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 realtime customer engagement within their software applications. We offer a customer engagement platform with software designed to address specific use cases like account security and contact centers, and a set of Application Programming Interfaces ("APIs") that handles the higher level communication logic needed for nearly every type of customer engagement. The power, flexibility and reliability offered by our software building blocks empower companies of virtually every shape and size to build world-class engagement into their customer experience. For additional detail on the description of our business and products please refer to Part I, Item 1, "Business," of our Annual Report on Form 10-K filed with theSEC onFebruary 22, 2022 ("Annual Report"). We have achieved significant growth in recent periods. In the three months endedMarch 31, 2022 and 2021, our revenue was$875.4 million and$590.0 million , respectively, and our net loss was$221.6 million and$206.5 million , respectively. In the three months endedMarch 31, 2022 and 2021, our 10 largest Active Customer Accounts generated an aggregate of 11% and 12% of our total revenue, respectively.
Investment in
InFebruary 2021 , we entered into a Framework Agreement, as amended, withSyniverse Corporation ("Syniverse") andCarlyle Partners V Holdings, L.P. , ("Framework Agreement"), pursuant to which Syniverse would issue to us shares of Syniverse common stock in consideration for an investment by us of$500.0 million to$750.0 million , subject to certain terms and conditions. The initial agreements and conditions to closing of this transaction are described in detail in Note 10(a) to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. OnFebruary 9, 2022 ,M-3 Brigade Acquisition II Corp. ("MBAC"),Blue Steel Merger Sub Inc. and Syniverse mutually terminated a proposed Agreement and Plan of Merger because the rate of MBAC shareholder redemptions for the proposed transaction would have left MBAC with insufficient funds to meet the minimum cash condition for closing, which occurred as a result of recent changes in market conditions ("MBAC Transaction Termination"). Consequently, the Company will not be purchasing any shares of common stock of, or making any investments in, MBAC. The Framework Agreement, dated as ofFebruary 26, 2021 , by and betweenTwilio ,Syniverse and Carlyle Partners V Holdings, L.P. , remains in full force and effect. The amendment, dated as ofAugust 16, 2021 , to the Framework Agreement terminated onFebruary 9, 2022 , as a result of the MBAC Transaction Termination. Pursuant to the terms and subject to the closing conditions set forth in the Framework Agreement, the parties thereto are pursuing the alternative transaction, wherebyTwilio will make a minority investment of$500.0 million to$750.0 million in Syniverse and the parties (or their applicable subsidiaries) will enter into a wholesale agreement. 22
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COVID-19 UPDATE As of the first quarter of 2022, as COVID-19 related restrictions continue to ease in various geographies, the majority of our offices have reopened. The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain. The COVID-19 pandemic and its adverse effects on economic and market conditions, including labor shortages, supply chain disruptions and inflation, have been prevalent in the locations where we, our customers, our suppliers or our third-party business partners conduct business. These adverse conditions may continue for an extended period and there may be additional impacts to the economy and our business as a result of COVID-19. This could result in decreased business spending by our customers and prospective customers and business partners and third-party business partners, reduced demand for our solutions, lower renewal rates by our customers, longer or delayed sales cycles, including customers and prospective customers delaying contract signing or contract renewals, or reducing budgets or minimum commitments related to the product and services that we offer, all of which could have an adverse impact on our business operations and financial condition. See the risk factor titled "The global COVID-19 pandemic may adversely impact our business, results of operations and financial condition" in Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on our business, financial condition and results of operations. Key Business Metrics Three Months EndedMarch 31, 2022 2021
Number of Active Customer Accounts (as of end date of period) (1)
268,000 235,000 Total Revenue (in thousands) (2)$ 875,363 $ 589,988 Total Revenue Growth Rate (2) 48 % 62 % Dollar-Based Net Expansion Rate (3) 127 % 133 %
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(1) Excludes customer accounts from Zipwhip. (2) Includes revenue from Zipwhip, acquiredJuly 14, 2021 , and other smaller acquisitions made afterJanuary 1, 2021 . (3) Excludes the contributions from Zipwhip, acquiredJuly 14, 2021 , and other smaller acquisitions made afterJanuary 1, 2021 . 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 endedMarch 31, 2022 and 2021, 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. DollarBased 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, 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. Our Dollar-Based Net Expansion Rate compares the 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 23
