Twilio
Annual Report 2021

Plain-text annual report

Annual Report Annual Report 2021 2021 Key Metrics Revenue ($M)1 Active Customer Accounts (K)2 3000 2500 2000 1500 1000 500 0 250 200 150 100 50 0 Dollar-Based Net Expansion Rate3 127% 2017 143% 2018 135% 2019 137% 2020 131% 2021 1 Represents reported revenue for the twelve months ended December 31, 2021. 2 Represents Active Customer Accounts as of December 31, 2021. Active Customer Accounts include the contribution from previously closed acquisitions, excluding customer accounts from our Zipwhip business. 3 Represents data for the twelve months ended December 31, 2021. As previously disclosed in Twilio's Annual Report on Form 10-K filed with the SEC on March 2, 2020, beginning with the three-month period ended March 31, 2020, we calculate our Dollar-Based Net Expansion Rate by comparing total revenue from a cohort of Active Customer Accounts in a period to the same period in the prior year. To facilitate comparison between the periods presented, Dollar-Based Net Expansion Rate as presented above has been calculated as if this calculation had been in effect during that each respective period. 2020 includes the impact from Twilio SendGrid. Twilio Segment, Zipwhip, and other acquisitions closed after November 1, 2020 do not impact this calculation. Please refer to Twilio’s most recent Annual Report on Form 10-K for details on the methodology for calculating Active Customer Accounts and Dollar-Based Net Expansion Rate. Dear Twilio Stockholders, A positron is a positively charged, energetic particle. It’s the antiparticle of the electron. I open this year’s letter with this minutia of particle physics because we’ve decided to adopt the positron as a symbol for the energy that we see in Twilio – but more broadly, in the community of builders we serve. There’s a positive energy to the builders of the world. A more active stance than most. A willingness to roll up their sleeves and get to work. An active desire to harness opportunities, to serve customers, to see something exist that didn’t previously. A quickstart mentality. Over the course of the pandemic, this positron spirit imbued so many Twilions and our customers. It brought joy to our days, even in the most difficult hours. We cherish our front row seat, witnessing builders solve problems that didn’t exist just days before. And of course, we love helping builders with our products, and even more so, our people. Positrons like to share the energy. In the past few months, we’ve seen it again – helping alleviate the humanitarian crisis in Ukraine and the surrounding refugee crisis. In the weeks following Russia’s invasion, we saw The Norwegian Refugee Council utilize our WhatsApp API to engage with people affected by the crisis and guide response activities. Through Twilio’s integration with monday.com, refugees were able to access information about resources available to them at different camps. And Migam, an organization based in Poland, is connecting Ukrainian refugees who are deaf or hard of hearing to critical government and financial services through instant access to a sign language interpreter via Twilio’s Video API. And many more. Too many to name. Again, I find myself in awe of the builders. Even though we hope to be nearing the end of pandemic times, we know the world will throw new problems at the builders of the world. And that positively energetic spirit of builders will answer the call. We’re proud to play a small role in it. With that spirit, it’s my honor to pen Twilio’s 6th annual stockholder letter. In 2021, we… • Powered more than 1 trillion interactions in over 180 countries, including over 25 billion calls, 127 billion messages, 1 trillion emails, and over 10 billion video minutes! • Grew our active customer base from 221,000 to 256,000 including brands like Ford, RE/MAX, Mercado Libre, HSBC, AB InBev and NatWest Group, ending the year with 36% of the Global 2,000 as customers. • Delivered elevated revenue growth of 61% year-over-year, reaching full year revenue of $2.84 billion, and full year revenue dollar-based net expansion rate of 131%. • Were named the #1 Customer Data Platform (CDP) for worldwide market share in 2021 (IDC 2020) after marrying Segment’s customer data platform with Twilio’s global engagement capabilities. • • Introduced the pilot of Twilio Engage, to empower marketers to leverage first-party data to deliver true one-to-one customer engagement at scale. Reached nearly half a billion Flex interactions, including 53 million chat sessions and 6 billion voice minutes in 2021 and grew the number of active agents on Flex by more than 90% year- over-year. 1 • • • • • • • Added key new features to Flex, including supervisor ability to monitor queues in real time within Flex insights, real time adherence feeds, outbound dialing and dial pad. Expanded Twilio’s Build Partner Program, adding PWC as our newest Global Systems Integrator. Announced Twilio Regions, our new architecture which puts complete Twilio instances in Europe and APAC. With multiple, independent instances of Twilio running around the world, customers can architect for data residency, high availability, and low latency – wherever their users are. Supported hybrid workforces with Twilio Frontline, an app for front-line sales teams to build lasting relationships with their customers over SMS and WhatsApp (with more channels to come) – in a secure and compliant way. Released Twilio Live, bringing live, interactive audio and video streaming use cases to Twilio’s platform, with Reddit Talk as our launch customer. Acquired Zipwhip and ValueFirst to bolster Twilio’s messaging capabilities and Ionic Security to continue strengthening Twilio’s trusted communication channels. Added 3,238 new employees, bringing us to 7,867 global Twilions as of December 31, 2021. We expanded our leadership team with the additions of Chief Product Officer Eyal Manor and Chief Legal Officer Dana Wagner. Chief Financial Officer Khozema Shipchandler stepped into the new role of Chief Operating Officer and Marc Boroditsky expanded his role of Chief Revenue Officer to assume responsibility for all of our customer- and partner-facing teams. Former Massachusetts governor Deval Patrick also joined our Board of Directors. • Won Fast Company’s Most Innovative Company award, earning the #1 position in the Enterprise category and Fortune’s Best Workplaces in Technology (#19), the Bay Area (#22), for Millenials (#33), for Women (#52) and Overall (#89), as well as Great Place to Work’s Best Workplaces for Parents and a PEOPLE Companies that Care as we reimagine the future of work. • • • • Began implementing our new anti-racism program, with 83% of Twilions understanding how Twilio is becoming an antiracist company based on our Q4 2021 employee engagement survey. Helped 511 million people by partnering with 7,624 social impact organizations using Twilio (+92% YoY) and provided $66M in grants, donations, product credits and discounts to social impact organizations (+106% YoY) through Twilio.org. Partnered with over 1,200 organizations using Twilio to help vaccinate and educate over 324 million people in 2021 about Covid-19, to drive towards our goal to help one billion people in two years receive access to the life-saving COVID-19 vaccine and trusted information around the world. Committed $18 million to nonprofits and NGOs focused on equitable vaccination, including $10 million to Gavi, the Vaccine Alliance, in support of COVAX, the only global multilateral initiative to provide COVID-19 vaccines to low and middle income countries. I’m proud of what we accomplished in 2021. But in 2021, we also kicked off the next chapter of Twilio. In the fullness of time, this may be our most lasting accomplishment of the year. 2 ** Customer Engagement Platform ** At last year’s SIGNAL, I laid out Twilio’s vision for the future: to build the world’s leading customer engagement platform trusted by developers, companies and now marketers globally. The Twilio Customer Engagement Platform comprises three application pillars atop our leading data and communications platforms. These three pillars strengthen engagement at each stage of the customer journey – including our newly announced Twilio Engage for marketing, Twilio Frontline for sales and Twilio Flex for the contact center. Customer engagement is the sum of interactions that a company has with a customer across the customer lifecycle – including marketing, sales and customer support. And, put simply, the brands that have the best, most differentiated customer experience – who know their customers and personalize every interaction – will win in today’s digital world. Every B2C brand is trying to build the best digital presence to engage with their customers and build direct, long-term relationships. However, data and business silos and privacy changes such as Apple’s IDFA changes and Google’s planned deprecation of cookies make this extremely difficult. As a result, brands are losing market share and loyalty to digital giants like Amazon who do this incredibly well because they’ve built their own custom engagement cloud just for Amazon. The reality is that not every company has billions of dollars and fleets of data science engineers at their disposal. Take Allergan, a global pharmaceutical company that manufactures BOTOX® Cosmetic, JUVÉDERM®, LATISSE® and other beauty products used by over four million people every year. Historically, Allergan had a B2B2C business model, selling its products to healthcare providers who then re-sold them to end consumers. As a result, Allergan invested the vast majority of its marketing focus on the doctors reselling its products, and much less energy on end consumers. Facing more competition, Allergan knew it needed to build better direct relationships with customers to continue growing. In order to do that, the team needed to rebuild its technology stack, try new messaging tools, and create a centralized source of customer data which was previously fragmented and disconnected. Allergan built a powerful new customer engagement architecture with Twilio, Twilio Segment, and Snowflake that allows its teams to deliver the right message directly to their patients. The personalization made available by Twilio Segment enabled the company to relaunch its personalized customer loyalty program, Alle¯ , resulting in more than $400M in direct-to-consumer sales in 2021, more than 3 million more loyalty users and 40% of BOTOX® Cosmetic sales through DTC digital / Alle¯ points. CRMs created 20 years ago are not designed for the digital world where every business is building their own customer experience as a way to differentiate. They rely on salespeople manually entering notes versus real-time and first-party customer data. Because of this, monolithic applications are struggling to catch up with the explosion of digital channels to deliver the bespoke experiences that their customers want and need. To Twilio, the next generation of B2C CRM looks nothing like its predecessor. Instead, it’s an evolution of the category Twilio has been building for the last 13 years. As the leading provider of cloud communication backed by the world’s #1 customer data platform according to IDC, Twilio has an unparalleled view into the customer journey setting us up as the company who can deliver on this opportunity to become the infrastructure that connects every business with their customers digitally. To do this, we’re applying the Twilio approach to customer engagement: • One platform with global scale: Twilio’s customer engagement platform is built on top of the same communications infrastructure and customer data infrastructure that businesses around the world have already adopted. It provides one view of the customer and one set of conversations at every step of the customer journey to deliver one-to-one personalization at global scale. 3 • • First-party data: Data is the currency of the digital age, and the battle over it is reshaping the internet. You must know your customers to own your future. Twilio enables first-party data insights on every customer interaction then Twilio Segment, the brain or central nervous system of the Customer Engagement Platform, brings it all together to provide actionable insights that are most relevant to end consumers. API-first: As every company is becoming a software company and building differentiated, direct to consumer experiences, fixed-feature turnkey apps are getting in their way. Buying infrastructure that lets companies build differentiation has proven to be the winning approach. That’s why companies like Twilio, who provide API-first solutions, are winning in so many categories. Twilio’s building blocks allow companies to build exactly what they need to serve their customers and scale up and down with demand versus force-fitting costly out-of-the-box software with features they’ll never use. Twilio is the communications backbone for over 250,000 customers, used by over one-third of the world’s developers, and underpinned by the best first-party CDP in the market to bring it all together. We have a chance to become the infrastructure that connects every business with their customers digitally to introduce true, personalized engagement and relationships in the next chapter of the cloud. We’re on a journey to democratize customer engagement the way we’ve democratized communications over the last 13 years. While we made incredible progress toward our vision in 2021, we have even bigger ambitions for 2022! In order to deliver on building the world’s leading customer engagement platform, we need to execute on our “in and up” strategy, our mission and our values. ** Strategy: In and Up ** In 2008 when we started Twilio, venture investors believed that developers weren’t a market. They didn’t hold the purse strings. Many early stage investors advised that we should pick a different route. We hypothesized that developers would become increasingly influential in technology decisions. Not because suddenly they’d be invited to the meeting. Not because they’d be given carte-blanche spending authority. Rather, because the availability of low-cost, low-risk infrastructure-as-a-service enables developers to pick up new tools and start building. This way of building also enabled speed, agility, and de-risking of big projects – things that key stakeholders and budget-keepers care about – and it worked. Roll ahead 13 years, this hypothesis has borne out. But those early doubters weren’t entirely off-base. Developers aren’t the ultimate economic buyer, but they are often the ones who open the door. It’s up to us to walk in. This is the basis of our go-to-market motion, we call the “In-and-Up.” I first drew it in a board deck, five years ago, with great sophistication: Engagement Platform API Platform 4 Executing the “In and Up” strategy consists of four things, really: 1. The API layer to bring developers, en masse, to the Twilio platform, and to get those services adopted inside of every company. Our goal is to have Twilio in the toolbelt of every developer in the world. 2. The Engagement Platform layer, aligned to line of business owners’ needs and the use-cases for which developers are bringing Twilio in. This allows us to move from implementation to strategic conversations over time. These solutions can be explored by developers, championed by them, but they’re ultimately bought by business leaders (example: CX leader for Flex, CMO for Engage). 3. The GTM motion working between the two, which we have to refine from initial developer traction to greater solution selling, leveraging the commercial relationship that begins with easily adopted APIs. 4. Imbuing first-party data, via Twilio Segment, across each of these properties. Our goal is to deliver not just more communications, but more effective customer engagement over time. As we execute the “In and Up” strategy, we move up the org chart of our customers, and up the value chain to strategic software products that are more traditionally sold versus bought. ** Mission: Unlock the Imagination of Builders ** One of the things on my mind last year was the mission of the company. Twilio has grown up a lot in the 13 years since we set out to “Fuel the Future of Communications.” While it served us well, that mission never felt quite right to me – it’s not really what gets me up in the morning, or most Twilions I have known. Yet, it worked. Today, our ambitions go well beyond communications. As we break open the box of customer engagement, democratize it as infrastructure for developers and companies to innovate upon, and deliver it with our usage-based model, we are clearly beyond “the future of communications.” So last year, we finally revisited the mission statement. In talking with long-time and new members of the team, I’ve realized that the thing that we most cherish – the thing that gets us out of bed in the morning – is not communications, but invention. Creation. We’re awed by what we enable people to build. We were amazed when ING Bank, with a small group of developers, decided to re-imagine their contact center, replacing 17 legacy vendor solutions with their own creation built on Twilio, powering 14 different entities at the bank. We were inspired when Max Little, a researcher who created the Parkinson’s Voice Initiative, proved that in 60 seconds, with a simple phone call, a patient can be diagnosed with the early signs of Parkinson’s disease. We were inspired by Doug McKenzie, the magician who heard of Twilio and taught himself to code, so he could build a magic show using Twilio to amaze and delight (and bewilder) his audience. We love demonstrating our own creativity at SIGNAL each year – live coding to build something in front of the audience. The implicit message: if we can do it, so can you. There’s a reason we always say: “I can’t wait to see what you build.” Building is core to Twilio. And we get most excited when customers invent something novel with our platform – that we never could have imagined. So at Twilio, we celebrate the DOers who hack something fun, like Lindsay Pettingill who built a WhatsApp bot to tell her more about the places she’s visiting or Dad-to-be, Amit, who built https://howbigisthebaby.io using Twilio + Airtable to receive daily size comparisons for his baby via SMS. We celebrate business leaders who challenge their teams to solve major business problems with our software, like Vacasa who has been able to achieve 3x more bookings and remove friction from customers’ vacation experiences with personalized customer 5 engagement using Twilio and Twilio Segment. We celebrate the doers who utilize Twilio in new and innovative ways to solve real world issues like RoboRecruiter who redeployed their recruiting platform to screen 5,000 COVID-19 vaccination site workers in London in 24 hours through Twilio SMS and email. Our new mission is a better articulation of the true motivation of Twilio: To unlock the imagination of builders. Unlike most software companies, we don’t walk in and say “you’ve got a problem… just buy our solution, sit back, and all of your problems will be solved” because we know that’s not how the world works. We believe that companies who just buy solutions ultimately are frustrated by their own inability to win. And that’s why we walk in and say “You have a vision and we’re going to help you unlock it.” ** Principles and Values ** In 2021, we brought to life a new articulation of our values, the Twilio Magic. I’m very proud of this articulation. But why? I think of company culture as a feeling you get when you come to work. How does it feel to make decisions? To win together? To lose together? To disagree? The sum of these work experiences is the company culture. You feel it when you wake up, when you go to sleep, and every time you enter a new interaction with your colleagues. Are you full of energy and excitement? Dread and fear? That’s culture at work. It’s a feeling. Values are handles you put on that feeling. With handles, you can steer the culture. You can talk about it. You can intentionally guide it in a healthy direction. The values aren’t something you create. Rather, you introspect, articulate and amplify what’s already there. We’ve had multiple iterations of our values through the years, despite describing a largely same culture. I’ve noticed a funny thing about how people react to values. People want fewer values, so they can memorize them and regurgitate them easily. This seems to be a trained corporate expectation. At the same time, people want values to be real – not empty words on the wall. The alternative to values are principles. I think principles are “things we believe to be true.” In that context, wouldn’t it be ridiculous to artificially limit the number of “things we believe to be true?” Imagine having 10 laws of physics, and upon discovering the 11th, saying “Nope! We already have too many!” Therein lies the difference between values and principles. The Twilio Magic was last drafted in 2018. At that time, we limited ourselves to 10 values – which is both too many to easily remember, and not enough to encapsulate “things we believe to be true.” So in 2021, we took to re-articulating the Twilio Magic with the distinction between “values” and “principles” in mind. I’m very excited by the resulting framework. We now have four core values: • We are builders. We love hard problems and believe in the indomitable power of people’s ability to create a better world through ingenuity and resourcefulness. We reject the “can’t be done” and believe bold ideas and fearless iteration can resolve the most challenging problems for our customers and the world they operate in. • We are owners. We take accountability and see things through. We take the long view, sweat the details, and think about how our work makes Twilio better every day. We recognize that we and others do our best work when we feel both empowered and accountable for outcomes. 