TWILIO INC, 10-K filed on 3/2/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2019
Feb. 20, 2020
Jun. 28, 2019
Entity Information [Line Items]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 001-37806    
Entity Registrant Name TWILIO INC.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 26-2574840    
Entity Address, Address Line One 101 Spear Street    
Entity Address, Address Line Two First Floor    
Entity Address, City or Town San Francisco    
Entity Address, State or Province CA    
Entity Address, Postal Zip Code 94105    
City Area Code 415    
Local Phone Number 390-2337    
Title of 12(b) Security Class A Common Stock, par value $0.001 per share    
Trading Symbol TWLO    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 15.9
Documents Incorporated by Reference Portions of the registrant's definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, 2019    
Entity Central Index Key 0001447669    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Common Class A      
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding   128,303,845  
Common Class B      
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding   11,406,940  
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 253,660 $ 487,215
Short-term marketable securities 1,599,033 261,128
Accounts receivable, net 154,067 97,712
Prepaid expenses and other current assets 54,571 26,893
Total current assets 2,061,331 872,948
Restricted cash 75 18,119
Property and equipment, net 141,256  
Property and equipment, net   63,534
Operating right-of-use asset 156,741  
Intangible assets, net 460,849 27,558
Goodwill 2,296,784 38,165
Other long-term assets 33,480 8,386
Total assets 5,150,516 1,028,710
Current liabilities:    
Accounts payable 39,099 18,495
Accrued expenses and other current liabilities 147,681 96,343
Deferred revenue and customer deposits 26,362 22,972
Operating lease liability, current 27,156  
Finance lease liability, current 6,924  
Total current liabilities 247,222 137,810
Operating lease liability, noncurrent 139,200  
Finance lease liability, noncurrent 8,746  
Convertible senior notes, net 458,190 434,496
Other long-term liabilities 17,747 18,169
Total liabilities 871,105 590,475
Commitments and contingencies (Note 12)
Stockholders’ equity:    
Preferred stock 0 0
Class A and Class B common stock 138 100
Additional paid-in capital 4,952,999 808,527
Accumulated other comprehensive income 5,086 1,282
Accumulated deficit (678,812) (371,674)
Total stockholders’ equity 4,279,411 438,235
Total liabilities and stockholders’ equity $ 5,150,516 $ 1,028,710
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Consolidated Balance Sheets Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
May 31, 2018
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001  
Preferred stock, authorized (in shares) 100,000,000 100,000,000  
Preferred stock, issued (in shares) 0 0  
Common stock, par value (in dollars per share) $ 0.001 $ 0.001  
Common Class A      
Common stock, authorized (in shares) 1,000,000,000 1,000,000,000  
Common stock, issued (in shares) 126,882,172 80,769,763  
Common stock, outstanding (in shares) 126,882,172 80,769,763  
Common stock, par value (in dollars per share) $ 0.001 $ 0.001 $ 0.001
Common Class B      
Common stock, authorized (in shares) 100,000,000 100,000,000  
Common stock, issued (in shares) 11,530,627 19,310,465  
Common stock, outstanding (in shares) 11,530,627 19,310,465  
Common stock, par value (in dollars per share) $ 0.001 $ 0.001  
v3.19.3.a.u2
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenues:      
Revenue $ 1,134,468 $ 650,067 $ 399,020
Cost of revenue 525,551 300,841 182,895
Gross profit 608,917 349,226 216,125
Operating expenses:      
Research and development 391,355 171,358 120,739
Sales and marketing 369,079 175,555 100,669
General and administrative 218,268 117,548 60,791
Total operating expenses 978,702 464,461 282,199
Loss from operations (369,785) (115,235) (66,074)
Other income (expense), net 7,569 (5,923) 3,071
Loss before provision for income taxes (362,216) (121,158) (63,003)
Income tax benefit (provision) 55,153 (791) (705)
Net loss attributable to common stockholders $ (307,063) $ (121,949) $ (63,708)
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share) $ (2.36) $ (1.26) $ (0.70)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted (in shares) 130,083,046 97,130,339 91,224,607
v3.19.3.a.u2
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net loss $ (307,063) $ (121,949) $ (63,708)
Other comprehensive income (loss):      
Unrealized gain (loss) on marketable securities, net of tax 3,804 258 (598)
Foreign currency translation 0 (1,001) 2,623
Total other comprehensive income (loss), net of tax 3,804 (743) 2,025
Comprehensive loss attributable to common stockholders $ (303,259) $ (122,692) $ (61,683)
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Consolidated Statements of Stockholders Equity - USD ($)
$ in Thousands
Total
Common Class A
Common Class B
Common Stock
Common Class A
Common Stock
Common Class B
Additional Paid In Capital
Accumulated Other Comprehensive Income
Accumulated Deficit
Follow-on Public Offering
Follow-on Public Offering
Common Stock
Common Class A
Follow-on Public Offering
Additional Paid In Capital
Balance (in shares) at Dec. 31, 2016       49,996,410 37,252,138            
Balance at Dec. 31, 2016 $ 329,447     $ 51 $ 36 $ 516,090 $ 0 $ (186,730)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net loss (63,708)             (63,708)      
Exercises of vested stock options (in shares)       0 5,186,539            
Exercises of vested stock options 25,597     $ 0 $ 6 25,591          
Vesting of early exercised stock options 378         378          
Vesting of restricted stock units (in shares)       360,116 351,255            
Vesting of restricted stock units 0     $ 0              
Value of equity awards withheld for tax liability (in shares)         (22,538)            
Value of equity awards withheld for tax liability (678)         (678)          
Exercises of unvested stock options (in shares)         22,510            
Conversion of shares of Class B common stock into shares of Class A common stock (in shares)       18,710,499 (18,710,499)            
Conversion of shares of Class B common stock into shares of Class A common stock       $ 18 $ (18)            
Shares issued under ESPP (in shares)       794,142              
Shares issued under ESPP 11,918     $ 1   11,917          
Donated common stock (in shares)       45,383              
Donated common stock 1,172         1,172          
Repurchases of unvested stock options (in shares)         (16,159)            
Repurchases of unvested stock options (100)         (100)          
Unrealized gain (loss) on marketable securities, net of tax (598)           (598)        
Foreign currency translation 2,623           2,623        
Stock-based compensation 53,795         53,795          
Balance (in shares) at Dec. 31, 2017       69,906,550 24,063,246            
Balance at Dec. 31, 2017 359,846     $ 70 $ 24 608,165 2,025 (250,438)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net loss (121,949)             (121,949)      
Adjustment to opening retained earnings due to adoption of ASC 606 713             713      
Exercises of vested stock options (in shares)       0 3,625,991            
Exercises of vested stock options 29,736     $ 0 $ 4 29,732          
Vesting of early exercised stock options 36         36          
Vesting of restricted stock units (in shares)       1,970,565 172,211            
Vesting of restricted stock units 2     $ 2              
Value of equity awards withheld for tax liability (in shares)       (25,932) (22,044)            
Value of equity awards withheld for tax liability (2,654)         (2,654)          
Exercises of unvested stock options (in shares)         2,041            
Conversion of shares of Class B common stock into shares of Class A common stock (in shares)       8,530,980 (8,530,980)            
Conversion of shares of Class B common stock into shares of Class A common stock       $ 8 $ (8)            
Shares issued under ESPP (in shares)       325,262              
Shares issued under ESPP 10,122         10,122          
Donated common stock (in shares)       62,338              
Donated common stock 5,996         5,996          
Unrealized gain (loss) on marketable securities, net of tax 258           258        
Issuance of debt conversion option 119,435         119,435          
Debt conversion option issuance costs (2,819)         (2,819)          
Capped call option issuance costs (58,465)         (58,465)          
Foreign currency translation (1,001)           (1,001)        
Stock-based compensation 98,979         98,979          
Balance (in shares) at Dec. 31, 2018   80,769,763 19,310,465                
Balance at Dec. 31, 2018 438,235     $ 80 $ 20 808,527 1,282 (371,674)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net loss (307,063)             (307,063)      
Exercises of vested stock options (in shares)       1,466,813 2,154,053            
Exercises of vested stock options 37,742     $ 1 $ 2 37,739          
Recapitalization of a subsidiary 0         75   (75)      
Vesting of early exercised stock options 21         21          
Vesting of restricted stock units (in shares)       2,775,788 117,331            
Vesting of restricted stock units 3     $ 2 $ 1            
Value of equity awards withheld for tax liability (in shares)       (23,543) (22,095)            
Value of equity awards withheld for tax liability (5,412)         (5,412)          