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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. Revenue from acquisitions does not impact the Dollar-Based Net Expansion Rate calculation until the quarter following the one-year anniversary of the applicable acquisition, unless the acquisition closing date is the first day of a quarter. Key Components of Statements of Operations Revenue. We derive our revenue primarily from usagebased fees earned from customers using the software products within our Channel APIs. These usagebased software products include offerings such as Programmable Messaging, Programmable Voice and Programmable Video, among others. Some examples of the usagebased fees that we charge include fees related to the number of text messages sent or received using our Programmable Messaging products, minutes of call duration activity for our Programmable Voice products and the number of authentications for our Verify product. In the three months endedMarch 31, 2022 and 2021, we generated 73% and 71% of our revenue, respectively, from usagebased fees. We also earn monthly flat fees from certain feebased products, such as our Email API, Marketing Campaigns, Twilio Flex, our cloud contact center platform and Twilio Segment, our customer data platform. 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. 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 the number of contracts with our invoiced customers that contain terms requiring any form of prepayment is not significant. We defineU.S. revenue as revenue from customers with IP addresses or mailing addresses at the time of registration inthe United States , and we define international revenue as revenue from customers with IP addresses or mailing addresses at the time of registration outside ofthe 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 stockbased compensation for our customer support employees and nonpersonnel 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 infrastructurerelated fees, including A2P SMS fees; the mix ofU.S. revenue compared to international revenue; changes in foreign exchange rates; 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 stockbased compensation. We also incur other nonpersonnel 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. 24
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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. We focus our sales and marketing efforts on generating awareness of our company, platform and products, 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 selfservice model with an enterprise sales approach, expanding our sales channels, driving our gotomarket 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. General and administrative expenses also include costs related to business acquisitions, legal and other professional services fees, certain taxes, depreciation and amortization, charitable contributions 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 prior non-income-based taxes in certain domestic and international jurisdictions that we are subject to based on the manner we sell and deliver our products. Additional details are provided in Note 10(d) to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Provision for Income Taxes. Our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items occurring in the quarter. The primary difference between our effective tax rate and the federal statutory rate relates to the full valuation allowance the Company established on the federal, state, and certain foreign net operating losses and credits.
Non-GAAP Financial Measures:
We use the following nonGAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that nonGAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates periodtoperiod comparisons of results of operations and assists in comparisons with other companies, many of which use similar nonGAAP financial information to supplement their GAAP results. NonGAAP 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 similarlytitled nonGAAP measures used by other companies. Whenever we use a nonGAAP 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 nonGAAP financial measures to their most directly comparable GAAP financial measures. 25
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NonGAAP Gross Profit and NonGAAP Gross Margin. For the periods presented, we define nonGAAP gross profit and nonGAAP 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 March 31, 2022 2021 Reconciliation: (In thousands) Gross profit$ 425,071 $ 298,304 Gross margin 49 % 51 % Non-GAAP adjustments:
Stock-based compensation 4,521
2,717
Amortization of acquired intangibles 30,636
26,342
Non-GAAP gross profit$ 460,228
Non-GAAP gross margin 53 %
55 %
NonGAAP Operating Expenses. For the periods presented, we define nonGAAP 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 March 31, 2022 2021 Reconciliation: (In thousands) Operating expenses$ 642,879 $ 495,643 Non-GAAP adjustments: Stock-based compensation (150,754) (134,438) Amortization of acquired intangibles (20,830) (18,809) Acquisition-related expenses (660) (2,764) Charitable contributions (4,232) (9,405) Payroll taxes related to stock-based compensation (11,218) (20,171) Non-GAAP operating expenses $
455,185
NonGAAP Income from Operations and NonGAAP Operating Margin. For the periods presented, we define nonGAAP income from operations and nonGAAP 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 Month Ended March 31, 2022 2021 Reconciliation: (In thousands) Loss from operations$ (217,808) $ (197,339) Operating margin (25) % (33) % Non-GAAP adjustments: Stock-based compensation 155,275 137,155 Amortization of acquired intangibles 51,466 45,151 Acquisition-related expenses 660 2,764 Charitable contributions 4,232 9,405 Payroll taxes related to stock-based compensation 11,218 20,171 Non-GAAP income from operations $ 5,043$ 17,307 Non-GAAP operating margin 1 % 3 % 26