6 • We are curious. We see ourselves as works in progress. We know that we don’t have all the answers, humbly seek the truth, and strive to get better every day. As individuals, as a company, and in our products, we seek continual progress over perfection and acknowledge shortcomings as a matter of fact. Progress comes not from avoiding mistakes or hard truths, but in learning from them. • We are positrons. As I mentioned in the top of this letter, a positron is a positively charged electron. We are optimists who believe that positive energy is contagious and caring is critical. We are genuinely excited to serve and help others. We seek to be bright spots for the people around us in every interaction, and we stand up and work for what we believe is good and right for our customers, our company, our communities and the world at large. Importantly, we articulate them as four overlapping circles: 7 In our best moments, we sit at the center, perfectly balancing the four values. However, more often, we’re somewhere a bit off center. In fact, we’ve given names to the behavioral flaws we exhibit when we’re off-center. For example, in moments when I’m a Builder, I’m Curious, and I’m a Positron, but falling short as an Owner… I’m being a “Lovable Renter.” See the definitions: Most values-systems only define the good – defining what the values *are*. Over time, I believe we’ll find that our key innovation here was defining what the behaviors look like when we’re missing one of the values. This is a tool. None of us are perfect, and we’re always looking to improve. Just as values are handles on the culture, the off-center definitions give us a new kind of handle: on the behaviors we can work to fix! How do you go about correcting yourself toward the center? We’ve inserted our principles in service of the values. For example, our beloved “Draw the Owl” principle helps us act as better builders. If an employee finds themselves needing to boost their “builder” behavior, then maybe working on “Drawing the Owl” will show the way. Because the principles are now a toolkit, we’ve eliminated the illusion that good corporate citizens have them memorized. And we’re free to add more over time as we discover more true things! Together, four short memorable values, along with a set of accompanying principles, or “things we believe to be true,” provide a toolkit for assessment, improvement, and shared cultural understanding of how we get our work done together. I’m excited where this living framework will take us! ** Onward ** As you can see, 2021 was an exciting year for Twilio. We unveiled the next layer of our platform, redefined our mission, and rearticulated our values and principles. More than a decade after our founding, we spent 2021 teeing up the next decade of Twilio. More than ever, it’s Day One for Twilio. Customers keep leading us to bigger, juicier, and more interesting opportunities. And I’m excited to tackle them with all of you – our customers, our employees, our stockholders and our communities. Onward! -jeff 8 TWILIO INC. 101 SPEAR STREET, FIRST FLOOR SAN FRANCISCO, CALIFORNIA 94105 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held at 9:00 a.m. Pacific Time on Wednesday, June 22, 2022 Dear Stockholders of Twilio Inc.: We cordially invite you to attend the 2022 annual meeting of stockholders (the “Annual Meeting”) of Twilio Inc., a Delaware corporation, which will be held virtually on Wednesday, June 22, 2022 at 9:00 a.m. Pacific Time via live audio webcast on the Internet at www.virtualshareholdermeeting.com/TWLO2022, for the following purposes, as more fully described in the accompanying proxy statement: 1. To elect the two Class III directors named in the proxy statement to serve until the 2025 annual meeting of stockholders and until their successors are duly elected and qualified; 2. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2022; 3. To conduct a non-binding advisory vote to approve the compensation of our named executive officers; and 4. To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. We have adopted a virtual format for our Annual Meeting to provide a consistent experience to all stockholders regardless of location. You will be able to attend the meeting, vote and submit your questions during the meeting at www.virtualshareholdermeeting.com/TWLO2022. As always, we encourage you to vote your shares prior to the Annual Meeting either by telephone, Internet or by proxy card to help make this meeting format as efficient as possible. Our board of directors has fixed the close of business on April 25, 2022 as the record date for the Annual Meeting. Only stockholders of record on April 25, 2022 are entitled to notice of and to vote at the Annual Meeting. A list of stockholders of record will be available for inspection by stockholders of record during normal business hours for ten days prior to the Annual Meeting for any legally valid purpose at our corporate headquarters at 101 Spear Street, First Floor, San Francisco, California 94105. For access to the stockholder list, please contact us at legalnotices@twilio.com. The stockholder list will also be available during the Annual Meeting at www.virtualshareholdermeeting.com/TWLO2022. Further information regarding voting rights and the matters to be voted upon are presented in the accompanying proxy statement. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on Wednesday, June 22, 2022, at 9:00 a.m. Pacific Time via live audio webcast at www.virtualshareholdermeeting.com/TWLO2022: On or about May 5, 2022, we expect to mail to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy statement for our Annual Meeting (the “Proxy Statement”) and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report”) and vote online. The Proxy Statement and the Annual Report can be accessed directly at www.proxyvote.com. All you have to do is enter your 16-digit control number located on your proxy card. If you attend the Annual Meeting virtually, you may withdraw your proxy and vote online during the Annual Meeting if you so choose. The Notice also contains instructions on how each of our stockholders can receive a paper copy of our proxy materials, including the Proxy Statement, Annual Report and a form of proxy card or voting instruction form. All stockholders who do not receive the Notice, including stockholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail unless they have previously requested delivery of proxy materials electronically. Please note, however, that if your shares are held of record by a broker, bank, or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder. YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Annual Meeting, we urge you to submit your vote via the Internet, telephone or mail as soon as possible to ensure that your shares are represented. For additional instructions on voting by telephone or the Internet, please refer to your proxy card. Returning the proxy does not deprive you of your right to attend the Annual Meeting and to vote your shares at the Annual Meeting. We appreciate your continued support of Twilio. By order of the board of directors, P r o x y Jeff Lawson Co-Founder, Chief Executive Officer and Chairperson of the Board San Francisco, California May 5, 2022 Table of Contents PROCEDURAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BOARD OF DIRECTORS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 PROPOSAL NO. 1—ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PROPOSAL NO. 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 PROPOSAL NO. 3—NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPENSATION AND TALENT MANAGEMENT COMMITTEE REPORT . . . . . . . . . . . . . . . EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 29 30 32 32 60 61 63 66 69 APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 Forward-Looking Statements * * * This proxy statement contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this proxy statement include, but are not limited to, statements about: our environmental, social, and governance efforts, our sustainability goals and our proposed sublease. You should not rely upon forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to differ materially from those described in the forward-looking statements. The forward-looking statements contained in this proxy statement are also subject to additional risks, uncertainties, and factors, including those more fully described in our most recent filings with the Securities and Exchange Commission (the “SEC”), including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. Further information on potential risks that could affect actual results will be included in the subsequent periodic and current reports and other filings that we make with the SEC from time to time. Moreover, we operate in a very competitive and rapidly changing environment, and new P r o x y risks and uncertainties may emerge that could have an impact on the forward-looking statements contained in this proxy statement. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made in this proxy statement to reflect events or circumstances after the date of this proxy statement or to reflect new information or the occurrence of unanticipated events, except as required by law. TWILIO INC. PROXY STATEMENT FOR 2022 ANNUAL MEETING OF STOCKHOLDERS PROCEDURAL MATTERS This proxy statement and the enclosed form of proxy are furnished in connection with the solicitation of proxies by our board of directors for use at the 2022 annual meeting of stockholders of Twilio Inc., a Delaware corporation (referred to in this proxy statement as “Twilio,” the “Company,” “we,” “us,” or “our”), and any postponements, adjournments or continuations thereof (the “Annual Meeting”). The Annual Meeting will be held virtually on Wednesday, June 22, 2022 at 9:00 a.m. Pacific Time via live audio webcast. You will be able to attend the virtual Annual Meeting, vote your shares electronically and submit your questions during the live audio webcast of the meeting by visiting www.virtualshareholdermeeting.com/ TWLO2022 and entering your 16-digit control number located on your proxy card. The Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access this proxy statement and our annual report is first being mailed on or about May 5, 2022 to all stockholders entitled to vote at the Annual Meeting. The information provided in the “question and answer” format below is for your convenience only and is merely a summary of the information contained in this proxy statement. You should read this entire proxy statement carefully. Information contained on, or that can be accessed through, our website is not intended to be incorporated by reference into this proxy statement and references to our website address in this proxy statement are inactive textual references only. P r o x y What matters am I voting on? You will be voting on: • the election of the two Class III directors named in the proxy statement to serve until the 2025 annual meeting of stockholders and until their successors are duly elected and qualified; • a proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2022; • a proposal to conduct a non-binding advisory vote to approve the compensation of our named executive officers; and • any other business as may properly come before the Annual Meeting. How does the board of directors recommend I vote on these proposals? Our board of directors recommends a vote: • “FOR” the election of Donna L. Dubinsky and Deval Patrick as Class III directors; • “FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2022; and • “FOR” the approval, on a non-binding advisory basis, of the compensation of our named executive officers, as disclosed in this proxy statement. 1 Who is entitled to vote? Holders of either class of our common stock as of the close of business on April 25, 2022, the record date for the Annual Meeting, may vote at the Annual Meeting. As of the record date, there were 171,843,299 shares of our Class A common stock outstanding and there were 9,817,605 shares of our Class B common stock outstanding. Our Class A common stock and Class B common stock will vote as a single class on all matters described in this proxy statement for which your vote is being solicited. Stockholders are not permitted to cumulate votes with respect to the election of directors. Each share of Class A common stock is entitled to one vote on each proposal and each share of Class B common stock is entitled to 10 votes on each proposal. Our Class A common stock and Class B common stock are collectively referred to in this proxy statement as our “common stock.” Registered Stockholders. If shares of our common stock are registered directly in your name with our transfer agent, you are considered the stockholder of record with respect to those shares, and the Notice was provided to you directly by us. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote online at the Annual Meeting. Throughout this proxy statement, we refer to these registered stockholders as “stockholders of record.” Street Name Stockholders. If shares of our common stock are held on your behalf in a brokerage account or by a bank or other nominee, you are considered to be the beneficial owner of shares that are held in “street name,” and the Notice was forwarded to you by your broker or nominee, who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or other nominee as to how to vote your shares. Beneficial owners are also invited to attend the Annual Meeting. However, since a beneficial owner is not the stockholder of record, you may not vote your shares of our common stock by Internet at the Annual Meeting unless you follow your broker’s procedures for obtaining a legal proxy. If you request a printed copy of our proxy materials by mail, your broker, bank or other nominee will provide a voting instruction form for you to use. Throughout this proxy statement, we refer to stockholders who hold their shares through a broker, bank or other nominee as “street name stockholders.” How many votes are needed for approval of each proposal? • Proposal No. 1: The election of directors requires a plurality of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon to be approved. “Plurality” means that the nominees who receive the largest number of “For” votes cast are elected as directors. As a result, any shares not voted “For” a particular nominee (whether as a result of stockholder abstention or a broker non-vote) will not be counted in such nominee’s favor and will have no effect on the outcome of the election. You may vote “For” or “Withhold” on each of the nominees for election as a director. • Proposal No. 2: The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2022 requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon to be approved. Abstentions are considered shares present and entitled to vote on this proposal, and thus, will have the same effect as a vote “Against” this proposal. Broker non-votes will have no effect on the outcome of this proposal. • Proposal No. 3: A majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon is required to approve the compensation of our named executive officers. Since this proposal is an advisory vote, the result will not be binding on our board of directors, our compensation and talent management committee, or the Company. The board of directors and our compensation and talent management committee will consider the outcome of the vote when determining the compensation of our named executive officers. Abstentions are considered shares present and entitled to vote on this proposal, and thus, 2 will have the same effect as a vote “Against” this proposal. Broker non-votes will have no effect on the outcome of this proposal. What is a quorum? A quorum is the minimum number of shares required to be present at the Annual Meeting to properly hold an annual meeting of stockholders and conduct business under our second amended and restated bylaws and Delaware law. The presence, virtually or by proxy, of the holders of a majority of the voting power of all issued and outstanding shares of our common stock entitled to vote at the Annual Meeting will constitute a quorum at the Annual Meeting. Abstentions, withheld votes and broker non-votes are counted as shares present and entitled to vote for purposes of determining a quorum. How do I vote? If you are a stockholder of record, there are four ways to vote: • by Internet at www.proxyvote.com, 24 hours a day, seven days a week, until 8:59 p.m. Pacific Time on June 21, 2022 (have your Notice or proxy card in hand when you visit the website); • by toll-free telephone at 1-800-690-6903, until 8:59 p.m. Pacific Time on June 21, 2022 (have your Notice or proxy card in hand when you call); • by completing and mailing your proxy card (if you received printed proxy materials); or • by Internet during the Annual Meeting. Instructions on how to attend and vote at the Annual Meeting are described at www.virtualshareholdermeeting.com/TWLO2022. P r o x y If you plan to attend the Annual Meeting, we recommend that you also vote by proxy so that your vote will be counted if you later decide not to attend the Annual Meeting. If you are a street name stockholder, you will receive voting instructions from your broker, bank or other nominee. You must follow the voting instructions provided by your broker, bank or other nominee in order to direct your broker, bank or other nominee on how to vote your shares. Street name stockholders should generally be able to vote by returning a voting instruction form, or by telephone or on the Internet. However, the availability of telephone and Internet voting will depend on the voting process of your broker, bank or other nominee. As discussed above, if you are a street name stockholder, you may not vote your shares by Internet at the Annual Meeting unless you obtain a legal proxy from your broker, bank or other nominee. Can I change my vote? Yes. If you are a stockholder of record, you can change your vote or revoke your proxy any time before the Annual Meeting by: • entering a new vote by Internet or by telephone; • completing and returning a later-dated proxy card; • notifying the Corporate Secretary of Twilio Inc., in writing, at 101 Spear Street, First Floor, San Francisco, California 94105; or • attending and voting electronically at the Annual Meeting (although attendance at the Annual Meeting will not, by itself, revoke a proxy). We encourage stockholders to reach out to us by e-mail at legalnotices@twilio.com instead of physical mail to help ensure prompt receipt of any communications related to voting. If you are a street name stockholder, your broker, bank or other nominee can provide you with instructions on how to change your vote. 3 Why won’t there be an in-person meeting this year? We are leveraging technology to hold a virtual Annual Meeting that expands convenient access to, and enables participation by, stockholders from any location around the world. We believe the virtual format encourages attendance and participation by a broader group of stockholders, while also reducing the costs and environmental impact associated with an in-person meeting. You will be able to vote and submit your questions during the meeting at www.virtualshareholdermeeting.com/TWLO2022. There will not be a physical meeting location. Our virtual Annual Meeting will be governed by our rules of conduct and procedures, which will be posted at www.virtualshareholdermeeting.com/TWLO2022 on the date of the Annual Meeting. We have designed the format of the virtual Annual Meeting so that stockholders have the same rights and opportunities to vote and participate as they would have at a physical meeting. Stockholders will be able to submit questions online before and during the meeting, providing our stockholders with the opportunity for meaningful engagement with the Company. What do I need to be able to attend the Annual Meeting online? We will be hosting our Annual Meeting via live audio webcast only. If you are a stockholder as of the record date of April 25, 2022 and wish to virtually attend the Annual Meeting, you will need the 16-digit control number, which is located on your Notice of Internet Availability of Proxy Materials or on your proxy card (if you receive a printed copy of the proxy materials). Instructions on how to participate in the Annual Meeting are also posted online at www.proxyvote.com. The webcast will start at 9:00 a.m., Pacific Time on June 22, 2022. Stockholders may vote and ask questions while attending the Annual Meeting online. Use of cameras and recording devices is prohibited while virtually attending the live audio webcast. What is the effect of giving a proxy? Proxies are solicited by and on behalf of our board of directors. Jeff Lawson and Khozema Shipchandler have been designated as proxy holders by our board of directors. When proxies are properly dated, executed and returned, the shares represented by such proxies will be voted at the Annual Meeting in accordance with the instructions of the stockholder. If no specific instructions are given, however, the shares will be voted in accordance with the recommendations of our board of directors as described above. If any matters not described in this proxy statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote the shares. If the Annual Meeting is adjourned, the proxy holders can vote the shares on the new Annual Meeting date as well, unless you have properly revoked your proxy instructions, as described above. Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of proxy materials? In accordance with the rules of the SEC, we have elected to furnish our proxy materials, including this proxy statement and our annual report, primarily via the Internet. The Notice containing instructions on how to access our proxy materials is first being mailed on or about May 5, 2022 to all stockholders entitled to vote at the Annual Meeting. Stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail by following the instructions contained in the Notice. We encourage stockholders to take advantage of the availability of our proxy materials on the Internet to help reduce the environmental impact and cost of our annual meetings of stockholders. How are proxies solicited for the Annual Meeting? Our board of directors is soliciting proxies for use at the Annual Meeting. All expenses associated with this solicitation will be borne by us. We will reimburse brokers or other nominees for reasonable expenses that they incur in sending our proxy materials to you if a broker, bank or other nominee holds 4 shares of our common stock on your behalf. In addition, our directors and employees may also solicit proxies in person, by telephone or by other means of communication. Our directors and employees will not be paid any additional compensation for soliciting proxies. How may my brokerage firm or other intermediary vote my shares if I fail to provide timely directions? Brokerage firms and other intermediaries holding shares of our common stock in street name for their customers are generally required to vote such shares in the manner directed by their customers. In the absence of timely directions, your broker will have discretion to vote your shares on our sole “routine” matter: the proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2022. Your broker will not have discretion to vote on any other proposals, which are “non-routine” matters, absent direction from you. Where can I find the voting results of the Annual Meeting? We will announce preliminary voting results at the Annual Meeting. We will also disclose voting results on a Current Report on Form 8-K that we will file with the SEC within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Current Report on Form 8-K within four business days after the Annual Meeting, we will file a Current Report on Form 8-K to publish preliminary results and will provide the final results in an amendment to the Current Report on Form 8-K as soon as they become available. I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? We have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, we deliver a single copy of the Notice and, if applicable, our proxy materials, to multiple stockholders who share the same address, unless we have received contrary instructions from one or more of such stockholders. This procedure reduces our printing costs, mailing costs and fees. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, we will deliver promptly a separate copy of the Notice and, if applicable, our proxy materials, to any stockholder at a shared address to which we delivered a single copy of any of these materials. To receive a separate copy, or, if a stockholder is receiving multiple copies, to request that we only send a single copy of the Notice and, if applicable, our proxy materials, such stockholder may contact us at (415) 914-1444 or: P r o x y Twilio Inc. Attention: Investor Relations 101 Spear Street, First Floor San Francisco, California 94105 ir@twilio.com We encourage stockholders to contact us by telephone or e-mail instead of physical mail to help ensure timely receipt of any request for proxy materials. Street name stockholders may contact their broker, bank or other nominee to request information about householding. What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors? Stockholder Proposals Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at next year’s annual meeting of stockholders by submitting their proposals in writing to our Corporate 5 Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for the 2023 annual meeting of stockholders, our Corporate Secretary must receive the written proposal at our principal executive offices not later than January 5, 2023. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Stockholder proposals should be addressed to: Twilio Inc. Attention: Corporate Secretary 101 Spear Street, First Floor San Francisco, California 94105 Our second amended and restated bylaws also establish an advance notice procedure for stockholders who wish to present a proposal before an annual meeting of stockholders but do not intend for the proposal to be included in our proxy statement. Our second amended and restated bylaws provide that the only business that may be conducted at an annual meeting of stockholders is business that is (i) specified in our proxy materials with respect to such annual meeting, (ii) otherwise properly brought before such annual meeting by or at the direction of our board of directors or (iii) properly brought before such meeting by a stockholder of record entitled to vote at such annual meeting who has delivered timely written notice to our Corporate Secretary, which notice must contain the information specified in our second amended and restated bylaws. To be timely for the 2023 annual meeting of stockholders, our Corporate Secretary must receive the written notice at our principal executive offices: • not earlier than the close of business on February 19, 2023; and • not later than the close of business on March 21, 2023. In the event that we hold the 2023 annual meeting of stockholders more than 30 days before or more than 60 days after the one-year anniversary of the Annual Meeting, then, for notice by the stockholder to be timely, it must be received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting, or the tenth day following the day on which public announcement of the date of such annual meeting is first made. If a stockholder who has notified us of his, her or its intention to present a proposal at an annual meeting of stockholders does not appear to present his, her or its proposal at such annual meeting, we are not required to present the proposal for a vote at such annual meeting. Nomination of Director Candidates Holders of our common stock may propose director candidates for consideration by our nominating and corporate governance committee. Any such recommendations should include the nominee’s name and qualifications for membership on our board of directors and should be directed to our Chief Legal Officer at the address set forth above. For additional information regarding stockholder recommendations for director candidates, see the section titled “Board of Directors and Corporate Governance—Stockholder Recommendations and Nominations to the Board of Directors.” In addition, our second amended and restated bylaws permit stockholders to nominate directors for election at an annual meeting of stockholders. To nominate a director, the stockholder must provide the information required by our second amended and restated bylaws. In addition, the stockholder must give timely notice to our Corporate Secretary in accordance with our second amended and restated bylaws, which, in general, require that the notice be received by our Corporate Secretary within the time periods described above under the section titled “Stockholder Proposals” for stockholder proposals that are not intended to be included in a proxy statement. In addition to satisfying the foregoing requirements under our second amended and restated bylaws, to comply with the universal proxy rules in connection with our 2023 annual meeting, stockholders who 6 intend to solicit proxies in support of director nominees other than our nominees must provide notice that sets forth the information required by Rule 14a-19 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) to our Corporate Secretary at the address set forth above no later than April 23, 2023. Availability of Bylaws A copy of our second amended and restated bylaws is available via the SEC’s website at http://www.sec.gov. You may also contact our Corporate Secretary at the address set forth above for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. P r o x y 7 BOARD OF DIRECTORS AND CORPORATE GOVERNANCE Our business and affairs are managed under the direction of a highly experienced, qualified and diverse board of directors. INDEPENDENCE DIVERSITY TENURE 1 88% Independent 7 1 38% Diverse 5 2 2 2 ~6.6 Years 4 Independent Non-independent Non-Diverse Female Racial/Ethnic Diversity (Black) <4 years 4–8 years 9+ years Our board of directors consists of eight directors. All of our board members, other than Mr. Lawson, qualify as “independent” under the listing standards of The New York Stock Exchange (the “NYSE Listing Standards”) and the listing standards of The Long-Term Stock Exchange (the “LTSE Listing Standards”). Our board of directors is divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the class whose term is then expiring. The following table sets forth the names, ages as of April 30, 2022, and certain other information for each of the members of our board of directors with terms expiring at the Annual Meeting (who are also nominees for election as a director at the Annual Meeting) and for each of the continuing members of our board of directors: Director Since Current Term Expires Expiration of Term for Which Nominated Independent Audit Committee Class Age Compensation and Talent Management Committee Nominating and Corporate Governance Committee Directors with Terms Expiring at the Annual Meeting/Nominees Donna L. Dubinsky . . . . Deval Patrick . . . . . . . . . Continuing Directors Jeff Lawson . . . . . . . . . . Richard Dalzell . . . . . . . Byron Deeter . . . . . . . . . Jeff Epstein . . . . . . . . . . Jeffrey Immelt . . . . . . . . Erika Rottenberg . . . . . . Nominees for Director III III II I II II I I 66 65 44 64 47 65 66 59 2018 2021 2008 2014 2010 2017 2019 2016 2022 2022 2024 2023 2024 2024 2023 2023 2025 2025 — — — — — — ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Donna L. Dubinsky. Ms. Dubinsky has served as a member of our board of directors since December 2018. Ms. Dubinsky is a co-founder of Numenta, Inc., a machine intelligence company, and has served as its Chief Executive Officer since 2005. Ms. Dubinsky also co-founded Handspring, a maker of Palm OS-based Visor- and Treo-branded personal digital assistants, and served as President and Chief Executive Officer of Handspring from 1998 to 2003, and as Acting Chief Financial Officer from 2002 to 2003. From 1992 to 1998, Ms. Dubinsky served as President and Chief Executive Officer of Palm Computing, Inc., one of the first companies to develop and design handheld computers and smartphones. From 1982 to 1991, Ms. Dubinsky served in a multitude of sales, sales support, and logistics functions at both Apple Inc. and 8 Claris, an Apple software subsidiary. Ms. Dubinsky previously served on the board of Intuit Inc. and Yale University, including two years as Senior Fellow. Ms. Dubinsky holds a B.A. from Yale University, and an M.B.A. from Harvard Business School. Ms. Dubinsky was selected to serve on our board of directors because of her experience as an entrepreneur and her industry experience. Deval Patrick. Mr. Patrick has served as a member of our board of directors since January 2021. He is currently co-director of the Center for Public Leadership and Professor of Practice at the Harvard Kennedy School. Since March 2021, he has served as a Senior Advisor to Bain Capital and co-chair of American Bridge 21st Century. Mr. Patrick is the founding partner and, from 2015 to 2020, was the Managing Director of Bain Capital Double Impact, a private equity fund that invested in commercial businesses for both financial return and measurable social or environmental good. Before that, he served for two terms as governor of the Commonwealth of Massachusetts. Mr. Patrick has been a senior executive in two Fortune 50 companies, a partner in two Boston law firms, and served as head of the Civil Rights Division of the U.S. Justice Department under President Bill Clinton. Since 2015, he has served on the board of directors of Global Blood Therapeutics, a biopharmaceutical company, and American Well Corporation, a telemedicine company. Mr. Patrick also serves on the board of directors of Cerevel Therapeutics Holdings, Inc., a biopharmaceutical company (since January 2021) and Toast Inc., a cloud- based restaurant software company (since February 2021). He previously served on the board of Environmental Impact Acquisition Corp., a special purpose acquisition company focused on sustainability companies, from January 2021 to February 2022. Mr. Patrick holds an A.B. from Harvard College and a J.D. from Harvard Law School. Mr. Patrick was selected to serve on our board of directors because of his experience in the private and public sector and as a director of publicly-held and privately-held companies. Continuing Directors Jeff Lawson. See the section titled “Executive Officers” for Mr. Lawson’s biographical information. Richard Dalzell. Mr. Dalzell has served as a member of our board of directors since March 2014. From 1997 to 2007, Mr. Dalzell served in several roles at Amazon.com, Inc., an e-commerce and cloud computing company, including as Senior Vice President of Worldwide Architecture and Platform Software and Chief Information Officer. From 1990 to 1997, Mr. Dalzell served in several roles at Wal-Mart Stores, Inc., a discount retailer, including as Vice President of the Information Systems Division. Mr. Dalzell currently serves on the board of directors of Intuit Inc. (since 2015), a software company. Mr. Dalzell previously served on the board of directors of AOL Inc. Mr. Dalzell holds a B.S. in Engineering from the United States Military Academy at West Point. Mr. Dalzell was selected to serve on our board of directors because of his experience as an executive and director of technology companies. Byron Deeter. Mr. Deeter has served as a member of our board of directors since November 2010. Since 2005, Mr. Deeter has served as a partner of Bessemer Venture Partners, a venture capital firm. From 2004 to 2005, Mr. Deeter served as a director at International Business Machines Corporation, or IBM, a technology and consulting company. From 2000 to 2004, Mr. Deeter served in several roles at Trigo Technologies, Inc., a product information management company, which was acquired by IBM in 2004, including co-founder, President, Chief Executive Officer and Vice President of Business Development. From 1998 to 2000, Mr. Deeter served as an Associate at TA Associates, a private equity firm. From 1996 to 1998, Mr. Deeter served as an Analyst at McKinsey & Company, a business consulting firm. Mr. Deeter previously served on the board of directors of Cornerstone OnDemand, Inc., a talent management software company, Instructure, Inc., an educational technology company, and SendGrid, Inc., an email API platform company, which was acquired by us in 2019. Mr. Deeter holds a B.A. in Political Economy from the University of California, Berkeley. 9 P r o x y Mr. Deeter was selected to serve on our board of directors because of his experience in the venture capital industry and as a director of publicly-held and privately-held technology companies. Jeff Epstein. Mr. Epstein has served as a member of our board of directors since July 2017. Mr. Epstein is an Operating Partner at Bessemer Venture Partners, a venture capital firm, which he joined in November 2011. Mr. Epstein served as chief financial officer of several public and private companies, including Oracle, an enterprise software company, and DoubleClick, an Internet advertising company, which was acquired by Google. Mr. Epstein serves on the board of directors of Poshmark, an online fashion marketplace (since April 2018), Okta, a software services company (since May 2021), Couchbase, a cloud database company (since 2015) and AvePoint, a data management company (since July 2021). He previously served on the board of directors of Booking Holdings, an online travel company, from April 2003 to June 2019, Global Eagle Entertainment, an inflight communication company, from January 2013 to June 2018, and Shutterstruck, a photography marketplace, from April 2021 to June 2021. Mr. Epstein holds a B.A. from Yale University and an M.B.A. from Stanford University. Mr. Epstein was selected to serve on our board of directors because of his experience as an executive and director of technology companies. Jeffrey Immelt. Mr. Immelt has served as a member of our board of directors since June 2019. Mr. Immelt is a venture partner of New Enterprise Associates (“NEA”), a venture capital firm, which he joined in 2018. From 2001 to 2017, Mr. Immelt served as chairman and chief executive officer of General Electric, a U.S. based multinational conglomerate. Prior to being appointed chief executive officer of General Electric, Mr. Immelt held several global leadership roles at General Electric from 1982 to 2000 in the Plastics, Appliances and Healthcare businesses. He was named one of the “World’s Best CEOs” by Barron’s three times and currently serves on the board of certain NEA portfolio private companies, and is a member of The American Academy of Arts & Sciences. He also has served as a director of Bloom Energy Corporation, a clean energy company (since November 2019), Desktop Metal, Inc., a 3D printing solutions company (since May 2018), Bright Health Group, Inc., a diversified healthcare services company (since June 2021), Tuya Inc., an IoT cloud development platform (since March 2021), and Hennessy Capital Investment Corp. V, a special purpose acquisition company focused on clean technology (since January 2021). Mr. Immelt previously served as director of the Federal Reserve Bank of New York, a government-organized financial and monetary policy organization, as chairman of the U.S. Presidential Council on Jobs and Competitiveness and as a trustee of Dartmouth College. He holds a B.A in applied mathematics from Dartmouth College and an M.B.A. from Harvard University. Mr. Immelt was selected to serve on our board of directors because of his experience as a senior executive of technology companies and as a director and chairman of publicly-held companies. Erika Rottenberg. Ms. Rottenberg has served as a member of our board of directors since June 2016. Since March 2022, Ms. Rottenberg serves as a Strategic Advisor at the Chan Zuckerberg Initiative, a philanthropic initiative, after having served as its Vice President and General Counsel from 2018 to 2022. From 2008 to 2014, Ms. Rottenberg served as Vice President, General Counsel and Secretary at LinkedIn Corporation, a professional networking company. From 2004 to 2008, Ms. Rottenberg served as Senior Vice President, General Counsel and Secretary at SumTotal Systems, Inc., a talent management enterprise software company. From 1996 to 2002, Ms. Rottenberg served in several roles at Creative Labs, Inc., a leading computer peripheral and digital entertainment product company, including as Vice President, Strategic Development and General Counsel. From 1993 to 1996, Ms. Rottenberg served as an attorney at Cooley LLP, a law firm. From 2015 to 2020, Ms. Rottenberg served on the board of directors of Nasdaq- listed Wix.com Ltd., a cloud-based web development platform, and she currently serves on the boards of Girl Scouts USA and the Silicon Valley Law Foundation. Ms. Rottenberg holds a B.S. in Special and Elementary Education from the State University of New York at Geneseo and a J.D. from the University of California, Berkeley, Boalt Hall School of Law. 10 Ms. Rottenberg was selected to serve on our board of directors because of her experience as a senior executive of technology companies and as a director of publicly-held technology companies. Director Independence Our Class A common stock is listed on The New York Stock Exchange and the Long-Term Stock Exchange. Under the NYSE Listing Standards and the LTSE Listing Standards, independent directors must comprise a majority of a listed company’s board of directors. In addition, the NYSE Listing Standards and LTSE Listing Standards require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent. Under the NYSE Listing Standards and LTSE Listing Standards, a director will only qualify as an “independent director” if, in the opinion of that listed company’s board of directors, that director does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 under the Exchange Act, the NYSE Listing Standards and the LTSE Rules. Compensation and talent management committee members must also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act, the NYSE Listing Standards and the LTSE Listing Standards. Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that Messrs. Dalzell, Deeter, Epstein, Immelt and Patrick, and Mses. Dubinsky and Rottenberg do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the NYSE Listing Standards and LTSE Listing Standards. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our Company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.” Board Leadership Structure Chairperson of the Board Mr. Lawson, our co-founder and Chief Executive Officer, also serves as Chairperson of our board of directors. As our co-founder and Chief Executive Officer, Mr. Lawson possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the company and its business and is best positioned to identify strategic priorities, lead critical discussions and execute our business plans. We believe this extensive company-specific experience and expertise of Mr. Lawson, together with the outside experience, oversight and expertise of our independent directors, allows for differing perspectives and roles regarding strategy development that benefit our stockholders. Lead Independent Director Our board has a strong and empowered lead independent director who provides an effective independent voice in our leadership structure. Since Mr. Lawson is the Chairperson of our board of directors and is not an “independent” director pursuant to the NYSE Listing Standards and LTSE Listing Standards, we appointed Mr. Jeff Epstein to serve as our lead independent director in December 2017. Mr. Epstein serves as a liaison between our Chief Executive Officer and Chairperson, and our independent directors, and performs such additional duties as our board of directors may otherwise determine and delegate. In addition, our independent directors, who are the sole members of each of our board 11 P r o x y committees, provide strong independent leadership and oversight for each of these committees. Our independent directors generally meet in executive session after each meeting of the board of directors. At each such meeting, the presiding director for each executive session of our board of directors will be either (i) the lead independent director or (ii) chosen by the independent directors. Our board believes that this leadership structure, coupled with a strong emphasis on board independence, provides effective independent oversight of management while allowing both the board of directors and management to benefit from Mr. Lawson’s leadership and years of experience in the company’s business and the technology industry. We believe that the structure of our board of directors and committees of our board of directors provides effective independent oversight of management, while Mr. Lawson’s combined role enables strong leadership, creates clear accountability and enhances our ability to develop and execute our strategy and communicate our message clearly and consistently to stockholders. Board Meetings and Committees Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of eight members. During our fiscal year ended December 31, 2021, our board of directors held six meetings (including regularly scheduled and special meetings), and each director attended at least 75% of the aggregate of (i) the total number of meetings of our board of directors held during the period for which he or she had been a director and (ii) the total number of meetings held by all committees of our board of directors on which he or she served during the periods that he or she served. Although our Corporate Governance Guidelines do not have a formal policy regarding attendance by members of our board of directors at annual meetings of stockholders, we encourage, but do not require, our directors to attend. All members of our board of directors then serving in such capacity, other than Mr. Epstein, attended our 2021 annual meeting of stockholders. Our board of directors has established an audit committee, a compensation and talent management committee and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members serve on these committees until their resignation or until as otherwise determined by our board of directors. Audit Committee Our audit committee consists of Mr. Epstein and Mses. Dubinsky and Rottenberg, with Mr. Epstein serving as Chairperson. Each member of our audit committee meets the requirements for independence under the NYSE Listing Standards, LTSE Listing Standards and SEC rules. Each member of our audit committee also meets the financial literacy and sophistication requirements of the NYSE Listing Standards and LTSE Listing Standards. In addition, our board of directors has determined that each of Mr. Epstein and Ms. Dubinsky is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”). No member of our audit committee may simultaneously serve on the audit committee of more than three public companies unless our board of directors determines that such simultaneous service would not impair the ability of such member to effectively serve on our audit committee. Mr. Epstein currently serves on the audit committees of three other public companies. Given Mr. Epstein’s extensive experience as a Chief Financial Officer, his proficiency in accounting, and his knowledge of our Company, our board has determined that Mr. Epstein’s simultaneous service on the audit committees of more than three public companies does not impair his ability to effectively serve on our audit committee. Mr. Epstein attended 100% of the meetings held by our audit committee and board of directors during fiscal year 2021. 12 Our audit committee, among other things: • selects a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; • helps to ensure the independence and performance of the independent registered public accounting firm; • discusses the scope and results of the audit with the independent registered public accounting firm, and reviews, with management and the independent registered public accounting firm, our interim and year-end results of operations; • develops procedures for employees to submit concerns anonymously about questionable accounting or audit matters; • reviews our policies on risk assessment and risk management; • reviews related party transactions; and • approves or, as required, pre-approves, all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm. Our audit committee operates under a written charter that satisfies the applicable rules and regulations of the SEC, the NYSE Listing Standards and the LTSE Listing Standards. A copy of the charter of our audit committee is available on our website at https://investors.twilio.com. Our audit committee held nine meetings during fiscal year 2021. Compensation and Talent Management Committee Our compensation and talent management committee consists of Messrs. Immelt and Patrick (and Mr. Dalzell, for a portion of 2021 and Ms. Donio until her resignation, effective April 29, 2022). Ms. Donio served as Chairperson of our compensation and talent management committee during 2021. Mr. Immelt succeeded Ms. Donio as Chairperson effective April 29, 2022 in connection with Ms. Donio’s resignation from our board of directors and compensation and talent management committee. Each member of our compensation and talent management committee meets the requirements for independence under the NYSE Listing Standards, LTSE Listing Standards and SEC rules. Each member of our compensation and talent management committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3”). During fiscal year 2021, Mr. Dalzell also served on the compensation and talent management committee and resigned from the compensation and talent management committee effective April 1, 2021. Mr. Dalzell met the requirements for independence under the NYSE Listing Standards, LTSE Listing Standards and SEC rules, and he is a non-employee director, as defined pursuant to Rule 16b-3. Our compensation and talent management committee, among other things: • reviews, determines, and approves, or makes recommendations to our board of directors regarding, the compensation of our executive officers; • administers our stock and equity compensation plans; • reviews and approves, or makes recommendations to our board of directors, regarding incentive compensation and equity compensation plans; • establishes and reviews general policies relating to compensation and benefits of our employees; and • reviews and discusses with management our human capital management activities, including, among other things, matters relating to talent management and development, talent acquisition, employee engagement and diversity, equity and inclusion. 13 P r o x y Our compensation and talent management committee operates under a written charter that satisfies the applicable rules of the SEC, the NYSE Listing Standards and the LTSE Listing Standards. A copy of the charter of our compensation and talent management committee is available on our website at https:// investors.twilio.com. Our compensation and talent management committee held six meetings during fiscal year 2021. Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Ms. Rottenberg and Messrs. Dalzell and Deeter, with Ms. Rottenberg serving as Chairperson. Each member of our nominating and governance committee meets the requirements for independence under the NYSE Listing Standards, LTSE Listing Standards and SEC rules. Our nominating and corporate governance committee, among other things: • identifies, evaluates and selects, or makes recommendations to our board of directors regarding, nominees for election to our board of directors and its committees; • considers and makes recommendations to our board of directors regarding the composition of our board of directors and its committees; • reviews and assesses the adequacy of our corporate governance guidelines and policies and practices and recommends any proposed changes to our board of directors; • oversees and periodically reviews our environmental, social and governance activities and programs; and • evaluates the performance of our board of directors and of individual directors. Our nominating and corporate governance committee operates under a written charter that satisfies the applicable NYSE Listing Standards and the LTSE Listing Standards. A copy of the charter of our nominating and corporate governance committee is available on our website at https://investors.twilio.com. Our nominating and corporate governance committee held four meetings during fiscal year 2021. Compensation and Talent Management Committee Interlocks and Insider Participation During 2021, Ms. Donio and Messrs. Dalzell (with respect to Mr. Dalzell, for a portion of the year), Immelt and Patrick served on the compensation and talent management committee. Effective April 29, 2022, Ms. Donio resigned from our board of directors and compensation and talent management committee. None of the members of our compensation and talent management committee is or has been an officer or employee of our Company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation and talent management committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our board of directors or compensation and talent management committee. See the section titled “Certain Relationships and Related Party Transactions” for information about related party transactions involving members of our compensation and talent management committee or their affiliates. Identifying and Evaluating Director Nominees The board of directors has delegated to the nominating and corporate governance committee the responsibility of identifying suitable candidates for nomination to the board of directors (including candidates to fill any vacancies that may occur) and assessing their qualifications in light of the policies and principles in our corporate governance guidelines and the committee’s charter. The nominating and corporate governance committee may gather information about the candidates through interviews, detailed questionnaires, comprehensive background checks or any other means that the nominating and corporate governance committee deems to be appropriate in the evaluation process. The nominating and corporate governance committee then meets as a group to discuss and evaluate the qualities and skills of each candidate, both on an individual basis and taking into account the overall composition and needs of 14 the board of directors. Based on the results of the evaluation process, the nominating and corporate governance committee recommends candidates for the board of directors’ approval as director nominees for election to the board of directors. Minimum Qualifications and Membership on other Boards Twilio has a highly effective and engaged board of directors, and members of our board of directors are expected to prepare for, attend, and participate in all board of directors and applicable committee meetings and are encouraged to attend our annual meetings of stockholders. The board of directors does not believe that explicit limits on the number of other boards of directors on which the directors may serve, or on other activities the directors may pursue, are appropriate. Rather, we believe that our directors’ service on other companies’ boards enables them to contribute valuable knowledge and perspective to our board of directors. Nonetheless, the board of directors recognizes that carrying out the duties of a director requires a significant commitment of time and attention, and excessive time commitments - whether other board service or otherwise—may interfere with the ability to fulfill Twilio board of director responsibilities. Our Corporate Governance Guidelines require directors to notify the chairperson of the nominating and corporate governance committee in connection with joining another board and regularly update the company regarding other directorship and significant other commitments, so that the potential for conflicts or other factors that may compromise a director’s ability to perform their duties may be fully assessed. Our board of directors has delegated to our nominating and corporate governance committee the responsibility of identifying suitable candidates for nomination to our board of directors (including candidates to fill any vacancies that may occur) and assessing their qualifications in light of the policies and principles in our Corporate Governance Guidelines and the committee’s charter. Our nominating and corporate governance committee uses a variety of methods for identifying and evaluating director nominees and considers all facts and circumstances that it deems appropriate or advisable. In its identification and evaluation of director candidates, our nominating and corporate governance committee considers the current size and composition of our board of directors and the needs of our board of directors and the respective committees of our board of directors. Some of the qualifications that our nominating and corporate governance committee considers include: • integrity, judgment and adherence to high personal ethics and character; • demonstrated achievement and competence in their fields, business acumen, understanding of our business and industry, the ability to offer advice and guidance to our management team, the ability to make significant contributions to our success, and an understanding of the fiduciary responsibilities that are required of a director; • diversity, including in breadth and quality of experience, personal and professional experience, expertise, culture, race, ethnicity, gender and sexual orientation, including lived experience; • skills, education and expertise; • independence and potential conflicts of interest; and • the scope and breadth of other commitments. In addition to the above criteria, and although there are no further stated minimum criteria for director nominees, although our nominating and corporate governance committee may also consider such other factors as it may deem, from time to time, are in our and our stockholders’ best interests. Our nominating and corporate governance committee reviews the totality of the circumstances of each nominee and each board member to assess the ability of such individuals to devote the requisite time to fulfilling the responsibilities of service on our board of directors and applicable committees. Our nominating and corporate governance committee evaluates many factors when assessing the effectiveness and active involvement of each director, including the director’s attendance at board and committee 15 P r o x y meetings, participation and level of engagement during these meetings, the role played by the director on our board of directors, as well as on the other boards, including committee membership and chairperson designation, and the experience and expertise of the director, including both relevant industry experience and service on other public company boards, which enable the director to serve on multiple boards effectively. Although our board of directors does not maintain a specific policy with respect to the number of diverse individuals on our board of directors, our board of directors believes that our board of directors should be a diverse body, and our nominating and corporate governance committee endeavors to consider candidates who represent a mix of backgrounds including breadth and quality of experience, personal and professional experience, expertise, culture, race, ethnicity, gender and sexual orientation, including lived experience. In making determinations regarding nominations of directors, our nominating and corporate governance committee takes into account the benefits of diverse viewpoints. Our nominating and corporate governance committee also considers these and other factors as it oversees the annual board of directors and committee evaluations. After completing its review and evaluation of director candidates, our nominating and corporate governance committee recommends to our full board of directors the director nominees for selection. Stockholder Recommendations and Nominations to the Board of Directors Stockholders may submit recommendations for director candidates to the nominating and corporate governance committee by sending the individual’s name and qualifications to our Chief Legal Officer at Twilio Inc., 101 Spear Street, First Floor, San Francisco, California 94105, who will forward all recommendations to the nominating and corporate governance committee. The nominating and corporate governance committee will evaluate any candidates recommended by stockholders against the same criteria and pursuant to the same policies and procedures applicable to the evaluation of candidates proposed by directors or management. Stockholder and Other Interested Party Communications The board of directors provides to every stockholder and any other interested parties the ability to communicate with the board of directors, as a whole, and with individual directors on the board of directors through an established process for stockholder communication. For a stockholder communication directed to the board of directors as a whole, stockholders and other interested parties may send such communication to our Chief Legal Officer via U.S. Mail or Expedited Delivery Service to: Twilio Inc., 101 Spear Street, First Floor, San Francisco, California 94105, Attn: Board of Directors c/o Chief Legal Officer. For a stockholder or other interested party communication directed to an individual director in his or her capacity as a member of the board of directors, stockholders and other interested parties may send such communication to the attention of the individual director via U.S. Mail or Expedited Delivery Service to: Twilio Inc., 101 Spear Street, First Floor, San Francisco, California 94105, Attn: [Name of Individual Director]. We encourage stockholders to e-mail any such communications to us at legalnotices@twilio.com to help ensure prompt receipt. Our Chief Legal Officer, in consultation with appropriate members of our board of directors as necessary, will review all incoming communications and, if appropriate, all such communications will be forwarded to the appropriate member or members of our board of directors, or if none is specified, to the Chairperson of our board of directors. Corporate Governance Guidelines and Code of Conduct Our board of directors has adopted Corporate Governance Guidelines that address items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. In addition, our board of directors has adopted a code of 16 conduct that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and other executive and senior financial officers. A copy of our Corporate Governance Guidelines and Code of Conduct is available on our Internet website at https://investors.twilio.com and may also be obtained without charge by contacting our Corporate Secretary at Twilio Inc., 101 Spear Street, First Floor, San Francisco, California 94105. We intend to disclose any amendments to our Code of Conduct, or waivers of its requirements, on our website or in filings under the Exchange Act, as required by the applicable rules and exchange requirements. During fiscal year 2021, no waivers were granted from any provision of our Code of Conduct. Our Commitment to Environmental, Social and Governance Matters At Twilio, we recognize the impact that a business can have on its surrounding community and environment, and we believe that an organization has the responsibility to be a good corporate citizen. We also value our employees and recognize the critical roles that they play in the achievement of our long- term goals and overall success. The following is intended as a summary of some of the steps we are taking to create a safe and inclusive workplace for our employees and to foster positive impact in our communities and for our stakeholders. More information about our environmental, social and governance efforts can be found in our 2021 Impact and DEI Report, available on the Governance section of our website at https://investors.twilio.com. Information referenced on our website does not constitute part of this proxy statement. Board Oversight We are committed to sound governance and oversight of our impact on the surrounding community and environment. This is one of the reasons that our board of directors has delegated formal oversight of our environmental, social and governance activities, programs and disclosure to our nominating and corporate governance