Conversion of shares of Class B common stock into shares of Class A common stock (in shares)       10,029,127 (10,029,127)            
Conversion of shares of Class B common stock into shares of Class A common stock       $ 9 $ (9)            
Shares issued under ESPP (in shares)       244,628              
Shares issued under ESPP 19,738         19,738          
Equity awards assumed in acquisition 182,554         182,554          
Unrealized gain (loss) on marketable securities, net of tax 3,804           3,804        
Shares issued in acquisition (in shares)       23,555,081           8,064,515  
Shares issued in acquisition 2,658,898     $ 24   2,658,874     $ 980,000 $ 8 $ 979,992
Costs related to the follow-on public offering (953)                    
Foreign currency translation 0                    
Stock-based compensation 271,844         271,844          
Balance (in shares) at Dec. 31, 2019   126,882,172 11,530,627                
Balance at Dec. 31, 2019 $ 4,279,411     $ 124 $ 14 $ 4,952,999 $ 5,086 $ (678,812)      
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $ (307,063) $ (121,949) $ (63,708)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and amortization 110,430 26,095 18,764
Non-cash reduction to the right-of-use asset 23,193 0 0
Net amortization of investment premium and discount (4,501) (1,496) 262
Amortization of debt discount and issuance costs 23,696 14,053 0
Stock-based compensation 264,318 93,273 49,619
Tax benefit related to release of valuation allowance (55,745) 0 0
Other adjustments 7,676 12,824 2,018
Changes in operating assets and liabilities:      
Accounts receivable (51,357) (58,234) (15,280)
Prepaid expenses and other current assets (20,316) (8,739) 2,214
Other long-term assets (18,021) (5,305) (1,984)
Accounts payable 17,255 6,980 5,433
Accrued expenses and other current liabilities 46,154 45,120 (3,312)
Deferred revenue and customer deposits 2,968 5,958 3,560
Operating right of use liability (21,138) 0 0
Long-term liabilities (3,501) (597) (841)
Net cash provided by operating activities 14,048 7,983 (3,255)
CASH FLOWS FROM INVESTING ACTIVITIES:      
Acquisitions, net of cash acquired 122,749 (30,574) (22,621)
Purchases of marketable securities and other investments (2,038,422) (279,687) (293,186)
Proceeds from sales and maturities of marketable securities 697,171 195,497 115,877
Capitalized software development costs (21,922) (19,546) (17,280)
Purchases of long-lived assets (45,368) (5,109) (9,538)
Net cash used in investing activities (1,285,792) (139,419) (226,748)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from a public offering, net of underwriting discount 980,000 0 0
Payments of costs related to public offerings (877) 0 (430)
Proceeds from issuance of convertible senior notes 0 550,000 0
Payment of debt issuance costs 0 (12,941) 0
Purchase of capped call 0 (58,465) 0
Principal payments on notes payable (5,400) 0 0
Principal payments on finance leases (5,646) 0 0
Proceeds from exercises of stock options and shares issued in ESPP 57,480 39,879 37,645
Value of equity awards withheld for tax liabilities (5,412) (2,654) (678)
Repurchases of common stock 0 0 (100)
Net cash provided by financing activities 1,020,145 515,819 36,437
Effect of exchange rate changes on cash, cash equivalents and restricted cash 0 163 74
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (251,599) 384,546 (193,492)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 505,334 120,788 314,280
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period 253,735 505,334 120,788
Cash paid for income taxes, net 1,368 564 605
Cash paid for interest 2,290 741 0
NON-CASH INVESTING AND FINANCING ACTIVITIES:      
Finance lease right-of-use assets assumed in a business combination 14,173 0 0
Purchases of property and equipment through finance leases 5,848 2,478 0
Acquisition holdback 7,980 2,290 0
Value of common stock issued and stock awards assumed in acquisition 2,841,452 0 0
Stock-based compensation capitalized in software development costs $ 7,777 $ 5,706 $ 4,176
v3.19.3.a.u2
Organization and Description of Business
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Description of Business Organization and Description of Business
Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. The Company is the leader in the Cloud Communications Platform category and enables developers to build, scale and operate real-time communications within their software applications via simple-to-use Application Programming Interfaces (“API”). The power, flexibility, and reliability offered by the Company’s software building blocks empower entities of virtually every shape and size to build world-class engagement into their customer experience.
The Company’s headquarters are located in San Francisco, California, and the Company has subsidiaries in Australia,
Bermuda, Brazil, Colombia, Czech Republic, Estonia, France, Germany, Hong Kong, Ireland, India, Japan, the Netherlands, Singapore, Spain, Sweden, United Kingdom and the United States.
v3.19.3.a.u2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
(a)Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
(b)Principles of Consolidation
The consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
(c)Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, revenue allowances and sales credit reserves; recoverability of long-lived and intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments, therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.
(d)Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company maintains cash, cash equivalents and marketable securities with financial institutions that management believes are financially sound and have minimal credit risk exposure although the balances will exceed insured limits.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customers deteriorate substantially, operating results could be adversely affected. To reduce credit risk, management performs credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. During the years ended December 31, 2019, 2018 and 2017, no customer organization accounted for more than 10% of the Company’s total revenue.
As of December 31, 2019 and 2018, no customer organization represented more than 10% of the Company’s gross accounts receivable.
(e)Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for credits and any taxes collected from customers, which are subsequently remitted to governmental authorities.
The Company determines revenue recognition through the following steps:
Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, the Company satisfies a performance obligation.
Nature of Products and Services
The Company's revenue is primarily derived from usage-based fees earned from customers accessing the Company's enterprise cloud computing services. Platform access is considered a monthly series comprising of one performance obligation and usage-based fees are recognized as revenue in the period in which the usage occurs. In the years ended December 31, 2019, 2018 and 2017, the revenue from usage-based fees represented 75%, 84% and 83% of total revenue, respectively.
Subscription-based fees are derived from certain non-usage-based contracts, such as with the sales of short codes and customer support. Non-usage-based contracts revenue is recognized on a ratable basis over the contractual term which is generally one year or less. In the years ended December 31, 2019, 2018 and 2017, the revenue from non-usage-based fees represented 25%, 16%, and 17% of total revenue, respectively.
The Company applied the optional exemption of not disclosing the transaction price allocated to the remaining performance obligations for its usage-based contracts and contracts with original duration of one year or less. The majority of the Company's contracts have a duration of one year or less.
No significant judgments are required in determining whether products and services are considered distinct performance obligations and should be accounted for separately versus together, or to determine the stand-alone selling price ("SSP").
The Company's arrangements do not contain general rights of return. However, credits may be issued on a case-by-case basis. The contracts do not provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met.
(f)Deferred Revenue and Customer Deposits
Deferred revenue is recorded when cash payments are received in advance of future usage on non-cancelable contracts. Customer refundable prepayments are recorded as customer deposits. As of December 31, 2019 and 2018, the Company recorded $26.4 million and $23.0 million as its deferred revenue and customer deposits, respectively. During the years ended December 31, 2019 and 2018, the Company recognized $18.7 million and $10.6 million of revenue, respectively, that was included in the deferred revenue and customer deposits balance as of the end of the prior year.
(g)Deferred Sales Commissions
The Company records an asset for the incremental costs of obtaining a contract with a customer, for example, sales commissions that are earned upon execution of contracts. The Company uses the portfolio of data method to determine the estimated period of benefit of capitalized commissions which is determined to be five years. Amortization expense related to these capitalized costs related to initial contracts, upsells and renewals, is recognized on a straight line basis over the estimated period of benefit of the capitalized commissions.
Total net capitalized costs as of December 31, 2019 and 2018 were $30.4 million and $9.4 million, respectively, and are included in prepaid expenses and other current and long‑term assets in the accompanying consolidated balance sheets. Amortization of these assets was $4.5 million and $1.4 million in the years ended December 31, 2019 and 2018, respectively, and is included in sales and marketing expense in the accompanying consolidated statements of operations.