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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 Zipwhip in our results of operations prospectively after its closing date ofJuly 14, 2021 , and all other acquisitions from the respective closing dates of each acquisition. The period-to-period comparison of our historical results are not necessarily indicative of the results that may be expected in the future. Our results of operations may be significantly affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, labor market constraints, world events and existing and new domestic and foreign laws and regulations, as well as those factors outlined in Part II, Item 1A, "Risk Factors." Our revenue is primarily derived from usage-based fees we charge for certain of our products, which can lead to variability and at times create significant differences between forecasts and actual results. In addition, our product mix and mix of international and domestic customers may significantly impact our gross margin. Because usage trends by geographic region and by customer are inherently difficult to estimate, our actual results could differ significantly from our estimates. Three Month EndedMarch 31, 2022 2021 (In thousands, except share and per share Condensed Consolidated Statements of Operations Data:
amounts)
Revenue$ 875,363 $ 589,988 Cost of revenue (1) (2) 450,292 291,684 Gross profit 425,071 298,304 Operating expenses: Research and development (1) (2) 240,611 174,800 Sales and marketing (1) (2) 287,906 210,590 General and administrative (1) (2) 114,362 110,253 Total operating expenses 642,879 495,643 Loss from operations (217,808) (197,339) Other expenses, net (6,677) (8,313) Loss before benefit from (provision for) income taxes (224,485) (205,652) Benefit from (provision for) income taxes 2,858 (890) Net loss attributable to common stockholders$ (221,627) $ (206,542) Net loss per share attributable to common stockholders, basic and diluted $ (1.23) $ (1.24) Weighted-average shares used in computing net
loss per share attributable to common
stockholders, basic and diluted 180,898,713 167,160,458
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(1) Includes stock-based compensation expense as follows:
Three Months Ended March 31, 2022 2021 (In thousands) Cost of revenue $ 4,521$ 2,717 Research and development 79,369 56,959 Sales and marketing 47,586 41,636 General and administrative 23,799 35,843 Total$ 155,275 $ 137,155 27
-------------------------------------------------------------------------------- Table of Contents ____________________________________ (2) Includes amortization of acquired intangibles as follows: Three Month Ended March 31, 2022 2021 (In thousands) Cost of revenue$ 30,636 $ 26,342 Research and development 420 - Sales and marketing 20,403 18,694 General and administrative 7 115 Total$ 51,466 $ 45,151 Three Months Ended March 31, 2022 2021 Consolidated Statements of Operations, as a percentage of revenue: ** Revenue 100 % 100 % Cost of revenue 51 49 Gross profit 49 51 Operating expenses: Research and development 27 30 Sales and marketing 33 36 General and administrative 13 19 Total operating expenses 73 84 Loss from operations (25) (33) Other expenses, net (1) (1) Loss before benefit from (provision for) income taxes (26) (35) Benefit from (provision for) income taxes * *
Net loss attributable to common
stockholders (25 %) (35 %)
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* Less than 0.5% of revenue. ** Columns may not add up to 100% due to rounding. Comparison of the Three Months EndedMarch 31, 2022 and 2021 Revenue Three Months Ended March 31, 2022 2021 Change (Dollars in thousands) Total Revenue$ 875,363 $ 589,988 $ 285,375 48 % In 2022, total revenue increased by$285.4 million , or 48%, compared to the same period last year. This increase was primarily attributable to an increase in the usage of our products, particularly our Programmable Messaging, Programmable Voice, Email and Software products; the adoption of additional products by our existing customers; the additional A2P fees imposed by certain carriers; and revenue contributions from our acquisition of Zipwhip and other businesses. The change in usage from our existing customers was reflected in our DollarBased Net Expansion Rate of 127% for the year endedMarch 31, 2022 . The increase in usage was also attributable to a 14% increase in the number of Active Customer Accounts, from 235,000 as ofMarch 31, 2021 , to over 268,000 as ofMarch 31, 2022 . 28
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In 2022,U.S. revenue and international revenue represented$570.4 million or 65%, and$305.0 million , or 35%, respectively, of total revenue. In 2021,U.S. revenue and international revenue represented$421.5 million , or 71%, and$168.5 million , or 29%, respectively, of total revenue. The increase in international revenue was attributable to the growth in usage of our products, particularly our Programmable Messaging and Programmable Voice products, by our existing international Active Customer Accounts; a 13% increase in the number of international Active Customer Accounts driven in part by our focus on expanding our sales to customers outside ofthe United States ; and revenue contribution from our recent acquisitions.