committee. At each regularly scheduled meeting of our nominating and corporate governance committee, members of the Company’s management provide our nominating and corporate governance committee with formal updates on the Company’s environmental, social and governance activities and programs. Environmental We recognize the impact that companies can have on the environment and we are working to integrate sustainability initiatives into our business practices, including the evaluation of energy conservation initiatives and renewable energy purchases that can help reduce greenhouse emissions at our facilities. Our goal is to limit our impact on climate change and to carry out our business activities in a sustainable manner. As a business that is conducted largely online, our carbon footprint may be smaller than those of manufacturing or other businesses, but we still strive to limit our impact on climate change. We have also begun to measure our carbon footprint with the goal of setting a greenhouse gas reduction target in the future. Additionally, we are monitoring our water usage and creating a systematic global approach to responsibly dispose of our electronic waste, including through participation in vendor buy-back programs or e-cycling. Finally, we are fostering the promotion of conservation by recycling, composting, and source reduction in all of our offices globally. Social Impact of Product Portfolio Twilio’s mission is to unleash the imagination of builders. As a company, we’ve long been inspired by the imagination of builders tackling complex social problems. We started Twilio.org to be the engine behind social impact organizations, helping them use our digital engagement tools and financial resources to supercharge their reach and scale their impact. We partner with nonprofits, social enterprises, international NGOs, and local governments that deliver support in a crisis, connect people with life- changing resources, and inspire action for the greater good. Whether it’s fueling the technology behind crisis hotlines, building video applications that connect teachers and students for distance learning, or 17 P r o x y using our voice and SMS products to organize underrepresented communities to vote, our social impact partners are engaging people around the world to build the future that they want. In 2021, impact organizations leveraged Twilio to reach over 500 million people. Effective communication is critical in helping social impact organizations listen and engage with the people that they serve. That’s why we sell our communication products at a discount to these types of organizations. We then reinvest the profit back into our social initiatives. This means as our revenues grow, so does our social impact. This increased revenue translates to more grants, employee volunteering, and technical resources available for organizations using technology to advance their missions. Community Involvement and Philanthropy One form of employee volunteering is the WePledge 1% program that Twilio.org launched in 2019. WePledge 1% is our volunteer impact and giving program in which employees voluntarily pledge to give 1% of their own time, income, or equity (or a combination) to causes that resonate with them. Since the program’s launch in September 2019, over 3,400 of our employees have taken the pledge to commit 1%, resulting in the donation of over three million dollars and over 20,000 volunteer hours. As the scale and frequency of global crises increase, social impact organizations are innovating to serve their communities and treat people as individuals with dignity. Our goal at Twilio.org is to unleash our product, people, and capital to support 1 billion people annually. We know that when organizations pair their local, first-hand expertise with the scale of technology, more people around the world have the opportunity to thrive. In 2015, we reserved 1% of our Class A common stock to fund our social impact at Twilio.org. In March 2019, we increased the Twilio.org share reserve by 203,658 shares of Class A common stock to account for a similar program previously operated by SendGrid, Inc. (one of our wholly owned subsidiaries, which we acquired in February 2019). Since 2016, Twilio.org has given approximately $124 million in product credits, donations, grants and investments, consistent with its philanthropic goals. Compliance & Ethics Our culture of integrity starts with our Corporate Governance Guidelines and Code of Conduct, and includes efforts in risk assessment, development of policies, procedures, training, auditing, monitoring, investigations, and remediation of potential compliance matters. We have also implemented mandatory anti-harassment, anti-corruption and anti-bribery training as well as more targeted compliance training aimed at addressing the compliance risks of specific roles and business functions. Furthermore, in order to promote a high standard of ethical and professional conduct within our Company, we have engaged with an impartial third party to administer an ethics reporting hotline where, as permitted by law, employees, contractors, customers and vendors may address any issues on a confidential and anonymous basis. Employees may choose the method with which they are most comfortable to discuss any issues or complaints, whether it is through their manager, our human resources partners, or the reporting hotline. In addition, our Code of Conduct applies to all of our employees, including our officers and board of directors. Violations of the Code of Conduct may result in disciplinary action, up to and including termination of employment. Customer Protection and Data Privacy We are committed to protecting the privacy and data of our developer ecosystem, customers and users. We have implemented policies and procedures that facilitate compliance with applicable privacy laws, including the California Consumer Privacy Act and the General Data Protection Regulation (“GDPR”), and work to use privacy by design in our review and building processes. For example, in 2016, even before GDPR became effective, we started the process of putting in place our own Binding Corporate Rules (“BCRs”)—considered one of the highest global standards for data protection that a 18 company can have. Our BCRs codify our guiding principles and approach to compliance with data protection laws when processing personal information. In addition to working to maintain data privacy and security, we have proactively taken steps to provide increased visibility to the Twilio community around government requests received for customer information by municipal, state, provincial and federal governments globally. We do this by publishing semi-annual transparency reports. Our transparency reports document the total volume of government requests for information received by us, how we responded to the requests, and how often we notified users of the requests. Data Security Furthermore, we train employees on policies and procedures for secure data handling and use physical and procedural safeguards to help keep our facilities and equipment secure. All of our employees and contractors are required to complete privacy and security training every year. Diversity & Inclusion At Twilio, we are driving a diversity, equity and inclusion (“DEI”) strategy based on the principles of antiracism. We believe that we can effectively promote equity in the workplace when we focus on transformational change at the individual and leadership levels. By educating and empowering Twilions to think and operate through an antiracist lens, we’ll be able to build a more diverse workforce, promote equity for all communities in the workplace and foster safe, inclusive environments. Twilio publishes its gender and ethnic diversity data in its Impact and DEI Report, which is available on the Governance section of our website at https://investors.twilio.com. In 2020 we created our first set of company-wide racial justice and equity business priorities and measures, and we have since began the work to embed and operationalize antiracism across the business, with a strong focus on education. In 2021, 100% of our executive team participated in two antiracism workshops and 86% of VPs and above participated in an in-depth antiracism workshop, with continued learning planned for more Twilions in 2022. We expanded our partnerships with global organizations to help us find, grow, and keep diverse talent in various demographics, regions, and countries. Lastly, 50% of employee resource group (“ERG”) specific programming and events promoted antiracist learning in the workplace. We will continue to grow our DEI resources and global footprint to make sure our antiracism strategy scales along with the business. Most recently, we expanded the DEI team and launched new ERG chapters globally to ensure we are translating antiracism and amplifying DEI efforts across all teams and regions. Risk Management Risk is inherent with every business, and we face a number of risks, including strategic, financial, business and operational, cyber security, legal and compliance, and reputational. We have designed and implemented processes to manage risk in our operations. Management is responsible for the day-to-day management of risks the Company faces, while our board of directors, as a whole and assisted by its committees, has responsibility for the oversight of risk management. In addition, every employee is required to complete data privacy, cybersecurity and code of conduct training upon joining the Company and each year thereafter. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are appropriate and functioning as designed. Our board of directors believes that open communication between management and our board of directors is essential for effective risk management and oversight. Our board of directors meets with our Chief Executive Officer and other members of the senior management team at quarterly meetings of our board of directors, where, among other topics, they discuss strategy and risks facing the Company, as well as such other times as they deem appropriate. 19 P r o x y While our board of directors is ultimately responsible for risk oversight, our board committees assist our board of directors in fulfilling its oversight responsibilities in certain areas of risk. Our audit committee assists our board of directors in fulfilling its oversight responsibilities with respect to risk management in the areas of internal control over financial reporting and disclosure controls and procedures, cybersecurity and security, legal and regulatory compliance, and discusses with management and the independent auditor guidelines and policies with respect to risk assessment and risk management. On a quarterly basis, members of our management team update the audit committee on the status of key risks impacting the Company. Our audit committee also reviews our major financial risk exposures and the steps management has taken to monitor and control these exposures. Our audit committee also monitors certain key risks on a regular basis throughout the fiscal year, such as risk associated with internal control over financial reporting and liquidity risk. Our nominating and corporate governance committee assists our board of directors in fulfilling its oversight responsibilities with respect to the management of risk associated with board organization, membership and structure, and corporate governance. Our compensation and talent management committee assesses risks created by the incentives inherent in our compensation programs, policies and practices and those related to human capital management issues. Finally, our full board of directors reviews strategic and operational risk in the context of reports from the management team, receives reports on all significant committee activities at each regular meeting, and evaluates the risks inherent in significant transactions. Non-Employee Director Compensation Non-Employee Director Compensation Policy We have adopted a compensation policy for our non-employee directors (as amended and restated from time to time, the “Non-Employee Director Compensation Policy”) to attract, retain and award these individuals and align their long-term interests with those of the Company and our stockholders. Our non-employee directors are paid in the form of restricted stock units (“RSUs”) only and do not receive cash compensation. Employee directors receive no additional compensation for their service as a director. Decisions regarding the Non-Employee Director Compensation Policy are approved by our board of directors based on recommendations from our compensation and talent management committee. Our compensation and talent management committee conducts an annual evaluation of the design and competitiveness of our Non-Employee Director Compensation Policy in light of best practices, market trends and a competitive market analysis of data for the Company’s compensation peer group prepared by its compensation consultant, and makes appropriate recommendations to our board of directors with respect to the compensation of our non-employee directors. During 2021, our compensation and talent management committee engaged Compensia, Inc. (“Compensia”), a national compensation consulting firm, as its compensation consultant to advise on, among other things, non-employee director compensation matters. In doing so, our compensation and talent management committee reviewed and considered a peer group compensation data analysis prepared by Compensia. Our compensation and talent management committee targeted non-employee director compensation, to consist solely of RSUs, to the 50th percentile relative to our peers. In May 2021, upon the recommendation of the compensation and talent management committee, our board of directors approved the following changes to our Non-Employee Director Compensation Policy for fiscal 2021: (i) increase the annual equity retainer for the lead independent director from $20,000 to $23,000; (ii) increase the annual equity retainer for members of the audit committee (other than the chairperson) from $11,000 to $13,000; (iii) increase the annual equity retainer for the audit committee chairperson from $22,000 to $26,000; (iv) increase the annual equity retainer for members of the compensation and talent management committee (other than the chairperson) from $9,000 to $10,000; (v) increase the annual equity retainer for the compensation and talent management committee chairperson from $18,000 to $20,000; (vi) increase the annual equity retainer for members of the nominating and corporate governance committee (other than the chairperson) from $5,000 to $6,000 (vii) increase the annual equity retainer for the nominating and 20 corporate governance committee chairperson from $10,000 to $12,000; (viii) increase the Initial Equity Grant (as defined below) from $440,000 to $575,000; and (ix) pay all annual retainers for board membership, lead independent director and committee membership in the form of RSUs in lieu of cash compensation. For purposes of the amounts described in this section, the values are calculated as set forth in the Non-Employee Director Compensation Policy. For the aggregate grant date fair value of the RSUs awarded to the non-employee directors in the fiscal year ended December 31, 2021, calculated in accordance with FASB ASC Topic 718, please see “2021 Non-Employee Director Compensation Table” below. Annual Equity Retainers For fiscal 2021, our non-employee directors received compensation in the form of RSUs only, the values of which are as set forth below. Annual Equity Retainer for Board Membership Annual service on the board of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Annual Equity Retainer for Lead Independent Director . . . . . . . . . . . . . . . . . . . . . . . . . Additional Annual Equity Retainer for Committee Membership Annual service as member of the audit committee (other than chairperson) . . . . . . . . . . . . . . . . Annual service as chairperson of the audit committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual service as member of the compensation and talent management committee (other than chairperson) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual service as chairperson of the compensation and talent management committee . . . . . . Annual service as member of the nominating and corporate governance committee (other $40,000 $23,000 $13,000 $26,000 $10,000 $20,000 than chairperson) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual service as chairperson of the nominating and corporate governance committee . . . . . . . $ 6,000 $12,000 P r o x y Annual Equity Grants In addition, on the date of our annual meeting of stockholders, each non-employee director who continued as a member of our board of directors following such annual meeting of stockholders received a grant of RSUs having a value of $250,000 (the “Annual Equity Grant”). During fiscal year 2021, the number of RSUs for the Annual Equity Grant was determined by dividing the applicable values by the average closing market price on The New York Stock Exchange (or such other market on which the Company’s Class A common stock is then principally listed) of one share of the Company’s Class A common stock over the trailing 30-day period ending five business days before the effective date of the grant. The Annual Equity Retainer and Annual Equity Grants are granted in four quarterly installments over the course of the year that commences on the date of each annual meeting of stockholders, with such grants to be made on each September 15, December 15, March 15, and the earlier of (i) June 15 or (ii) the day that is immediately prior to the next subsequent annual meeting of stockholders (each such date, a “Quarterly Date,” and each such grant, a “Quarterly Grant”). The value of each Quarterly Grant shall be equal to the value of the portion of the Annual Equity Retainer and Annual Equity Grants applicable to the period beginning on the day after the immediately preceding Quarterly Date and ending on the then- current Quarterly Date (the “Quarterly Period”), based on the board and committee roles held by the non-employee director during such Quarterly Period. Each Quarterly Grant shall be fully vested upon the date of grant. 21 Initial Equity Grants Our Non-Employee Director Compensation Policy during fiscal year 2021 provided that, upon initial election to our board of directors, each non-employee director would be granted RSUs having a value of $575,000 (the “Initial Equity Grant”). The Initial Equity Grant vests in equal annual installments over three years, subject to continued service as a director through the applicable vesting dates; provided, however, that if a non-employee director is elected on a date other than at the annual meeting of stockholders, one-third (1/3rd) of such value shall be pro-rated by the amount of time between such election and the next annual meeting of stockholders and such pro-rated portion shall vest on the day prior to the next annual meeting of stockholders, with the other two-thirds (2/3rds) vesting annually over the following two years following such initial vesting date. During fiscal year 2021, the number of RSUs for the Initial Equity Grant was determined by dividing the applicable value by the average closing market price on The New York Stock Exchange (or such other market on which the Company’s Class A common stock is then principally listed) of one share of the Company’s Class A common stock over the trailing 30-day period ending five business days before the effective date of the grant. Awards granted under our Non-Employee Director Compensation Policy are subject to full accelerated vesting upon a “sale event,” as defined in our 2016 Stock Option and Incentive Plan (as amended and restated, the “2016 Plan”). Our Non-Employee Director Compensation Policy also provides that, pursuant to the 2016 Plan, the aggregate amount of compensation, including both equity compensation and cash compensation, paid to any non-employee director in a calendar year will not exceed $750,000 (or such other limit as may be set forth in the 2016 Plan or any similar provision of a successor plan). We also reimburse all reasonable out-of-pocket expenses incurred by our non-employee directors for their attendance at meetings of our board of directors or any committee thereof. Changes to Non-Employee Director Compensation effective for Fiscal 2022 Following a review with Compensia of peer company board compensation trends in March 2022, our compensation and talent management committee recommended, and our board of directors approved, the following changes to our non-employee director compensation effective fiscal 2022, targeting non-employee director compensation to the 50th percentile relative to our peers: (i) increase the annual equity retainer for the lead independent director from $23,000 to $30,000 and (ii) increase the annual equity retainer for all non-employee members of the board of directors from $40,000 to $45,000. Non-Employee Directors’ Deferred Compensation Program In July 2017, we implemented a Non-Employee Directors’ Deferred Compensation Program to offer our non-employee directors the ability to defer the receipt of any RSUs granted to them from Initial Grants or Annual Grants under the 2016 Plan. In advance of an award of RSUs and in compliance with the program’s requirements, a non-employee director may elect to defer the receipt of all of his or her RSUs until the earliest of (i) 90 days after such non-employee director ceases to serve as a member of our board of directors; (ii) the consummation of a “sale event”; or (iii) 90 days after the non-employee director’s death (such earliest date, the “Payment Event”). Upon the vesting of the RSUs, any amounts that would otherwise have been paid in shares of Company common stock will be converted into deferred stock units (“DSUs”) on a one-to-one basis and credited to the non-employee director’s deferral account. The DSUs will be paid in shares of Company Class A common stock on a one-to-one basis in a single lump sum (and will cease to be held in the non-employee director’s deferred account) as soon as practicable following the Payment Event. 