(h)Cost of Revenue
Cost of revenue consists primarily of costs of communications services purchased from network service providers. Cost of revenue also includes fees to support the Company's cloud infrastructure, direct costs of personnel, such as salaries and stock-based compensation for the customer care and support services employees, and non-personnel costs, such as amortization of capitalized internal-use software development costs and amortization of acquired intangibles.
(i)Research and Development Expense
Research and development expenses consist primarily of personnel costs, cloud infrastructure fees for staging and development, outsourced engineering services, amortization of capitalized internal-use software development costs and an allocation of general overhead expenses. The Company capitalizes the portion of its software development costs that meets the criteria for capitalization.
(j)Internal-Use Software Development Costs
Certain costs of platform and other software applications developed for internal use are capitalized. The Company capitalizes qualifying internal-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Costs incurred for maintenance, minor upgrades and enhancements are expensed. Costs related to preliminary project activities and post-implementation operating activities are also expensed as incurred.
Capitalized costs of platform and other software applications are included in property and equipment. These costs are amortized over the estimated useful life of the software on a straight-line basis over three years. Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. The amortization of costs related to the platform applications is included in cost of revenue, while the amortization of costs related to other software applications developed for internal use is included in operating expenses.
(k)Advertising Costs
Advertising costs are expensed as incurred and were $27.0 million, $10.6 million and $4.9 million in the years ended December 31, 2019, 2018, and 2017, respectively. Advertising costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.
(l)Stock-Based Compensation
All stock-based compensation to employees, including the purchase rights issued under the Company's 2016 Employee Stock Purchase Plan (the "ESPP"), is measured on the grant date based on the fair value of the awards on the date of grant. This cost is recognized as an expense following straight-line attribution method over the requisite service period. The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options and the purchase rights issued under the ESPP. The fair value of the restricted stock units is determined using the fair value of the Company's Class A common stock on the date of grant and recognized as an expense following straight-line attribution method over the requisite service period. Prior to adoption of ASU 2016-09, the stock-based compensation was recorded net of estimated forfeitures.
Compensation expense for stock options granted to nonemployees is calculated using the Black-Scholes option pricing model and is recognized in expense over the service period.
The Black-Scholes option pricing model requires the use of complex assumptions, which determine the fair value of stock-based awards. These assumptions include:
Fair value of the common stock. The Company uses the market closing price of its Class A common stock, as reported on the New York Stock Exchange, for the fair value.
Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company uses the simplified calculation of expected term, as the Company does not have sufficient historical data to use any other method to estimate expected term;
Expected volatility. The expected volatility is derived from an average of the historical volatilities of the common stock of the Company and several other entities with characteristics similar to those of the Company, such as the size and operational and economic similarities to the Company's principal business operations;
Risk -free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the stock-based awards; and
Expected dividend. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.
If any of the assumptions used in the Black-Scholes model changes, stock-based compensation for future options may differ materially compared to that associated with previous grants.
(m)Income Taxes
The Company accounts for income taxes in accordance with authoritative guidance which requires the use of the asset and liability approach. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carry-forwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.
The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.
(n)Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is generally the U.S. dollar. Accordingly, the subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. Remeasurement adjustments are recognized in the consolidated statements of operations as other income or expense in the year of occurrence. Foreign currency transaction gains and losses were insignificant for all periods presented.
For those entities where the functional currency is a foreign currency, adjustments resulting from translating the financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income (loss) in stockholders' equity. Monetary assets and liabilities denominated in a foreign currency are translated into US dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the weighted average exchange rates during the period. Equity transactions are translated using historical exchange rates. Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations.
(o)Comprehensive Income (Loss)
Comprehensive income (loss) refers to net income (loss) and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders' equity but are excluded from the calculation of net income (loss).
(p)Net Loss Per Share Attributable to Common Stockholders
The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. All series of convertible preferred stock are considered to be participating securities as the holders of the preferred stock are entitled to receive a non-cumulative dividend on a pro rata pari passu basis in the event that a dividend is declared or paid on common stock. Shares of common stock issued upon early exercise of stock options that are subject to repurchase are also considered to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is declared or paid on common stock. Under the two-class method, in periods when the Company has net income, net income attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income less current period convertible preferred stock non-cumulative dividends, between common stock and the convertible preferred stock. In computing diluted net income attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method. For purposes of this calculation, convertible preferred stock, options to purchase common stock, unvested restricted stock units, common stock issued subject to future vesting, any shares of stock committed under the ESPP, any shares of stock held in escrow and any shares of stock reserved for future donations are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
Class A and Class B common stock are the only outstanding equity of the Company. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder on a one-for-one basis, and are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions. Shares of Class A common stock are not convertible.
(q)Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of cash deposited into money market funds and reverse repurchase agreements. All credit and debit card transactions that process as of the last day of each month and settle within the first few days of the subsequent month are also classified as cash and cash equivalents as of the end of the month in which they were processed.
(r)Restricted Cash
Restricted cash consists of cash deposited into a savings account with a financial institution as collateral for the Company's obligations under certain vendor and facility leases contracts.
(s)Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company's assessment of its ability to collect on customer accounts receivable. The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer's ability to pay. In cases where the Company is aware of circumstances that may impair a specific customer's ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believe will be collected. The Company writes-off accounts receivable against the allowance when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued. The allowance for doubtful accounts was $6.3 million and $4.9 million as of December 31, 2019 and 2018, respectively.
(t)Costs Related to Public Offerings
Costs related to the public offerings, which consist of direct incremental legal, printing and accounting fees, are deferred until the offering is completed. Upon completion of the offering, these costs are offset against the offering proceeds within the consolidated statements of stockholders' equity. In the year ended December 31, 2019, the Company recorded in its consolidated statement of stockholders' equity $1.0 million in total offering costs.
(u)Property and Equipment
Property and equipment, both owned and under finance leases, is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Maintenance and repairs are charged to expenses as incurred.
The useful lives of property and equipment are as follows:
Capitalized internal-use software development costs
 