Cost of Revenue and Gross Margin
Three Months Ended March 31, 2022 2021 Change (Dollars in thousands) Cost of revenue$ 450,292 $ 291,684 $ 158,608 54 % Gross margin 49 % 51 % In 2022, cost of revenue increased by$158.6 million , or 54%, compared to the same period last year. The increase in cost of revenue was primarily attributable to a$136.6 million increase in network service providers' costs, which included the additional A2P fees imposed by certain carriers, and a$7.8 million increase in cloud infrastructure fees, all to support the growth in usage of our products. The increase was also due to a$4.3 million increase in the amortization expense of intangible assets that we acquired through business combinations. In addition, the three months endedMarch 31, 2022 included cost of revenue from our recent acquisitions. In 2022, the gross margin percentage declined compared to the same period last year. This decline was primarily driven by continued strong growth of our international messaging business, the additional A2P fees imposed by certain carriers and an increase in network service provider fees in certain geographies, which we pass to our customers at cost. The decline was also due to an increase in amortization expense related to our acquired intangible assets. These declines were partially offset by the growth of our other application services products and certain operational improvements. Operating Expenses Three Months Ended March 31, 2022 2021 Change (Dollars in thousands)
Research and development$ 240,611 $ 174,800 $ 65,811 38 % Sales and marketing 287,906 210,590 77,316 37 % General and administrative 114,362 110,253 4,109 4 % Total operating expenses$ 642,879 $ 495,643 $ 147,236 30 % In 2022, research and development expenses increased by$65.8 million , or 38%, compared to the same period last year. The increase was primarily attributable to a$63.2 million increase in personnel costs, inclusive of a$0.4 million decrease in capitalized software development costs, largely as a result of a 53% average increase in our research and development headcount, as we continued to focus on enhancing our existing products, introducing new products as well as enhancing product management and other technical functions. In 2022, sales and marketing expenses increased by$77.3 million , or 37%, compared to the same period last year. The increase was primarily attributable to a$58.8 million increase in personnel costs, largely as a result of a 61% average increase in sales and marketing headcount, as we continued to expand our sales efforts globally, and a$7.5 million increase in advertising expenses. In 2022, general and administrative expenses increased by$4.1 million , or 4%, compared to the same period last year. The increase was primarily attributable to a$14.0 million , or 46%, increase in personnel costs, exclusive of stock-based compensation, largely as a result of a 70% average increase in general and administrative headcount, to support the growth of our business globally. This increase was partially offset by a$12.0 million decrease in stock-based compensation expense mainly driven by attrition. 29
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Liquidity and Capital Resources Our principal sources of liquidity have been (i) the net proceeds of$979.0 million ,$1.4 billion and$1.8 billion , net of underwriting discounts and offering expenses paid by us, from our public equity offerings inJune 2019 ,August 2020 andFebruary 2021 , respectively; (ii) the aggregate net proceeds of approximately$984.7 million , after deducting purchaser discounts and debt issuance costs paid by us, from the issuance of our 2029 Notes and 2031 Notes inMarch 2021 ; (iii) the net proceeds of$228.4 million , after deducting transaction costs paid by us, from settlement of our capped call arrangements inJune 2021 ; and (iv) the payments received from customers using our products. Our primary uses of cash include operating costs, such as personnel-related costs, network service provider costs, cloud infrastructure costs, facility-related spending, as well as acquisitions and investments. Our principal contractual and other commitments consist of obligations under our 2029 Notes and 2031 Notes, our operating leases for office space, contractual commitments to our cloud infrastructure and network service providers and our proposed minority investment inSyniverse Corporation . Refer to Note 8 and Note 10(a) to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for detailed discussions of our obligations and commitments related to debt, other purchase obligations and our proposed minority investment inSyniverse Corporation . We may, from time to time, consider acquisitions of, or investments in, complementary businesses, products, services, capital infrastructure or technologies which might affect our liquidity requirements, cause us to secure additional financing or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all. We believe that our cash, cash equivalents and marketable securities balances, as well as the cash flows generated by our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for the next 12 months and beyond. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part II, Item 1A, "Risk Factors." We may be required to seek additional equity or debt financing in order to meet these future capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected. Additionally, cash from operations could also be affected by various risks and uncertainties in connection with the COVID-19 pandemic, including timing and ability to collect payments from our customers and other risks detailed in Part II, Item 1A, "Risk Factors." Cash Flows