22 Death Equity Acceleration Policy See “Executive Compensation—Other Compensation Policies and Practices—Death Equity Acceleration Policy” for a discussion of the treatment of equity awards upon the termination due to death of an employee’s or non-employee director’s employment or other service relationship with the Company or any of its subsidiaries. Stock Ownership Policy In April 2018, we adopted a stock ownership policy for our non-employee directors, which was amended and restated in September 2020 and March 2022. Our stock ownership policy, as amended, requires our non-employee directors to acquire and hold a number of shares of our Company’s common stock equal in value to five times (increased from four times in March 2022) the director’s annual retainer for regular service on the board of directors. We only count directly and beneficially owned shares, including shares purchased through our Company’s 2016 Employee Stock Purchase Plan (as amended and restated, the “ESPP”) or Section 401(k) plan, if applicable, and shares underlying vested RSUs that are held or deferred. We do not count shares underlying vested and unexercised in-the-money stock options. Each non-employee director has five years from the later of his or her initial election to the board of directors or from the effective date of the policy to attain the required ownership level. 2021 Non-Employee Director Compensation Table The following table provides information regarding the total compensation that was earned by or paid to each of our non-employee directors in fiscal year 2021, all of which were paid solely in RSUs. Mr. Lawson, who is our Chief Executive Officer, did not receive any additional compensation for his service as a director. The compensation received by Mr. Lawson, as a named executive officer, is presented in “Executive Compensation—Summary Compensation Table.” P r o x y Name Stock awards ($)(1) Total ($) Richard Dalzell(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Byron Deeter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elena Donio(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Donna Dubinsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jeff Epstein(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jeffrey Immelt(5) Deval Patrick(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Erika Rottenberg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,928 138,928 145,751 142,470 159,135 140,659 714,521 147,824 138,928 138,928 145,751 142,470 159,135 140,659 714,521 147,824 (1) Unless otherwise indicated, stock awards consist solely of RSUs which vest immediately upon grant. The amounts reported in this column represent the aggregate grant date fair value of the RSUs awarded to the non-employee directors in the fiscal year ended December 31, 2021, calculated in accordance with FASB ASC Topic 718. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service- vesting conditions. The valuation assumptions used in determining such amounts are described in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 22, 2022. The amounts reported in this column reflect the accounting cost for the RSUs and do not correspond to the actual economic value that may be received by the non-employee directors upon vesting or settlement of the RSUs. (2) As of December 31, 2021, Mr. Dalzell held an outstanding option to purchase a total of 76,500 shares of our Class B common stock. (3) Ms. Donio resigned from our board of directors, effective April 29, 2022. 23 (4) Mr. Epstein has elected to defer 18,794 RSUs pursuant to the Non-Employee Director’s Deferred Compensation Program, which were converted into DSUs. As of December 31, 2021, Mr. Epstein held 18,794 DSUs. (5) As of December 31, 2021, Mr. Immelt held 1,043 RSUs, which will vest on June 19, 2022 so long as Mr. Immelt is a member of our board of directors on such date. (6) As of December 31, 2021, Mr. Patrick held (i) 422 RSUs, which vested on January 13, 2022, (ii) 422 RSUs, which will vest on January 13, 2023, and (ii) 423 RSUs, which will vest on January 13, 2024 so long as Mr. Patrick is a member of our board of directors on such date. 24 PROPOSAL NO. 1 ELECTION OF DIRECTORS Our board of directors is currently composed of eight members. In accordance with our amended and restated certificate of incorporation, our board of directors is divided into three staggered classes of directors. At the Annual Meeting, two Class III directors will be elected for a three-year term to succeed the same class whose term is then expiring. Each director’s term continues until the election and qualification of his or her successor, or such director’s earlier death, resignation or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in the control of our Company. Nominees Our nominating and corporate governance committee has recommended, and our board of directors has approved, Donna L. Dubinsky and Deval Patrick as nominees for election as Class III directors at the Annual Meeting. If elected, each of Ms. Dubinsky and Mr. Patrick will serve as Class III directors until the 2025 annual meeting of stockholders and until their successors are duly elected and qualified. Each of the nominees is currently a director of our Company. For information concerning the nominees, please see the section titled “Board of Directors and Corporate Governance.” If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the election of Ms. Dubinsky and Mr. Patrick. We expect that Ms. Dubinsky and Mr. Patrick will each accept such nomination; however, in the event that a director nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee designated by our board of directors to fill such vacancy. If you are a street name stockholder and you do not give voting instructions to your broker or nominee, your broker will leave your shares unvoted on this matter. Vote Required The election of directors requires a plurality of the voting power of the shares of our common stock be present virtually or by proxy at the Annual Meeting and entitled to vote thereon to be approved. Abstentions and broker non-votes will have no effect on this proposal. See “Procedural Matters—How many votes are needed for approval of each proposal?” for further information. Recommendation of the Board of Directors THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES NAMED ABOVE. P r o x y 25 PROPOSAL NO. 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Our audit committee has appointed KPMG LLP (“KPMG”), an independent registered public accounting firm, to audit our consolidated financial statements for our fiscal year ending December 31, 2022. During our fiscal year ended December 31, 2021, KPMG served as our independent registered public accounting firm. Notwithstanding the appointment of KPMG, and even if our stockholders ratify the appointment, our audit committee, in its discretion, may appoint another independent registered public accounting firm at any time during our fiscal year if our audit committee believes that such a change would be in the best interests of our Company and our stockholders. At the Annual Meeting, our stockholders are being asked to ratify the appointment of KPMG as our independent registered public accounting firm for our fiscal year ending December 31, 2022. Our audit committee is submitting the appointment of KPMG to our stockholders because we value our stockholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. However, neither the Company’s second amended and restated bylaws nor other governing documents or law require stockholder ratification of the selection of KPMG as the Company’s independent registered public accounting firm. Representatives of KPMG will be present at the Annual Meeting, and they will have an opportunity to make a statement and will be available to respond to appropriate questions from our stockholders. If our stockholders do not ratify the appointment of KPMG, our audit committee may reconsider the appointment. Fees Paid to the Independent Registered Public Accounting Firm The following table presents fees for professional audit services and other services rendered to our Company by KPMG for our fiscal years ended December 31, 2020 and 2021. Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 2021 (in thousands) $4,293 450 86 — $4,105 1,261 31 — Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,829 $5,397 (1) Audit Fees consist of professional services rendered in connection with the audit of our annual consolidated financial statements, including audited financial statements presented in our Annual Report on Form 10-K and services that are normally provided by the independent registered public accountants in connection with statutory and regulatory filings or engagements for those fiscal years, and the review of the financial statements included in our quarterly reports. Fees for fiscal year 2020 and 2021 also consisted of fees related to SEC registration statements and other filings, comfort letters and consents, adoption of accounting pronouncements, acquisitions and our follow-on securities offerings. Fees for fiscal year 2021 also included work related to the intra-entity asset transfer of certain intellectual property rights. (2) Audit-Related Fees consist of professional services rendered in connection with the due diligence of transactions or events, including acquisitions. (3) Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance. 26 Auditor Independence In our fiscal year ended December 31, 2021, there were no other professional services provided by KPMG, other than those listed above, that would have required our audit committee to consider their compatibility with maintaining the independence of KPMG. Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm. Under this policy, our audit committee is required to pre-approve all audit, internal control-related services and permissible non-audit services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. All services provided by KPMG for our fiscal years ended December 31, 2020 and 2021 were pre-approved by our audit committee and were compatible with maintaining KPMG’s independence. Vote Required The ratification of the appointment of KPMG as our independent registered public accounting firm for our fiscal year ending December 31, 2022 requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote against this proposal, and broker non-votes will have no effect. P r o x y Recommendation of the Board of Directors THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 27 PROPOSAL NO. 3 NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS Section 14A of the Exchange Act requires that we provide our stockholders with the opportunity to vote to approve, on a non-binding, advisory basis, not less frequently than once every three years, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC. As described in detail under the heading “Executive Compensation—Compensation Discussion and Analysis,” we seek to closely align the interests of our named executive officers with the interests of our stockholders. Our compensation programs are designed to effectively align our executives’ interests with the interests of our stockholders by focusing on long-term equity incentives that correlate with the growth of sustainable long-term value for our stockholders. Stockholders are urged to read the section titled “Executive Compensation” and, in particular, the section titled “Executive Compensation—Compensation Discussion and Analysis” in this proxy statement, which discusses how our executive compensation program policies and practices implement our compensation philosophy and contains tabular information and narrative discussion about the compensation of our named executive officers. Our board of directors and our compensation and talent management committee believe that these policies and practices are effective in implementing our compensation philosophy and in achieving our compensation program goals. The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. Accordingly, we are asking our stockholders to vote on the following resolution at the Annual Meeting: RESOLVED, that the stockholders hereby approve, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2022 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the narrative discussions that accompany the compensation tables. Vote Required The approval of this advisory non-binding proposal requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote “against” this proposal, and broker non-votes will have no effect. The vote is advisory, which means that the vote is not binding on the Company, our board of directors or our compensation and talent management committee. To the extent there is any significant vote against our named executive officer compensation as disclosed in this proxy statement, our compensation and talent management committee will evaluate whether any actions are necessary to address the concerns of stockholders. Recommendation of the Board of Directors THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL, ON A NON-BINDING ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. 28 REPORT OF THE AUDIT COMMITTEE1 The audit committee is a committee of the board of directors composed solely of independent directors as required by the listing standards of the New York Stock Exchange, Long-Term Stock Exchange and rules of the Securities and Exchange Commission (“SEC”). The audit committee operates under a written charter approved by our board of directors, which is available on our website at https:// investors.twilio.com. The composition of the audit committee, the attributes of its members and the responsibilities of the audit committee, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees. The audit committee reviews and assesses the audit committee’s performance and the adequacy of its charter on an annual basis. With respect to our financial reporting process, our management is responsible for (1) establishing and maintaining internal controls and (2) preparing our consolidated financial statements. Our independent registered public accounting firm, KPMG LLP (“KPMG”), is responsible for performing an independent audit of our consolidated financial statements and our internal control over financing reporting in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), and to issue a report thereon. It is the responsibility of the audit committee to oversee these activities. It is not the responsibility of the audit committee to prepare our financial statements. These are the fundamental responsibilities of management. In the performance of its oversight function, the audit committee has: • reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2021 and management’s report on internal control over financial reporting with management and KPMG; • discussed with KPMG the matters required to be discussed by the statement on Auditing Standards No. 1301, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), and as adopted by the PCAOB in Rule 3200T; and • received the written disclosures and the letter from KPMG required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence and has discussed with KPMG its independence. Based on the audit committee’s review and discussions with management and KPMG, the audit committee recommended to the board of directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Respectfully submitted by the audit committee of the board of directors: Jeff Epstein (Chairperson) Donna L. Dubinsky Erika Rottenberg P r o x y 1 This report of the audit committee is required by the SEC and, in accordance with the SEC’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act or the Exchange Act. 29 EXECUTIVE OFFICERS The following table identifies certain information about our executive officers as of May 4, 2022. Our executive officers are appointed by, and serve at the discretion of, our board of directors and hold office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers. Name Jeff Lawson . . . . . . . . . . . . . . . . . . . . . Khozema Shipchandler . . . . . . . . . . . Elena Donio . . . . . . . . . . . . . . . . . . . . Eyal Manor . . . . . . . . . . . . . . . . . . . . . Dana R. Wagner . . . . . . . . . . . . . . . . Age 44 48 52 48 46 Position Co-Founder, Chief Executive Officer and Chairperson Chief Operating Officer and Principal Financial Officer President of Revenue Chief Product Officer Chief Legal Officer, Chief Compliance Officer and Corporate Secretary Executive Officers Jeff Lawson. Mr. Lawson is one of our founders and has served as our Chief Executive Officer and as a member of our board of directors since April 2008 and has served as the Chairperson of our board of directors since November 2015. From 2001 to 2008, Mr. Lawson served as founder and Chief Technology Officer of Nine Star, Inc., a multi-channel retailer of equipment and apparel to the action sports industry. From 2004 to 2005, Mr. Lawson served as Technical Product Manager of Amazon.com, Inc., an electronic commerce and cloud computing company. In 2000, Mr. Lawson served as Chief Technology Officer of StubHub, Inc., an online marketplace for live entertainment events. From 1998 to 2000, Mr. Lawson served in several roles at Versity.com, Inc., a website for college lecture notes, including as founder, Chief Executive Officer and Chief Technology Officer. Mr. Lawson holds a B.S. in Computer Science and Film/ Video from the University of Michigan. Mr. Lawson was selected to serve on our board of directors because of the perspective and experience he brings as our Chief Executive Officer, one of our founders and as one of our larger stockholders, as well as his extensive experience as an executive with other technology companies. Khozema Shipchandler. Mr. Shipchandler has served as our Chief Operating Officer since October 2021, and prior to that served as our Chief Financial Officer from November 2018. From 2015 to 2018, Mr. Shipchandler served as chief financial officer and executive vice president of corporate development at GE Digital, an operational technology and infrastructure software company that is a division of General Electric Company, a publicly traded industrial technology company. From 1996 to 2015, Mr. Shipchandler served in various executive roles at General Electric Company, including as chief financial officer, Middle East, North Africa and Turkey from 2011 to 2013. Mr. Shipchandler holds a B.A. in English and Biology from Indiana University Bloomington. Elena Donio. Ms. Donio has served as our President of Revenue since May 2022. From 2016 to April 2022, Ms. Donio served as a member of our board of directors. From 2016 to 2020, Ms. Donio served as Chief Executive Officer at Axiom Global, a leading provider of tech-enabled legal services. From 1998 to 2016, Ms. Donio served in several roles, including as President, Executive Vice President and General Manager of Worldwide Small and Mid-Sized Businesses, at Concur Technologies, Inc., a business travel and expense management software company, which was acquired by SAP SE in 2014. From 1995 to 1997, Ms. Donio served as Senior Manager at Deloitte Consulting LLP, a professional services firm. From 1992 to 1995, Ms. Donio served as Senior Consultant at Andersen Consulting LLP, a business consulting firm. Ms. Donio holds a B.A. in Economics from the University of California, San Diego. Eyal Manor. Mr. Manor has served as our Chief Product Officer since November 2021. From 2007 to 2021, he served in a variety of roles at Google LLC, a technology company, including as Vice President and General Manager of Engineering and Product and Vice President of Engineering, where he led a 30 portfolio of products and technologies. Prior to that, Mr. Manor held executive positions leading startups, including serving as vice president of research and development for a voice and video SaaS streaming startup. Mr. Manor was an advisor for CapitalG from 2015 to 2021. Mr. Manor graduated with a B.A. in Economics from Tel Aviv University. Dana R. Wagner. Mr. Wagner has served as our Chief Legal Officer, Chief Compliance Officer and Secretary since December 2021. From 2018 to 2021, Mr. Wagner served as the Chief Legal Officer of the biotechnology company Impossible Foods Inc., where he led the legal, policy, quality control, and security functions. From 2018 to 2020, he was Adjunct Professor at Northwestern University, and he has taught and lectured at Berkeley Law since 2019. From 2011 to 2016, Mr. Wagner was General Counsel of the financial technology company Square, Inc. (now Block, Inc.). Mr. Wagner served in various positions at Google Inc., from May 2007 to July 2011, where he oversaw the antitrust and competition legal practice, and prior to 2007, he held various positions in the U.S. Department of Justice. Mr. Wagner currently serves on the board of directors of Centre Consortium and the Museum of Art and Digital Entertainment. Mr. Wagner holds a B.A. in comparative literature and economics from the University of California, Berkeley, and a J.D. from Yale Law School. P r o x y 31 Compensation Discussion and Analysis EXECUTIVE COMPENSATION This Compensation Discussion and Analysis describes the compensation program for our named executive officers. During the fiscal year ended December 31, 2021, these individuals were: Named Executive Officer Position Jeff Lawson . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer and Chairperson Khozema Shipchandler(1) Eyal Manor . . . . . . . . . . . . . . . . . . . . . Chief Product Officer Marc Boroditsky(2) . . . . . . . . . . . . . . . Chief Revenue Officer Dana R. Wagner . . . . . . . . . . . . . . . . Chief Legal Officer, Chief Compliance Officer and Corporate . . . . . . . . . Chief Operating Officer and Principal Financial Officer George Hu(3) . . . . . . . . . . . . . . . . . . . . Former Chief Operating Officer Chee Chew(4) . . . . . . . . . . . . . . . . . . . Former Chief Product Officer Secretary (1) Mr. Shipchandler was appointed Chief Operating Officer effective October 27, 2021, having previously served as our Chief Financial Officer. (2) On April 28, 2022, Mr. Boroditsky notified us of his intention to resign from his position as Chief Revenue Officer, effective immediately. Mr. Boroditsky’s last day of employment will be August 19, 2022. (3) Mr. Hu ceased to be an executive officer when he resigned as Chief Operating Officer effective October 27, 2021. He served as a strategic advisor through the end of fiscal 2021. (4) Mr. Chew’s employment with us ended effective May 17, 2021. This Compensation Discussion and Analysis describes the material elements of our executive compensation program during 2021 and certain aspects of our compensation program for 2022. It also provides an overview of our executive compensation philosophy and objectives. Finally, it discusses how our compensation and talent management committee of our board of directors arrived at the specific compensation decisions for our executive officers, including our named executive officers, for 2021, including the key factors that our compensation and talent management committee considered in determining their compensation. Executive Summary Business Overview Twilio spent over a decade building the leading cloud communications platform, but communications is just the beginning. Twilio’s vision is to become the leading customer engagement platform, ultimately providing businesses with the holy grail—a single view of the customer journey and the ability to take action, delivering real-time, personalized communications. We believe the future of customer engagement will be written in software by the developers of the world—our customers. Cloud platforms are a category of software that enable developers to build and manage applications without the complexity of creating and maintaining the underlying infrastructure. These platforms have arisen to enable a fast pace of innovation across a range of categories, such as computing and storage. As the leader in the cloud communications platform category, we enable developers to build, scale and operate real-time customer engagement within 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. These APIs are focused on the business challenges that a developer is looking to address, allowing our customers to more quickly and easily build better ways to engage with their customers throughout their journey. Our engagement platform also includes a set of APIs that enable developers to embed voice, messaging, video 32 and email capabilities into their applications, and are designed to support almost all the fundamental ways humans communicate, unlocking innovators to address just about any communication market. The Super Network is our software layer that allows our customers’ software to communicate with connected devices globally. It interconnects with communications networks and inbox service providers around the world and continually analyzes data to optimize the quality and cost of communications that flow through our platform. The Super Network also contains a set of APIs giving our customers access to more foundational components of our platform, like phone numbers and session initiation protocol (“SIP”) Trunking. Our overall strategy is to develop great APIs that developers love. These developers are our champions and bring us “in” to companies of every type, most frequently utilizing our messaging and email tools as an entry point. This “in” motion creates initial relationships with customers of all sizes including major enterprises that allow us to move “up” the software stack and provide those companies with software solutions that address their customer engagement requirements from marketing to sales and support. Today, we offer Twilio Campaigns for marketing, Twilio Flex for customer support and Twilio Verify to onboard and recognize customers. The more strategic nature of these software products also allows us to move up the organization chart, interacting with more senior and strategic purchasers. This “in” and “up” strategy is a motion we work on improving every day. We will also continue to invest aggressively in our platform approach, which prioritizes increasing our reach and scale. Fiscal 2021 Performance Highlights In 2021, we continued to grow revenue and diversify our business, both internationally and across different customer sizes, and we achieved the following significant financial and operational results: P r o x y • Revenue of $2.84 billion for the full year 2021, up 61% year-over-year, including $200.9 million from Twilio Segment, and $55.4 million from Zipwhip, Inc. (“Zipwhip”), a leading provider of toll- free messaging in the United States that we acquired in 2021. • GAAP loss from operations of $915.6 million for the full year 2021, compared with GAAP loss from operations of $492.9 million for the full year 2020. • Non-GAAP income from operations of $2.5 million for the full year 2021, compared with non-GAAP income from operations of $35.7 million for the full year 2020. • More than 256,000 Active Customer Accounts as of December 31, 2021 (excluding customer accounts from our Zipwhip business), compared to 221,000 Active Customer Accounts as of December 31, 2020. Please refer to Appendix A of this proxy statement for a more detailed discussion of how we measure Active Customer Accounts and other key business metrics and for a reconciliation of GAAP loss from operations to non-GAAP income (loss) from operations. Fiscal 2021 Executive Compensation Highlights Based on our overall operating environment and these results, our compensation and talent management committee took the following key actions with respect to the compensation of our named executive officers for 2021: • Base Salary—At our Chief Executive Officer’s request, our compensation and talent management committee did not increase his base salary from its 2020 level, other than a nominal increase for rounding purposes. We made market adjustments to the base salary of certain other named executive officers, as we continue to move the target total cash compensation of certain named executive officers closer to the market median. • Long-Term Incentive Compensation—We granted ongoing long-term incentive compensation opportunities to our named executive officers in the form of time-based stock options to purchase 33 shares of our Class A common stock and time-based RSUs that may be settled for shares of our Class A common stock. Our Chief Executive Officer received an equity award with an aggregate grant date fair value of approximately $13.9 million. • No Annual Cash Bonus Program—Since July 1, 2015, we have not maintained a formal annual cash bonus plan for any of our executive officers, including our named executive officers. As described in “Oversight of Executive Compensation Program—Cash Incentives” below, Mr. Boroditsky participates in our sales commission program. Fiscal 2021 Executive Transitions Mr. Shipchandler was appointed Chief Operating Officer effective October 27, 2021. Prior to that time, Mr. Shipchandler served as our Chief Financial Officer. Also effective October 27, 2021, Mr. Boroditsky assumed an expanded role in his position as Chief Revenue Officer and subsequently became an executive officer. Mr. Manor joined as Chief Product Officer as of November 15, 2021. Mr. Chew, our former Chief Product Officer, ceased to be employed by us as of May 17, 2021. Mr. Wagner joined as Chief Legal Officer on December 13, 2021. Karyn Smith, our former General Counsel, ceased to be an executive officer as of December 15, 2021, but remained an employee of the Company until January 7, 2022. Mr. Hu resigned as our Chief Operating Officer as of October 27, 2021. Following his resignation, Mr. Hu remained as a strategic advisor until January 3, 2022. Pay-for-Performance Analysis We believe our executive compensation program is reasonable and competitive, and appropriately balances the goals of attracting, motivating, rewarding and retaining our executive officers with the goal of aligning their interests with those of our stockholders. The annual compensation of our executive officers, including our named executive officers, varies from year to year based on our corporate financial and operational results and individual performance. While we do not determine either contingent (“variable”) or “fixed” pay for each named executive officer with reference to a specific percentage of target total direct compensation, consistent with our “pay-for-performance” philosophy, our executive compensation program heavily emphasizes “variable” pay over “fixed” pay. 34 In 2021, the majority of the target total direct compensation of our Chief Executive Officer consisted of variable pay in the form of long-term incentive compensation opportunities. Fixed pay, primarily consisting of base salary, made up only 1% of our Chief Executive Officer’s target total direct compensation, while variable pay, consisting of long-term incentive compensation in the form of equity awards, made up the remaining 99% of his target total direct compensation. Similar allocations applied to our other executive officers, including each of our other named executive officers. The following charts show the percentages of target variable pay versus target fixed pay for our Chief Executive Officer and our other named executive officers in 2021: CEO Target Pay Mix 1% Average Other Named Executive Officer Target Pay Mix 1% 5% 49% 50% 61% 33% P r o x y Base Salary Stock Options RSUs Base Salary RSUs Stock Options Other (sales commissions) We believe that this approach provides balanced incentives for our executive officers to drive our financial performance and create long-term stockholder value. Executive Compensation Policies and Practices We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. Our compensation and talent management committee evaluates our executive compensation program on at least an annual basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. The following summarizes our executive compensation and related policies and practices: What We Do What We Don’t Do Use a Pay-for-Performance Philosophy. The vast majority of our executive officers’ target total direct compensation is directly linked to the performance of our stock price, and beginning in 2022, will align certain elements with the achievement of corporate growth objectives. No Retirement Plans. We do not currently offer pension arrangements, nonqualified deferred compensation arrangements or retirement plans to our executive officers other than a Section 401(k) retirement plan that is generally available to all our U.S. employees. Compensation “At Risk.” Our executive compensation program is designed so that a significant portion of our executive officers’ target total direct compensation is equity-based, and therefore “at risk,” to align the interests of our executive officers and stockholders. No Short-Term Cash Bonus Program or Guaranteed Bonuses. We do not maintain a formal cash bonus program for our executive officers, nor do we provide guaranteed bonuses to our executive officers. As described below, Mr. Boroditsky participates in our sales commission program. 35 What We Do What We Don’t Do “Double-Trigger” Change-in-Control Arrangements. Post-employment compensation arrangements for all current executive officers in the event of a change in control of the Company are “double-trigger” arrangements that require both a change in control of the Company plus a qualifying termination of employment before payments and benefits are paid. All such payments and benefits are also subject to the execution and delivery of an effective release of claims in our favor. Limited Perquisites or Other Personal Benefits. We provide limited perquisites and other personal benefits to our executive officers, which, in 2021, consisted of matching contributions to Section 401(k) accounts, and reimbursements for our Chief Executive Officer’s costs incurred in connection with his filing under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (“HSR”) and related tax gross up and legal fees. Maintain an Independent Compensation and Talent Management Committee. Our compensation and talent management committee consists solely of independent, non-employee directors. Limited Tax Payments on Perquisites. Except as otherwise specified, we generally do not provide any tax reimbursement payments (including “gross-ups”) on any perquisites or other personal benefits. Retain an Independent Compensation Advisor. Our compensation and talent management committee has engaged its own independent compensation advisor to provide information, analysis and other advice on executive compensation independent of management. No Excise Tax Payments on Future Post- Employment Compensation Arrangements. We do not provide any excise tax reimbursement payments (including “gross-ups”) with respect to payments or benefits contingent upon a change in control of our Company. Annual Executive Compensation Review. Our compensation and talent management committee conducts an annual review of our compensation strategy, including a review of our compensation peer group used for comparative and benchmarking purposes. No Hedging. We prohibit our employees, including our executive officers, and the non-employee members of our board of directors from engaging in hedging transactions or certain derivative transactions relating to our securities. Annual Compensation-Related Risk Assessment. Our compensation and talent management committee reviews, on an annual basis, our compensation-related risk profile. Stock Ownership Policy. We maintain a robust stock ownership policy for our Chief Executive Officer, our other named executive officers and the non-employee members of our board of directors. No Pledging. We prohibit our executive officers and the non-employee members of our board of directors from holding our securities in a margin account or pledging our securities as collateral for a loan. No Special Welfare or Health Benefits. We do not provide our executive officers with any special welfare or health benefit programs, and participation in the employee programs that are standard in our industry sector is on the same basis as all of our full-time employees. Annual Say-on-Pay Vote on Executive Compensation Our board of directors has elected to hold an advisory vote on executive compensation on an annual basis (the “Say-on-Pay Vote”), thereby giving our stockholders the opportunity to provide feedback on the compensation of our named executive officers each year. As reported in our current report on Form 8-K filed with the SEC on June 16, 2021, approximately 73% of the votes cast on the proposal expressed support for the compensation program offered to our named executive officers as disclosed in last year’s proxy statement. We will be conducting our annual Say-on-Pay Vote as described in Proposal No. 3 of this 36 proxy statement at the 2022 Annual Meeting of Stockholders. The next Say-on-Pay Vote will be held at our 2023 Annual Meeting of Stockholders. Commitment to Stockholder Engagement As we manage our business with a focus on continued innovation and growth, we recognize that our compensation program must balance stockholder perspectives with our ability to retain and attract the highest caliber of talent to help facilitate growth at scale. Our board of directors and our compensation and talent management committee value the stockholder perspectives we receive, through direct engagement as well as through voting decisions, including our annual Say-on-Pay Vote at our annual stockholder meetings, and the compensation-related feedback we receive from stockholders is an important component that informs the compensation and talent management committee’s decision- making process when reviewing our executive compensation programs each year. We have established a robust stockholder engagement program to help us better understand the perspectives of our stockholders. In 2021, in addition to our standard engagement with stockholders throughout the year, we conducted meetings with several of our large stockholders, with participation from our management team and certain members of our board of directors, including Ms. Rottenberg, the chairperson of our nominating and corporate governance committee, and, until her resignation from our board of directors, Ms. Donio, the former chairperson of our compensation and talent management committee on topics ranging from compensation strategy, to environmental, social and governance matters (“ESG”), including board structure and corporate governance. In addition, our head of investor relations regularly communicates stockholder feedback to senior management and the board of directors for consideration in their decision making. The 2021 executive compensation program was implemented in early 2021, and the compensation and talent management committee, in connection with input from our full board of directors, determined at that time that our concentration on equity compensation, particularly the grant of equity awards in the form of 50% (by fair value) stock options and 50% (by fair value) RSUs with time-based vesting, is aligned with long-term stockholder value. However, our compensation and talent management committee continues to assess the Company’s equity compensation practices in light of the Company’s continued growth and maturation as well as discussions with stockholders and determined to implement changes to our executive compensation program beginning in 2022 to grant performance-based equity awards as part of our executive compensation program, as discussed in “Evolving our Executive Compensation Program” below. We believe the addition of performance-based equity awards, as well as other enhancements to our governance practices and disclosures in response to stockholder feedback, such as increasing our stock ownership requirements for directors and executive offices and enhancing our ESG disclosures, have advanced our compensation practices and governance in a manner that both benefits stockholders and continues to align with our strategy and pay philosophy. Executive Compensation Philosophy We operate in an extremely competitive market where there is substantial and continuous competition for leadership with the experience and skill to lead in a dynamic and innovative industry. Our executive compensation program is guided by our overarching philosophy of paying for demonstrable performance and aligning the compensation of our executive officers with the long-term interests of our stockholders. Consistent with this philosophy, we designed our executive compensation program to achieve the following primary objectives: • attract, motivate, incentivize and retain employees at the executive level who contribute to our long- term success; • provide compensation packages to our executive officers that are competitive and reward the achievement of our business objectives; and 37 P r o x y • effectively align our executive officers’ interests with the interests of our stockholders by focusing on long-term equity incentives that correlate with the growth of sustainable long-term value for our stockholders. Because we do not have a cash bonus program for our executive officers, generally, our compensation and talent management committee has sought to set base salaries at the higher end of the competitive market range to provide what it believes to be reasonable cash compensation levels and will serve to attract and retain our executive officers. Further, our compensation and talent management committee tends to weight the target total direct compensation opportunities of our executive officers more heavily towards equity compensation. We understand the importance of linking the individual performance of our executive officers and the financial and operational performance of our company to our overall executive compensation program. We believe our strong focus on, and heavy weighting toward, equity compensation supports that philosophy and has worked to align our executive compensation with the interests of our stockholders. However, we continue to review the current equity compensation trends as well as the feedback from our stockholders in regard to our executive compensation program. Evolving our Executive Compensation Program In March 2022, in addition to granting time-based restricted stock unit awards to our named executive officers, our compensation and talent management committee also granted performance-based restricted stock unit awards. The performance-based awards vest based on the achievement of certain goals over specified performance periods, including year-over year organic revenue growth rates and non-GAAP operating profit, and are intended to further align the interests of our named executive officers and our stockholders. Oversight of Executive Compensation Program Role of the Compensation and Talent Management Committee Our compensation and talent management committee discharges many of the responsibilities of our board of directors relating to the compensation of our executive officers, including our named executive officers, and the non-employee members of our board of directors (as described further in “Board of Directors and Corporate Governance—Non-Employee Director Compensation” above). Our compensation and talent management committee has overall responsibility for overseeing our compensation structure, policies and programs generally, and overseeing and evaluating the compensation plans, policies and practices applicable to our executive officers. Our compensation and talent management committee also oversees the annual evaluation of our executive officers, including our named executive officers, for the prior fiscal year and has the authority to retain, and has retained, an independent compensation consultant to provide support to the committee in its review and assessment of our compensation programs. Compensation-Setting Process Our compensation and talent management committee determines the target total direct compensation opportunities for our executive officers, including our named executive officers. Our compensation and talent management committee does not use a single method or measure in developing its recommendations, nor does it establish one specific target for the total direct compensation opportunities of our executive officers. Rather, it retains flexibility to pay our executive officers within certain ranges. Nonetheless, our compensation and talent management committee generally begins its deliberations on cash and equity compensation levels with reference to various percentile levels for cash compensation and target total direct compensation as reflected in competitive market data, with an intended result of weighting compensation more heavily towards equity compensation. 