3 years
Data center equipment
 
2 - 4 years
Office equipment
 
3 years
Furniture and fixtures
 
5 years
Software
 
3 years
Assets under financing lease
 
5 years or remaining lease term
Leasehold improvements
 
5 years or remaining lease term

(v)Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, "Leases (Topic 842)", which was further clarified in July 2018 by ASU 2018‑10, “Codification Improvements to Topic 842, Leases”, and ASU 2018‑11, “Leases-Targeted Improvements”. ASU 2018-10 provides narrow amendments to clarify how to apply certain aspects of the new lease standard. ASU 2018-11 addresses implementation issues related to the new lease standard. The standard became effective for the Company on January 1, 2019. Under this standard, lessees are required to recognize in the balance sheet the right-of-use ("ROU") assets and lease liabilities that arise from operating leases. The Company adopted the standard using the optional alternative method on a prospective basis with an effective date as of the beginning of the Company’s fiscal year, January 1, 2019, and applied it to the operating leases that existed on that date. Prior year comparative financial information was not recast under the new standard and continues to be presented under ASC 840. The Company elected to utilize the package of practical expedients available for expired or existing contracts which allowed the Company to carryforward historical assessments of (a) whether contracts are or contain leases, (b) lease classification, and (c) initial direct costs. The Company elected the use of hindsight practical expedient in determining the lease term and assessing the likelihood that lease renewal, termination or purchase option will be exercised. The Company also elected to apply the short-term lease exception for all leases. Under the short-term lease exception, the Company will not recognize ROU assets or lease liabilities for leases that, at the acquisition date, have a remaining lease term of 12 months or less.
As a result of implementing this guidance, the Company recognized a $123.5 million net operating ROU asset and a $132.0 million operating lease liability in its consolidated balance sheet as of January 1, 2019. The ROU asset was presented net of deferred rent of $9.0 million as of January 1, 2019, in the accompanying consolidated balance sheet. In addition, on February 1, 2019, the Company acquired through its business combination with SendGrid approximately $33.7 million in operating ROU assets, $32.6 million in operating lease liability, $14.2 million in finance ROU assets and $13.6 million in finance lease liability.
The Company measured the lease liability at the present value of the future lease payments as of January 1, 2019. The Company used its incremental borrowing rate to discount the lease payments. The Company derived the discount rate, adjusted for differences in the term and payment patterns, from the information available at the adoption date. The right-of-use asset is valued at the amount of the lease liability adjusted for the remaining December 31, 2018, balance of unamortized lease incentives, prepaid rent and deferred rent. The lease liability is subsequently measured at the present value of unpaid future lease payments as of the reporting date with a corresponding adjustment to the right-of-use asset. Absent a lease modification, the Company will continue to utilize the January 1, 2019, incremental borrowing rate.
The Company recognizes operating lease costs on a straight-line basis and presents these costs as operating expenses within the consolidated statements of operations and comprehensive loss. Within the consolidated statements of cash flows the Company presents the lease payments made on the operating leases within the cash flows from operations and principal payments made on the finance leases as part of financing activities.
The financial results for the year ended December 31, 2019, are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.
 See Note 5, “Right-of-use Assets and Lease Liabilities” for further information.
(w)Intangible Assets
Intangible assets recorded by the Company are costs directly associated with securing legal registration of patents and trademarks, acquiring domain names and the fair value of identifiable intangible assets acquired in business combinations.
Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets without determinable economic lives are carried at cost, not amortized and reviewed for impairment at least annually.
The useful lives of the intangible assets are as follows:
Developed technology
 