The following table summarizes our cash flows:
Three Months Ended March 31, 2022 2021 (In thousands) Cash (used in) provided by operating activities$ (17,575) $ 4,505 Cash provided by (used in) investing activities 150,967 (1,366,021) Cash provided by financing activities 4,107 2,759,449
Effect of exchange rate changes on cash, cash equivalents and restricted cash
27 (44) Net increase in cash, cash equivalents and restricted cash $
137,526
30
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Cash Flows from Operating Activities
In 2022, cash used in operating activities consisted primarily of our net loss of$221.6 million adjusted for non-cash items, including$155.3 million of stock-based compensation expense,$68.1 million of depreciation and amortization expense,$12.4 million of non-cash reduction to our operating right-of-use asset,$12.6 million amortization of deferred commissions and$60.7 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased$33.8 million primarily due to revenue growth, the timing of cash receipts and pre-payments for cloud infrastructure fees and certain operating expenses. Accounts payable and other current liabilities increased$19.4 million primarily due to increases in transaction volumes. Operating lease liability decreased$13.1 million due to payments made against our operating lease obligations. Other long-term assets increased$27.4 million primarily due to an increase in the sales commissions balances related to the growth of our business. In 2021, cash provided by operating activities consisted primarily of our net loss of$206.5 million adjusted for non-cash items, including$137.2 million of stock-based compensation expense,$59.6 million of depreciation and amortization expense,$9.4 million of donated common stock,$7.6 million loss on extinguishment of our convertible notes,$3.4 million amortization of the debt discount and issuance costs related primarily to our convertible notes,$11.7 million of non-cash reduction to our operating right-of-use asset,$5.6 million amortization of deferred commissions, a$2.0 million increase in our allowance for credit losses, and$32.7 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased$24.3 million primarily due to the timing of cash receipts from certain of our larger customers, pre-payments for cloud infrastructure fees and certain operating expenses. Accounts payable and other current liabilities increased$18.0 million primarily due to increases in transaction volumes. Operating lease liability decreased$12.1 million due to payments made against our operating lease obligations. Other long-term assets increased$15.2 million primarily due to an increase in the sales commissions balances related to the growth of our business.
Cash Flows from Investing Activities
In 2022, cash provided by investing activities was$151.0 million primarily consisting of$195.9 million of proceeds from sales and maturities of marketable securities, net of purchases of marketable securities and other investments, offset by$27.7 million of net cash paid to acquire other businesses,$10.3 million related to capitalized software development costs and$7.0 million related to purchases of long-lived assets. In 2021, cash used in investing activities was$1.4 billion primarily consisting of$1.3 billion of purchases of marketable securities and other investments, net of maturities and sales,$66.9 million of net cash paid to acquire other businesses,$10.4 million related to capitalized software development costs and$5.0 million related to purchases of long-lived assets.
Cash Flows from Financing Activities
In 2022, cash provided by financing activities was
In 2021, cash provided by financing activities was
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Critical Accounting Policies and Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States of America . The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. 31
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There have been no changes to our critical accounting policies as described in
our Annual Report on Form 10-K filed with the
Recent Accounting Pronouncements Not Yet Adopted
There are no material recent accounting pronouncements not yet adopted.
Available Information
Our filings are available to be viewed and downloaded free of charge through our investor relations website after we file them with theSecurities and Exchange Commission ("SEC"). Our filings include our Annual Report on Form 10-K, as amended, Quarterly Reports on Form 10-Q, our Proxy Statement for our annual meeting of stockholders, Current Reports on Form 8-K and other filings with theSEC . Our investor relations website is located at http://investors.twilio.com. TheSEC also maintains an Internet website that contains periodic and current reports, proxy statements and other information about issuers, like us, that file electronically with theSEC . The address of that website is www.sec.gov. We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, includingSEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. Further corporate governance information, including our corporate governance guidelines and code of business conduct and ethics, is also available on our investor relations website under the heading "Governance." The contents of our websites are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with theSEC , and any references to our websites are intended to be inactive textual references only.
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