Twilio Announces Fourth Quarter and Full Year 2018 Results

Q4 Total Revenue of $204.3 million, up 77% year-over-year

Q4 Base Revenue of $186.2 million, up 77% year-over-year

Q4 Dollar-Based Net Expansion Rate of 147%

SAN FRANCISCO–(BUSINESS WIRE)–Twilio (NYSE: TWLO), the leading cloud communications platform, today
reported financial results for its fourth quarter and full year ended
December 31, 2018.

“The power of our platform model was evident in our results once again,
as Q4’s exceptional results capped off an incredible 2018,” said Jeff
Lawson, Twilio’s Co-Founder and Chief Executive Officer. “We are excited
to add email to our platform through the acquisition of SendGrid and
look forward to helping our customers drive their customer engagement
strategies across all of the important communication channels – voice,
messaging, video, and, now email.”

Fourth Quarter 2018 Financial Highlights

• Total revenue of $204.3 million for the fourth quarter of 2018, up 77%
  from the fourth quarter of 2017 and 21% sequentially from the third
  quarter of 2018.
• Base revenue of $186.2 million for the fourth quarter of 2018, up 77%
  from the fourth quarter of 2017 and 21% sequentially from the third
  quarter of 2018.
• GAAP loss from operations of $44.0 million for the fourth quarter of
  2018, compared with GAAP loss from operations of $20.2 million for the
  fourth quarter of 2017. Non-GAAP income from operations of $2.4
  million for the fourth quarter of 2018, compared with non-GAAP loss
  from operations of $3.9 million for the fourth quarter of 2017.
• GAAP net loss per share attributable to common stockholders, basic and
  diluted, of $0.47 based on 99.4 million weighted average shares
  outstanding in the fourth quarter of 2018, compared with GAAP net loss
  per share attributable to common stockholders, basic and diluted, of
  $0.20 based on 93.2 million weighted average shares outstanding in the
  fourth quarter of 2017.
• Non-GAAP net income per share attributable to common stockholders,
  diluted, of $0.04 based on 110.6 million non-GAAP weighted average
  shares outstanding in the fourth quarter of 2018, compared with
  non-GAAP net loss per share attributable to common stockholders,
  diluted, of $0.03 based on 93.2 million weighted average shares
  outstanding in the fourth quarter of 2017.

Full Year 2018 Financial Highlights

• Total revenue of $650.1 million for the full year 2018, up 63% from
  the full year 2017.
• Base revenue of $593.0 million for the full year 2018, up 62% from the
  full year 2017.
• GAAP loss from operations of $115.2 million for the full year 2018,
  compared with GAAP loss from operations of $66.1 million for the full
  year 2017. Non-GAAP income from operations of $4.1 million for the
  full year 2018, compared with non-GAAP loss from operations of $20.1
  million for the full year 2017.
• GAAP net loss per share attributable to common stockholders, basic and
  diluted, of $1.26 based on 97.1 million weighted average shares
  outstanding in the full year 2018, compared with GAAP net loss per
  share attributable to common stockholders, basic and diluted, of $0.70
  based on 91.2 million weighted average shares outstanding in the full
  year 2017.
• Non-GAAP net income per share attributable to common stockholders,
  diluted, of $0.11 based on 108.3 million non-GAAP weighted average
  shares outstanding in the full year 2018, compared with non-GAAP net
  loss per share attributable to common stockholders, diluted, of $0.19
  based on 91.2 million weighted average shares outstanding in the full
  year 2017.

Key Metrics and Recent Business Highlights

• 64,286 Active Customer Accounts as of December 31, 2018, compared to
  48,979 Active Customer Accounts as of December 31, 2017.
• Dollar-Based Net Expansion Rate was 147% for the fourth quarter of
  2018, compared to 118% for the fourth quarter of 2017.
• 1,440 employees as of December 31, 2018.
• Announced Chee Chew as Chief Product Officer.
• Added to the leadership in our go-to-market organization by naming
  Chetan Chaudhary as Global Vice President of Partners and adding David
  Parry-Jones as Regional Vice President of EMEA Sales.
• Welcomed technology pioneer Donna Dubinsky to the Board of Directors.
• Closed the acquisition of SendGrid, the leading email API platform,
  expanding the reach of our platform.

Outlook

Twilio is providing guidance for the first quarter ending March 31, 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, February 12, 2019, to discuss
fourth quarter and full year 2018 financial results, as well as the
first 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
5393688. Following the completion of the call through 11:59 p.m. Eastern
Time on February 19, 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 5393688. 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 March 31, 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
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-Q for the quarter ended
September 30, 2018 filed on November 8, 2018. 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,
release of tax liability upon obligation settlement and estimate
revisions, gain on lease termination, payroll taxes related to
stock-based compensation, legal settlements/accruals, and charitable
contributions.

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, release of tax liability upon
obligation settlement and estimate revisions, gain on lease termination,
payroll taxes related to stock-based compensation, legal
settlements/accruals, and charitable contributions.

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, release of tax liability upon obligation
settlement and estimate revisions, gain on lease termination, payroll
taxes related to stock-based compensation, legal settlements/accruals,
and charitable contributions, and amortization of debt discount and
issuance costs.

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.

Contacts

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

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