3 - 7 years
Customer relationships
 
2 - 8 years
Supplier relationships
 
2 - 5 years
Trade names
 
5 years
Patents
 
20 years
Telecommunication licenses
 
Indefinite
Trademarks
 
Indefinite
Domain names
 
Indefinite


(x)Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that it operates as one reporting unit and has selected November 30 as the date to perform its annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company's business. If these estimates or their related assumptions change in the future, the Company may be required to record impairment for these assets.
The Company has the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, the Company may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill. If the net book value exceeds its fair value, the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss.
In January 2017, the FASB issued ASU 2017‑04, “Simplifying the Test for Goodwill Impairment”, which removes the second step of the goodwill impairment test that required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. The impairment is limited to the carrying amount of goodwill. This guidance is applied prospectively. The Company early adopted this guidance effective April 1, 2019, which did not have a material impact to its consolidated financial statements.
No goodwill impairment charges have been recorded for any period presented.
(y)Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value. There was no impairment during the years ended December 31, 2019, 2018 and 2017.
(z)Business Combinations
The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of the purchase price. As a result, during the measurement period the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the consolidated statement of operations.
(aa)Segment Information
The Company's Chief Executive Officer is the chief operating decision maker, who reviews the Company's financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company's financial performance. Accordingly, the Company has determined that it operates in a single reporting segment.
(ab)Fair Value of Financial Instruments
The Company applies fair value accounting for all financial instruments on a recurring basis. The Company's financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature. Restricted cash is long-term in nature and consists of cash in a savings account, hence its carrying amount approximates its fair value. Marketable securities consist of U.S. treasury securities, high credit quality corporate debt securities and reverse repurchase agreements. All marketable securities are considered to be available-for-sale and recorded at their estimated fair values. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive income (loss). In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value of the convertible senior notes due 2023 (the "Notes") is determined based on the closing price for the Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.
Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis. Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net.
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments under ASU 2018-13 remove, add and modify certain disclosure requirements on fair value measurements. The amendments are effective for interim and annual periods beginning after December 15, 2019. The Company early adopted this guidance effective April 1, 2019, which did not have a material impact to its consolidated financial statements.
(ac)Recently Issued Accounting Guidance, Not yet Adopted

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes" which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. ASU 2019-12 will be effective for the Company beginning January 1, 2021, and early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements
In August 2018, the FASB issued ASU 2018‑15, “Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal‑use software. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016‑13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments”, which changes the impairment model for most financial assets. The new model uses a forward‑looking expected loss method, which will generally result in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018‑19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which clarifies that receivables arising from operating leases are not within the scope of Topic 326, Financial Instruments-Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which clarifies treatment of certain credit losses. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief", which permits an entity, upon adoption of ASU 2016-13, to irrevocably elect the fair value option (on an instrument-by-instrument basis) for eligible financial assets measured at amortized cost basis. In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses", which clarifies the accounting treatment and disclosure requirements for assets purchased with credit deterioration, troubled debt restructurings, and certain other investments. In February 2020, the FASB issued ASU 2020-02, "Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)." This ASU provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. These ASUs are effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements.

v3.19.3.a.u2
Fair Value Measurements
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
The following tables provide the financial assets measured at fair value on a recurring basis:
 
 
Amortized
Cost or
Carrying
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Less Than
12 Months
 
Gross
Unrealized
Losses More
Than
12 Months
 
Fair Value Hierarchy as of
December 31, 2019
 
Aggregate
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
Financial Assets:
 
(In thousands)
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
153,252

 
$

 
$

 
$

 
$
153,252

 
$

 
$

 
$
153,252

Reverse repurchase agreements
 
35,800

 

 

 

 

 
35,800

 

 
35,800

Total included in cash and cash equivalents
 
189,052

 

 

 

 
153,252

 
35,800

 

 
189,052

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
215,847

 
241

 
(3
)
 

 
216,085

 

 

 
216,085

Corporate debt securities and commercial paper
 
1,378,487

 
4,516

 
(55
)
 

 
5,000

 
1,377,948

 

 
1,382,948

Total marketable securities
 
1,594,334

 
4,757

 
(58
)
 

 
221,085

 
1,377,948

 

 
1,599,033

Strategic investments
 
5,500

 

 

 

 

 

 
5,500

 
5,500

Total financial assets
 
$
1,788,886

 
$
4,757

 
$
(58
)
 
$

 
$
374,337

 
$
1,413,748

 
$
5,500

 
$
1,793,585

 
 
Amortized
Cost or
Carrying
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Less Than
12 Months
 
Gross
Unrealized
Losses More
Than
12 Months
 
Fair Value Hierarchy as of
December 31, 2018
 
Aggregate
Fair Value
 
 
Level 1
 
Level 2
 
Level  3
Financial Assets:
 
(In thousands)
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
420,234

 
$

 
$

 
$

 
$
420,234

 
$

 
$

 
$
420,234

Reverse repurchase agreements
 
35,000

 

 

 

 

 
35,000

 

 
35,000

Commercial paper
 
9,983

 

 

 

 

 
9,983

 

 
9,983

Total included in cash and cash equivalents
 
465,217

 

 



 
420,234

 
44,983

 

 
465,217

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
59,785

 

 
(7
)
 
(9
)
 
59,769

 

 

 
59,769

Corporate debt securities and commercial paper
 
201,683

 
23

 
(123
)
 
(224
)
 

 
201,359

 

 
201,359

Total marketable securities
 
261,468

 
23

 
(130
)
 
(233
)
 
59,769

 
201,359

 

 
261,128

Total financial assets
 
$
726,685

 
$
23

 
$
(130
)
 
$
(233
)
 
$
480,003

 
$
246,342

 
$

 
$
726,345

As the Company views its marketable securities as available to support current operations, it has classified all available for sale securities as short-term. As of December 31, 2019, the Company had no securities that were in unrealized loss position for over 12 months. As of December 31, 2018, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of December 31, 2019 and 2018, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities and determined that no other-than-temporary impairments were required to be recognized during the years ended December 31, 2019, 2018 and 2017.
Interest earned on marketable securities was $20.8 million, $3.0 million and $2.6 million in the years ended December 31, 2019, 2018 and 2017, respectively. The interest is recorded as other income (expense), net, in the accompanying consolidated statements of operations.
The following table summarizes the contractual maturities of marketable securities:
 
 
As of December 31, 2019
 
As of December 31, 2018
 
 
Amortized
Cost
 
Aggregate
Fair Value
 
Amortized
Cost
 
Aggregate
Fair Value
Financial Assets:
 
(In thousands)
Less than one year
 
$
859,996

 
$
861,181

 
$
261,468

 
$
261,128

One to three years
 
734,338

 
737,852

 

 

Total
 
$
1,594,334

 
$
1,599,033

 
$
261,468

 
$
261,128



The Company enters into reverse securities repurchase agreements, primarily for short-term investments with maturities of 90 days or less. As of December 31, 2019 and 2018, the Company was party to reverse repurchase agreements totaling $35.8 million and $35.0 million, respectively, which were reported in cash and equivalents in the accompanying consolidated balance sheets. Under these reverse securities repurchase agreements, the Company typically lends available cash at a specified rate of interest and holds U.S. government securities as collateral during the term of the agreement. Collateral value is in excess of the amounts loaned under these agreements.
In May and August 2019, the Company made strategic investments totaling $5.5 million into privately held debt securities in which the Company does not have a controlling interest or significant influence. These securities are recorded at fair value in other long-term assets in the consolidated balance sheet. The Company classifies its strategic investments as Level 3 within the fair value hierarchy based on the nature of the fair value inputs and judgment involved in the valuation process. There were no material changes to fair value of these securities during the year ended December 31, 2019.
As of December 31, 2019 and 2018, the fair value of the 0.25% convertible senior notes due 2023 (the “Notes”), as further described in Note 9 below, was approximately $841.3 million and $743.4 million, respectively. The fair value of the Notes is determined based on the closing price on the last trading day of the reporting period and is classified as a Level 2 security within the fair value hierarchy.
v3.19.3.a.u2
Property and Equipment
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment Property and Equipment
Property and equipment consisted of the following:
 
