and promoting our brand, both
domestically and internationally. We plan to continue investing in sales and
marketing by increasing our sales and marketing headcount, supplementing our
self-service model with an enterprise sales approach, expanding our sales
channels, driving our go-to-market strategies, building our brand awareness and
sponsoring additional marketing events.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for our accounting, finance, legal, human resources
and administrative support personnel and executives. General and administrative
expenses also include costs related to business acquisitions, legal and other
professional services fees, certain taxes, depreciation and amortization and an
allocation of our general overhead expenses. We expect that we will incur costs
associated with supporting the growth of our business and to meet the increased
compliance requirements associated with our international expansion. We may also
incur higher than usual losses related to deterioration of quality of certain
financial assets caused by the macroeconomic conditions and uncertainly in the
COVID-19 environment.
Our general and administrative expenses include a certain amount of sales and
other taxes to which we are subject in the United States and internationally
based on the manner we sell and deliver our products. Prior to March 2017, we
did not collect sales or other taxes from our customers and recorded such taxes
as general and administrative expenses. Effective March 2017, we began
collecting most of these taxes from customers in certain jurisdictions and since
then we have expanded the number of jurisdictions where we currently collect. We
expect that these expenses will gradually decline in future years as we continue
to expand the jurisdictions where we collect these taxes from our customers.
Provision for Income Taxes. The provision for income taxes consists primarily of
income taxes and withholding taxes in foreign jurisdictions in which the Company
conducts business. The Company's U.S. operations have been in a loss position
and the Company maintains a full valuation allowance against its U.S. deferred
tax assets.
Non-GAAP Financial Measures
We use the following non-GAAP financial information, collectively, to evaluate
our ongoing operations and for internal planning and forecasting purposes. We
believe 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, should not be considered a substitute for financial information
presented in accordance with generally accepted accounting principles, and may
be different from similarly-titled non-GAAP measures used by other companies.
Whenever we use a non-GAAP financial measure, a reconciliation is provided to
the most closely applicable financial measure stated in accordance with
generally accepted accounting principles. Investors are encouraged to review the
related GAAP financial measures and the reconciliation of these non-GAAP
financial measures to their most directly comparable GAAP financial measures.
Non-GAAP Gross Profit and Non-GAAP Gross Margin. For the periods presented, we
define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and
GAAP gross margin, respectively, adjusted to exclude, as applicable, certain
expenses as presented in the table below:

                                                                  Three Months Ended
                                                                    September 30,
                                                                 2020            2019

    Reconciliation:                                                 (In thousands)
    Gross profit                                             $ 230,874$ 158,162
    Non-GAAP adjustments:
    Stock-based compensation                                     2,237           1,674
    Amortization of acquired intangibles                        12,540     

12,549

    Payroll taxes related to stock-based compensation                -     
        29
      Non-GAAP gross profit                                  $ 245,651$ 172,414
      Non-GAAP gross margin                                         55  %           58  %



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

                                                                  Three Months Ended
                                                                    September 30,
                                                                 2020           2019

     Reconciliation:                                                (In thousands)
     Operating expenses                                       $ 343,144$ 252,828
     Non-GAAP adjustments:
     Stock-based compensation                                   (87,173)   

(66,594)

     Amortization of acquired intangibles                        (7,886)   

(7,443)

     Acquisition-related expenses                                  (791)   

(371)

     Charitable contributions                                    (5,757)   

-

     Payroll taxes related to stock-based compensation           (3,179)   

(2,386)

     Non-GAAP operating expenses                              $ 238,358

$ 176,034




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

                                                                  Three Months Ended
                                                                     September 30,
                                                                 2020             2019

    Reconciliation:                                                 (In thousands)
    Loss from operations                                     $ (112,270)$ (94,666)
    Non-GAAP adjustments:
    Stock-based compensation                                     89,410          68,268
    Amortization of acquired intangibles                         20,426          19,992

    Acquisition-related expenses                                    791             371

    Charitable contributions                                      5,757               -

    Payroll taxes related to stock-based compensation             3,179           2,415
    Non-GAAP income (loss) from operations                   $    7,293$  (3,620)
    Non-GAAP operating margin                                         2  %           (1) %



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                             Results of Operations

The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. We have included Twilio SendGrid in our results of operations prospectively after February 1, 2019, the closing date of the acquisition. The period-to-period comparison of our historical results are not necessarily indicative of the results that may be expected in the future.

                                                             Three Months Ended                      Nine Months Ended
                                                               September 30,                           September 30,
                                                          2020                2019                2020                2019

Condensed Consolidated Statements of Operations
Data:                                                                              (In thousands)
Revenue                                               $  447,969$ 295,066$ 1,213,686$  803,244
Cost of revenue (1) (2)                                  217,095            136,904              580,146             369,017
Gross profit                                             230,874            158,162              633,540             434,227
Operating expenses:
Research and development (1) (2)                         136,652            104,481              371,692             281,119
Sales and marketing (1) (2)                              140,875            100,657              387,420             262,685
General and administrative (1) (2)                        65,617             47,690              182,038             166,409
Total operating expenses                                 343,144            252,828              941,150             710,213
Loss from operations                                    (112,270)           (94,666)            (307,610)           (275,986)
Other (expenses) income, net                              (3,996)             4,377               (2,099)              2,861
Loss before (provision) benefit for income
taxes                                                   (116,266)           (90,289)            (309,709)           (273,125)
(Provision) benefit for income taxes                        (648)             2,555               (1,919)             56,309

Net loss attributable to common stockholders $ (116,914)$ (87,734)$ (311,628)$ (216,816)

____________________

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



                                                            Three Months Ended                     Nine Months Ended
                                                               September 30,                         September 30,
                                                          2020               2019               2020               2019

                                                                                 (In thousands)
Cost of revenue                                       $    2,237$  1,674$   6,217$   5,106
Research and development                                  46,294            34,348            119,344             93,388
Sales and marketing                                       26,573            16,143             69,602             42,456
General and administrative                                14,306            16,103             42,659             56,382
Total                                                 $   89,410$ 68,268$ 237,822$ 197,332
____________________
(2) Includes amortization of acquired
intangibles as follows:



                                              Three Months Ended            Nine Months Ended
                                                September 30,                 September 30,
                                              2020           2019          2020           2019

                                                              (In thousands)
         Cost of revenue                  $   12,540$ 12,549$  37,616$ 32,866

         Sales and marketing                   7,876         7,322         23,629        19,654
         General and administrative               10           121             68           336
         Total                            $   20,426$ 19,992$  61,313$ 52,856



                                       36

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