 
As of December 31,
 
 
2019
 
2018
 
 
(In thousands)
Capitalized internal-use software development costs
 
$
100,155

 
$
72,647

Data center equipment (1)
 
22,009

 

Leasehold improvements
 
55,886

 
15,293

Office equipment
 
25,083

 
13,563

Furniture and fixtures (1)
 
10,095

 
4,918

Software
 
9,176

 
1,849

Total property and equipment
 
222,404

 
108,270

Less: accumulated depreciation and amortization
 
(81,148
)
 
(44,736
)
Total property and equipment, net
 
$
141,256

 
$
63,534

_______________
(1)    Data center equipment and furniture and fixtures contain assets under finance leases. See Note 5 for further detail.
Depreciation and amortization expense was $37.5 million, $18.9 million and $13.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company capitalized $29.7 million, $25.3 million and $21.5 million in internal‑use software development costs in the years ended December 31, 2019, 2018 and 2017, respectively, of which $7.8 million, $5.7 million and $4.2 million, respectively, was stock‑based compensation expense. Amortization of capitalized software development costs was $17.1 million, $13.0 million, and $8.4 million in the years ended December 31, 2019, 2018 and 2017, respectively. The amortization of the capitalized software development costs was allocated as follows:
 
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
 
 
(In thousands)
Cost of revenue
 
$
9,546

 
$
6,898

 
$
4,788

Research and development
 
7,345

 
5,437

 
3,619

General and administrative
 
213

 
689

 

Total
 
$
17,104

 
$
13,024

 
$
8,407


v3.19.3.a.u2
Right-of-Use Asset and Lease Liabilities
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Right-of-Use Asset and Lease Liabilities Right-of-Use Asset and Lease Liabilities
The Company determines if an arrangement is a lease at inception. The Company presents the operating leases in long-term assets and current and long-term liabilities. Finance lease assets are included in property and equipment, net, and finance lease liabilities are presented in current and long-term liabilities in the accompanying consolidated balance sheet as of December 31, 2019.
Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not generally provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease agreements may have lease and non-lease components, which the Company accounts for as a single lease component. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term and variable payments are recognized in the period they are incurred. The Company’s lease agreements do not contain any residual value guarantees. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company has entered into various operating lease agreements for data centers and office space, and various financing leases agreements for data center and office equipment and furniture.
As of December 31, 2019, the Company had 22 leased properties with remaining lease terms of 0.2 years to 9.0 years, some of which include options to extend the leases for up to 5.0 years.
The components of the lease expense recorded in the consolidated statement of operations were as follows:
 
 
Year Ended December 31, 2019
 
 
(In thousands)
Operating lease cost
 
$
32,558

Finance lease cost:
 
 
   Amortization of assets
 
6,090

   Interest on lease liabilities
 
708

Short-term lease cost
 
6,342

Variable lease cost
 
3,792

Total net lease cost
 
$
49,490


Supplemental balance sheet information related to leases was as follows:
Leases
 
Classification
 
As of
December 31, 2019
Assets:
 
 
 
(In thousands)
Operating lease assets
 
Operating right-of-use asset, net of accumulated amortization (1)
 
$
156,741

Finance lease assets
 
Property and equipment, net of accumulated depreciation (2)
 
14,770

Total leased assets
 
 
 
$
171,511

 
 
 
 
 
Liabilities:
 
 
 
 
Current
 
 
 
 
   Operating
 
Operating lease liability, current
 
$
27,156

   Finance
 
Financing lease liability, current
 
6,924

Noncurrent
 
 
 
 
   Operating
 
Operating lease liability, noncurrent
 
139,200

   Finance
 
Finance lease liability, noncurrent
 
8,746

Total lease liabilities
 
 
 
$
182,026

__________
(1)Operating lease assets are recorded net of accumulated amortization of $23.2 million as of December 31, 2019.
(2) Finance lease assets are recorded net of accumulated depreciation of $6.0 million as of December 31, 2019.
Supplemental cash flow and other information related to leases was as follows:
 
 
Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
(In thousands)
Operating cash flows from operating leases
 
$
28,291

Operating cash flows from finance leases (interest)
 
$
687

Financing cash flows from finance leases
 
$
5,646

 
 
 
Weighted average remaining lease term (in years):
 
 
Operating leases
 
6.1

Finance leases
 
3.0

 
 
 
Weighted average discount rate:
 
 
Operating leases
 
5.5
%
Finance leases
 
5.3
%

Maturities of lease liabilities were as follows:
 
 
As of December 31, 2019
 
 
Operating
Leases
 
Finance
Leases
Year Ended December 31,
 
(In thousands)
2020
 
$
35,997

 
$
7,586

2021
 
34,762

 
4,659

2022
 
33,214

 
2,333

2023
 
27,859

 
1,581

2024
 
25,400

 
315

Thereafter
 
43,125

 
581

Total lease payments
 
200,357

 
17,055

Less: imputed interest
 
(34,001
)
 
(1,385
)
Total lease obligations
 
166,356

 
15,670

Less: current obligations
 
(27,156
)
 
(6,924
)
Long-term lease obligations
 
$
139,200

 
$
8,746


As of December 31, 2019, the Company had additional operating lease obligations totaling $54.1 million related to leases that will commence in the first and second quarters of 2020 with lease terms ranging from 3.0 years to 6.8 years. The Company had an additional finance lease obligation of $0.7 million related to a lease that will commence in the second quarter of 2020 with a lease term of 6.8 years.
Disclosures related to periods prior to adoption of the New Lease Standard
Rent expense was $10.3 million and $8.1 million for the years ended December 31, 2018 and 2017, respectively.
Future minimum lease payment obligations under noncancelable operating and finance leases were as follows:
 
 
As of December 31, 2019
 
 
Operating
Leases
 
Financing
Leases
Year Ended December 31,
 
(In thousands)
2019
 
$
24,128

 
$
306

2020
 
29,527

 
512

2021
 
30,898

 
573

2022
 
30,492

 
590

2023
 
30,122

 
608

Thereafter
 
81,316

 
1,939

Total minimum lease payments
 
$
226,483

 
$
4,528


Right-of-Use Asset and Lease Liabilities Right-of-Use Asset and Lease Liabilities
The Company determines if an arrangement is a lease at inception. The Company presents the operating leases in long-term assets and current and long-term liabilities. Finance lease assets are included in property and equipment, net, and finance lease liabilities are presented in current and long-term liabilities in the accompanying consolidated balance sheet as of December 31, 2019.
Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not generally provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease agreements may have lease and non-lease components, which the Company accounts for as a single lease component. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term and variable payments are recognized in the period they are incurred. The Company’s lease agreements do not contain any residual value guarantees. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company has entered into various operating lease agreements for data centers and office space, and various financing leases agreements for data center and office equipment and furniture.
As of December 31, 2019, the Company had 22 leased properties with remaining lease terms of 0.2 years to 9.0 years, some of which include options to extend the leases for up to 5.0 years.
The components of the lease expense recorded in the consolidated statement of operations were as follows:
 
 
Year Ended December 31, 2019
 
 
(In thousands)
Operating lease cost
 
$
32,558

Finance lease cost:
 
 
   Amortization of assets
 
6,090

   Interest on lease liabilities
 
708

Short-term lease cost
 
6,342

Variable lease cost
 
3,792

Total net lease cost
 
$
49,490


Supplemental balance sheet information related to leases was as follows:
Leases
 
Classification
 
As of
December 31, 2019
Assets:
 
 
 
(In thousands)
Operating lease assets
 
Operating right-of-use asset, net of accumulated amortization (1)
 
$
156,741

Finance lease assets
 
Property and equipment, net of accumulated depreciation (2)
 
14,770

Total leased assets
 
 
 
$
171,511

 
 
 
 
 
Liabilities:
 
 
 
 
Current
 
 
 
 
   Operating
 
Operating lease liability, current
 
$
27,156

   Finance
 
Financing lease liability, current
 
6,924

Noncurrent
 
 
 
 
   Operating
 
Operating lease liability, noncurrent
 
139,200

   Finance
 
Finance lease liability, noncurrent
 
8,746

Total lease liabilities
 
 
 
$
182,026

__________
(1)Operating lease assets are recorded net of accumulated amortization of $23.2 million as of December 31, 2019.
(2) Finance lease assets are recorded net of accumulated depreciation of $6.0 million as of December 31, 2019.
Supplemental cash flow and other information related to leases was as follows:
 
 
Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
(In thousands)
Operating cash flows from operating leases
 
$
28,291

Operating cash flows from finance leases (interest)
 
$
687

Financing cash flows from finance leases
 
$
5,646

 
 
 
Weighted average remaining lease term (in years):
 
 
Operating leases
 
6.1

Finance leases
 
3.0

 
 
 
Weighted average discount rate:
 
 
Operating leases
 
5.5
%
Finance leases
 
5.3
%

Maturities of lease liabilities were as follows:
 
 
As of December 31, 2019
 
 
Operating
Leases
 
Finance
Leases
Year Ended December 31,
 
(In thousands)
2020
 
$
35,997

 
$
7,586

2021
 
34,762

 
4,659

2022
 
33,214

 
2,333

2023
 
27,859

 
1,581

2024
 
25,400

 
315

Thereafter
 
43,125

 
581

Total lease payments
 
200,357

 
17,055

Less: imputed interest
 
(34,001
)
 
(1,385
)
Total lease obligations
 
166,356

 
15,670

Less: current obligations
 
(27,156
)
 
(6,924
)
Long-term lease obligations
 
$
139,200

 
$
8,746


As of December 31, 2019, the Company had additional operating lease obligations totaling $54.1 million related to leases that will commence in the first and second quarters of 2020 with lease terms ranging from 3.0 years to 6.8 years. The Company had an additional finance lease obligation of $0.7 million related to a lease that will commence in the second quarter of 2020 with a lease term of 6.8 years.
Disclosures related to periods prior to adoption of the New Lease Standard
Rent expense was $10.3 million and $8.1 million for the years ended December 31, 2018 and 2017, respectively.
Future minimum lease payment obligations under noncancelable operating and finance leases were as follows:
 
 
As of December 31, 2019
 
 
Operating
Leases
 
Financing
Leases
Year Ended December 31,
 
(In thousands)
2019
 
$
24,128

 
$
306

2020
 
29,527

 
512

2021
 
30,898

 
573

2022
 
30,492

 
590

2023
 
30,122

 
608

Thereafter
 
81,316

 
1,939

Total minimum lease payments
 
$
226,483

 
$
4,528


v3.19.3.a.u2
Business Combinations
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Business Combinations Business Combinations
SendGrid, Inc.
In February 2019, the Company acquired all outstanding shares of SendGrid, Inc. ("SendGrid"), the leading email API platform, by issuing 23.6 million shares of its Class A common stock with a total value of $2,658.9 million. The Company also assumed all of the outstanding stock options and restricted stock units of SendGrid as converted into stock options and restricted stock units, respectively, of the Company based on the conversion ratio provided in the Agreement and Plan of Merger and Reorganization, as amended (the "Merger Agreement").
The acquisition added additional products and services to the Company's offerings for its customers. With these additional products, the Company now offers an email API and Marketing Campaigns product leveraging the email API. The acquisition has also added new customers, new employees, technology and intellectual property assets.

The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date with the excess recorded as goodwill. Subsequent to the acquisition date of February 1, 2019, and during the measurement period that ended on December 31, 2019, the Company recorded $4.4 million of adjustments to goodwill.
The adjusted purchase price of $2,841.5 million reflects the $2,658.9 million fair value of 23.6 million shares of the Company's Class A common stock transferred as consideration for all outstanding shares of SendGrid, and the $182.6 million fair value of the pre-combination services of SendGrid employees reflected in the equity awards assumed by the Company on the acquisition date.
The fair value of the 23.6 million shares transferred as consideration was determined on the basis of the closing market price of the Company's Class A common stock on the acquisition date. The fair value of the equity awards was determined (a) for options, by using a Black-Scholes option pricing model with the applicable assumptions as of the acquisition date, and (b) for restricted stock units, by using the closing market price of the Company's Class A common stock on the acquisition date.
The unvested stock awards assumed on the acquisition date continue to vest as the SendGrid employees continue to provide services in the post-acquisition period. The fair value of these awards is recorded as share-based compensation expense over the respective vesting period of each award.
The purchase price components, as adjusted, are summarized in the following table:
 
 
Total
 
 
(In thousands)
Fair value of Class A common stock transferred
 
$
2,658,898

Fair value of the pre-combination service through equity awards
 
182,554

Total purchase price, as adjusted
 
$
2,841,452


The following table presents the purchase price allocation, as adjusted, recorded in the Company's consolidated balance sheet as of December 31, 2019.
 
 
Total
 
 
(In thousands)
Cash and cash equivalents
 
$
156,783

Accounts receivable and other current assets
 
11,635

Property and equipment, net
 
38,350

Operating right-of-use asset
 
33,742

Intangible assets (1)
 
483,000

Other assets
 
1,664

Goodwill
 
2,235,193

Accounts payable and other liabilities
 
(11,114
)
Operating lease liability
 
(32,568
)
Finance lease liability
 
(13,616
)
Note payable
 
(5,387
)
Deferred tax liability
 
(56,230
)
Total purchase price
 
$
2,841,452

__________________________ 
(1) Identifiable intangible assets are comprised of the following:
 
 
Total
 
Estimated
life
 
 
(In thousands)
 
(In years)
Developed technology
 
$
294,000

 
7
Customer relationships
 
169,000

 
7
Trade names
 
20,000

 
5
Total intangible assets acquired
 
$
483,000

 
 

The Company acquired a net deferred tax liability of $56.2 million in this business combination that is included in long-term liabilities in the accompanying consolidated balance sheet. This amount was offset by a release of a valuation allowance on deferred tax assets of $47.9 million.
Developed technology consists of software products and domain knowledge around email delivery developed by SendGrid, which enables the delivery of email reliably and at scale. Customer relationships consists of contracts with platform users that purchase SendGrid’s products and services that carry distinct value. Trade names represent the Company’s right to the SendGrid trade names and associated design as it existed on the acquisition closing date.
Goodwill generated from this acquisition primarily represents the value that is expected from the increased scale and synergies as a result of the integration of both businesses. Goodwill is not deductible for tax purposes.
The estimated fair value of the intangible assets acquired was determined by the Company and the Company considered or relied in part upon a valuation report of a third‑party expert. The Company used an income approach to estimate the fair values of the developed technology, an incremental income approach to estimate the value of the customer relationships and a relief from royalty method to estimate the fair value of the trade name.

Most of the net tangible assets were valued at their respective carrying amounts as of the acquisition date, as the Company believes that these amounts approximate their current fair values. The leases acquired were recorded at their respective fair values as of the acquisition date.
The acquired entity's results of operations were included in the Company's consolidated financial statements from the date of acquisition, February 1, 2019. For the year ended December 31, 2019, SendGrid contributed net operating revenue of $177.1 million, which is reflected in the accompanying consolidated statement of operations. Due to the integrated nature of the Company's operations, the Company believes that it is not practicable to separately identify earnings of SendGrid on a stand-
alone basis.
During the year ended December 31, 2019, the Company incurred costs related to this acquisition of $13.9 million that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operations.
The following unaudited pro forma condensed combined financial information gives effect to the acquisition of SendGrid as if it was consummated on January 1, 2018 (the beginning of the comparable prior reporting period), and includes pro forma adjustments related to the amortization of acquired intangible assets, share-based compensation expense and direct and incremental transaction costs reflected in the historical financial statements. Specifically, the following adjustments were made:     
For the year ended December 31, 2019, the Company's and SendGrid's direct and incremental transaction costs of $40.8 million are excluded from pro forma combined net loss.
For the year ended December 31, 2018, the Company's direct and incremental transaction costs of $13.9 million are included in the pro forma combined net loss.
In the year ended December 31, 2019, the pro forma combined net loss includes a reversal of the valuation allowance release of $48.0 million.
In the year ended December 31, 2018, the pro forma condensed combined net loss includes a one-time tax benefit of $53.5 million that would have resulted from the acquisition, and an ongoing tax benefit of $29.4 million.
This unaudited data is presented for informational purposes only and is not intended to represent or be indicative of the results of operations that would have been reported had the acquisition occurred on January 1, 2018. It should not be taken as representative of future results of operations of the combined company.
The following table presents the pro forma condensed combined financial information:
 
 
Year Ended December 31,
 
 
2019
 
2018
 
 
(Unaudited, in thousands)
Revenue
 
$
1,148,214

 
$
796,607

Net loss attributable to common stockholders
 
$
(322,030
)
 
$
(211,705
)

Other Fiscal 2019 Acquisitions
In fiscal 2019 the Company acquired several businesses for a total purchase price of $43.2 million paid in cash, of which $9.1 million was withheld for the period of 18 to 36 months, and $12.8 million of deferred equity consideration, which is recorded in the post-acquisition period as the services are provided. The Company does not consider these acquisition to be material, individually or in aggregate. Total purchase price was allocated to the tangible and intangibles assets acquired and liabilities assumed based on preliminary calculations as the Company continues to gather information necessary to finalize the valuations. These preliminary values may change in the future reporting periods until the valuations are finalized, which will occur in the second and fourth quarters of 2020. Goodwill of $23.4 million was recorded to reflect the excess purchase price over the net assets acquired and represents the value that the Company expects to realize from expanding its product offerings and other synergies. Goodwill that is expected to be deductible for tax purposes is $6.8 million.
 
The following table summarizes the preliminary purchase price allocation in aggregate for the other business acquired in fiscal 2019 recorded in the Company's consolidated balance sheet as of December 31, 2019:
 
 
Total
 
 
(In thousands)
Net liabilities
 
$
(3,219
)
Intangible assets (1)
 
22,986

Goodwill
 
23,425

Total preliminary purchase price
 
$
43,192

_________________
(1) Identifiable intangible assets were comprised of the following:
 
 
Total
 
Estimated
life
 
 
(In thousands)
 
(In years)
Developed technology
 
$
11,771

 
4 - 6
Customer relationships
 
5,185

 
3 - 5
Telecommunication licenses
 
4,370

 
Indefinite
Supplier relationships
 
1,660

 
2
Total intangible assets acquired
 
$
22,986

 
 

During the year ended December 31, 2019, the Company incurred $1.9 million of costs related to this acquisition that were expensed as incurred and recorded in general and administrative expenses in the accompanying consolidated statement of operation.
Pro forma results of operations for these acquisitions are not presented as the financial impact to the Company's consolidated financial statements is immaterial.
Fiscal 2018 Acquisitions
Ytica.com a.s.
In September 2018, the Company acquired all outstanding shares of Ytica.com a.s. ("Ytica"), a developer and provider of a contact center reporting and analytics based in the Czech Republic, for a total purchase price of $21.8 million, paid in cash, of which $3.2 million was held in escrow with a term of 18 months.
Additionally, the Company granted 47,574 restricted stock units of the Company's Class A common stock to a former shareholder of Ytica that had a value of $3.6 million and is subject to vesting over a period of three years. The Company is recording stock-based compensation expense as the shares are vesting.
The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill. The acquired entity's results of operations have been included in the consolidated financial statements of the Company from the date of acquisition.
The following table presents the purchase price allocation recorded in the Company's consolidated balance sheet as of December 31, 2018:
 
 
Total
 
 
(In thousands)
Net liabilities
 
$
(1,538
)
Intangible assets (1)
 
9,920

Goodwill (2)
 
13,375

Total purchase price
 
$
21,757

_________________
(1) 
Identifiable intangible assets were comprised of the following:
 
 
Total
 
Estimated
life
 
 
(In thousands)
 
(In years)
Developed technology
 
$
9,090

 
4
Customer relationships
 
830

 
2
Total intangible assets acquired
 
$
9,920