38 When formulating its recommendations for the amount of each compensation element and approving each compensation element and the target total direct compensation opportunity for our executive officers, our compensation and talent management committee considers the following factors: • our performance against the financial and operational objectives established by our compensation and talent management committee and our board of directors; • our financial performance relative to our compensation peer group; • the compensation levels and practices of our compensation peer group; • each individual executive officer’s skills, experience and qualifications relative to other similarly situated executives at the companies in our compensation peer group and in selected broad-based compensation surveys; • our desire to retain experienced and talented executives in a highly competitive market; • the scope of each individual executive officer’s role compared to other similarly situated executives at the companies in our compensation peer group and in selected broad-based compensation surveys; • the performance of each individual executive officer, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function and ability to work as part of a team, all of which reflect our core values; • compensation parity among our individual executive officers; and • the recommendations provided by our Chief Executive Officer with respect to the compensation of our other executive officers. These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for each executive officer. No single factor is determinative in setting pay levels, nor was the impact of any factor on the determination of pay levels quantifiable. Our compensation and talent management committee reviews the base salary levels and long-term incentive compensation opportunities of our executive officers, including our named executive officers, each fiscal year at the beginning of the year, or more frequently as warranted. Long-term incentive compensation is granted on a regularly-scheduled basis, as described in “Other Compensation Policies and Practices—Equity Awards Grant Policy” below. Role of Chief Executive Officer In discharging its responsibilities, our compensation and talent management committee consults with members of our management, including our Chief Executive Officer. Our management assists our compensation and talent management committee by providing information on corporate and individual performance, market compensation data and management’s perspective on compensation matters. Our compensation and talent management committee solicits and reviews our Chief Executive Officer’s recommendations and proposals with respect to adjustments to annual cash compensation, long-term incentive compensation opportunities, program structures and other compensation-related matters for our executive officers, other than with respect to his own compensation. Our compensation and talent management committee reviews and discusses these recommendations and proposals with our Chief Executive Officer and considers them as one factor in determining the compensation for our executive officers, including our other named executive officers. Our Chief Executive Officer recuses himself from all deliberations and determinations regarding his own compensation. 39 P r o x y Role of Compensation Consultant Our compensation and talent management committee engages an external independent compensation consultant to assist it by providing information, analysis and other advice relating to our executive compensation program and the decisions resulting from its annual executive compensation review. For 2021, our compensation and talent management committee engaged Compensia as its compensation consultant to advise on executive compensation matters, including competitive market pay practices for our executive officers, the selection of our compensation peer group, and data analysis. For 2021, the scope of Compensia’s engagement included: • researching, developing and reviewing our compensation peer group; • reviewing and analyzing the compensation for our executive officers, including our named executive officers; • supporting the design and implementation of changes to our executive long-term incentive strategy; • reviewing and providing input on the Compensation Discussion and Analysis section of our proxy statement for our 2021 Annual Meeting of Stockholders; • reviewing and analyzing the compensation of the non-employee members of our board of directors; • reviewing short-term incentive compensation practices and considerations; • reviewing peer group executive incentive compensation practices; • reviewing peer group executive severance and change in control practices; • reviewing our executive compensation philosophy; • conducting a compensation risk assessment; • advising regarding non-employee director compensation; and • supporting other ad hoc matters throughout the year. The terms of Compensia’s engagement included reporting directly to our compensation and talent management committee and to our compensation and talent management committee chairperson. Compensia also coordinated with our management for data collection and job matching for our executive officers and provided data and analyses in connection with the review of our equity strategy. In 2021, Compensia did not provide any other services to us. In March 2021, our compensation and talent management committee evaluated Compensia’s independence pursuant to NYSE and LTSE Listing Standards and the relevant SEC rules and determined that no conflict of interest had arisen as a result of the work performed by Compensia. Use of Market Data For purposes of comparing our executive compensation against the competitive market, our compensation and talent management committee reviews and considers the compensation levels and practices of a group of peer companies. This compensation peer group consists of technology companies that are similar to us in terms of industry, revenue and market capitalization. Our compensation and talent management committee reviews our compensation peer group at least annually and makes adjustments to its composition if warranted, taking into account changes in both our business and the businesses of the companies in the peer group, and input from its compensation consultant. Accordingly, the peer group that was used for comparative purposes for 2021 was approved in September 2020. 40 In developing the compensation peer group for 2021, the following criteria were evaluated in identifying comparable companies: • similar industry and competitive market for talent; • within a range of 0.5x to 2.0x of our projected revenue for the following four fiscal quarters (as of August 2020); and • within a range of 0.25x to 4.0x of our then-market capitalization. In September 2020, the compensation and talent management committee reviewed our compensation peer group and, upon the recommendation of its compensation consultant, added Ansys, Coupa Software, Fortinet, Intuit, Synopsys and The Trade Desk to the compensation peer group and removed Dropbox, Guidewire Software, Hubspot, New Relic, Paylocity Holding, Proofpoint and Zendesk. The peer group for 2021, which was approved by the compensation and talent management committee in September 2020, consisted of the following companies: Ansys Arista Networks Autodesk Coupa Software DocuSign Fortinet Intuit Okta Palo Alto Networks Paycom Software RingCentral ServiceNow Shopify Slack Technologies Splunk Synopsys The Trade Desk Veeva Systems VeriSign Workday Zoom Video Our compensation and talent management committee uses data drawn from our compensation peer group, as well as data from the Radford Global Technology executive compensation survey (the “Radford Survey”), to evaluate the competitive market when formulating its recommendation for the total direct compensation packages for our executive officers, including base salary and long-term incentive compensation opportunities. The Radford Survey provides compensation market intelligence and is widely used within the technology industry. In addition, subsets of the Radford Survey were incorporated into the competitive assessment prepared by Compensia and used by our compensation and talent management committee to evaluate the compensation of our executive officers. Specifically, our compensation and talent management committee received a custom report of survey results reflecting only companies from our compensation peer group in addition to survey results tailored solely based on revenue. The Radford Survey data supplements the compensation peer group data and provides additional information for our named executive officers and other executive positions for which there is less comparable public data available. P r o x y 41 Individual Compensation Elements In 2021, the principal elements of our executive compensation program, and the purposes for each element, were as follows: Element Base Salary . . . . . . . . . . . . . . . . . . . . Cash Compensation Element Objective Designed to attract and retain highly talented executives by providing fixed compensation amounts that are competitive in the market and reward performance. Designed to align the interests of our executive officers and our stockholders by motivating them to achieve long-term stockholder value creation. Also designed to achieve our retention objectives for our executive officers. Long-Term Incentives . . . . . . . . . . . Equity awards in the form of stock options to purchase shares of our Class A common stock and RSUs that may be settled for shares of our Class A common stock Base Salary Base salary represents the fixed portion of the compensation of our executive officers, including our named executive officers, and is an important element of compensation intended to attract and retain highly talented individuals. Using the competitive market data provided by its compensation consultant, our compensation and talent management committee reviews and develops recommendations for adjusting the base salaries for each of our executive officers, including our named executive officers, as part of its annual executive compensation review. In addition, the base salaries of our executive officers may be adjusted by our compensation and talent management committee in the event of a promotion or significant change in responsibilities. Generally, our compensation and talent management committee sets base salaries with reference to various percentile levels of the competitive range of our compensation peer group and applicable executive compensation survey data. Since our initial public offering, we have evaluated the base salaries of our executive officers in the context of establishing their total cash compensation at levels that are consistent with the target total cash compensation of executive officers holding comparable positions at public companies. In 2021, consistent with the recommendation of our Chief Executive Officer, our compensation and talent management committee determined to increase the base salaries of our executive officers other than our Chief Executive Officer. In making these decisions, our compensation and talent management committee considered the current risks and challenges facing our company, our decision to forego the adoption of an annual cash bonus program, its objective of gradually positioning the target total cash compensation of our executive officers at levels that are more consistent with those of a public company in our industry, as well as the factors described in “Oversight of Executive Compensation Program— Compensation-Setting Process” above. We recognize that our Chief Executive Officer’s base salary is significantly lower than the peer group median, despite his success in the role and our willingness to pay him a market-based salary. However, at our Chief Executive Officer’s request to weight more of his target total direct compensation to variable pay in the form of long-term incentive compensation, our compensation and talent management committee determined to maintain his base salary at its 2019 and 2020 levels, other than a nominal increase for rounding purposes. 42 The base salaries of our named executive officers for 2020 and 2021 (effective January 1, 2021) were as follows: Named Executive Officer Mr. Lawson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Shipchandler(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Boroditsky(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Manor(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Wagner(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Hu(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Chew(6) 2020 Base Salary 2021 Base Salary $133,700 $624,000 $671,000 $462,000 $ 134,000 $1,100,000 — $ 500,000 — $ 900,000 — $ 600,000 $ 738,000 $ 508,000 (1) In connection with Mr. Shipchandler’s appointment as Chief Operating Officer in October 2021, his base salary increased. The table reflects his increased base salary as of December 31, 2021, and his total salary compensation received for 2021 is reflected in the “Summary Compensation Table” below. (2) Mr. Boroditsky was not an executive officer in 2020. Mr. Boroditsky’s base salary increased in connection with his appointment to an expanded role in his position as Chief Revenue Officer in October 2021. The table reflects his increased base salary as of December 31, 2021, and his total salary compensation received for 2021 is reflected in the “Summary Compensation Table” below. In addition, as Mr. Boroditsky’s responsibilities are focused on sales, his total compensation received for 2021 includes sales commissions, as described in “Cash Incentives” and reflected in the “Summary Compensation Table” below. On April 28, 2022, Mr. Boroditsky notified us of his intention to resign from his position as Chief Revenue Officer, effective immediately. Mr. Boroditsky’s last day of employment will be August 19, 2022. (3) Mr. Manor joined us as Chief Product Officer in November 2021 and his base salary was established at that time. Mr. Manor’s prorated salary for 2021 is reflected in his salary compensation in the “Summary Compensation Table” below. (4) Mr. Wagner joined us as Chief Legal Officer in December 2021 and his base salary was established at that time. Mr. Wagner’s prorated salary for 2021 is reflected in his salary compensation in the “Summary Compensation Table” below. (5) Mr. Hu resigned as Chief Operating Officer effective October 2021 and remained employed as a strategic advisor through fiscal year 2021. (6) Mr. Chew’s employment with the Company ended effective May 17, 2021. P r o x y The actual base salaries paid to our named executive officers in 2021 are set forth in the “Summary Compensation Table” below. Cash Incentives As our Chief Revenue Officer, Mr. Boroditsky’s responsibilities are focused on sales and his compensation includes participation in our sales commission plan (the “Sales Commission Plan”) with terms that are aligned with the results achieved by our global sales team. For fiscal 2021, after considering competitive market data in consultation with a leading third-party consultancy for sales compensation, Mr. Boroditsky’s commission opportunity for fiscal 2021 was determined to be equal to 100% of his annual base salary, consistent with his opportunity for the prior fiscal year. The Sales Commission Plan is designed to reward Mr. Boroditsky based on annual performance of total estimated annual recurring revenue (“eARR”), software eARR and company revenue metrics, paid monthly. Mr. Boroditsky’s monthly payouts are based on performance against the annual target, additive, 43 with no cap. The performance target levels for Mr. Boroditsky were designed to be challenging to achieve. The Sales Commission Plan and performance criteria are evaluated annually with an eye to reducing risks while appropriately incentivizing performance. Long-Term Incentive Compensation We view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program. The realized value of these equity awards bears a direct relationship to our stock price, and, therefore, these awards are an incentive for our executive officers, including our named executive officers, to create value for our stockholders. Equity awards also help us retain qualified executive officers in a competitive market. Long-term incentive compensation opportunities in the form of equity awards are granted by our compensation and talent management committee on a regularly-scheduled basis, as described in “Other Compensation Policies and Practices—Equity Awards Grant Policy” below. The amount and forms of such equity awards are determined by our compensation and talent management committee after considering the factors described in “Oversight of Executive Compensation Program—Compensation-Setting Process” above. The amounts of the equity awards are also intended to provide competitively-sized awards and resulting target total direct compensation opportunities that are competitive with the compensation opportunities offered by the companies in our compensation peer group and Radford Survey data for similar roles and positions for each of our executive officers, taking into consideration the factors described in “Oversight of Executive Compensation Program—Compensation-Setting Process” above. In 2021, our compensation and talent management committee determined that the equity awards to be granted to our executive officers should be in the form of time-based stock options to purchase shares of our Class A common stock and time-based RSUs that may be settled for shares of our Class A common stock. Our compensation and talent management committee determined to grant equity awards in the form of 50% (by fair value) stock options and 50% (by fair value) time-based RSUs. Stock options only have value if our stock price appreciates above the exercise price thereof. Both stock options and RSUs have retention value over the vesting period. In determining the size of the individual grants to our executive officers, our compensation and talent management committee considered the factors described in “Oversight of Executive Compensation Program—Compensation-Setting Process” above, with emphasis on our exceptional growth in size and revenue during 2020. In addition, our compensation and talent management committee focused on the fact that many of our executive officers are in high demand in the market due, in part, to our excellent performance in 2020. Therefore, our compensation and talent management committee considered how best to retain our talent. In determining the size of the equity grants made to our Chief Executive Officer, the compensation and talent management committee also factored in Mr. Lawson’s relatively low base salary. After consideration of these factors, our compensation and talent management committee determined to grant equity awards to our executive officers with a value in the range of the 70th percentile to the 85th percentile of our peer group range. Our compensation and talent management committee determined that the value of these awards was appropriate and necessary to sufficiently reward exceptional performance, to motivate our executive officers for continued effort to create value for our stockholders and to help ensure retention in a competitive market. Importantly, our compensation and talent management committee also determined to maintain the prior deviation from the historic vesting schedules for executive awards to balance the magnitude of the awards, and also to motivate long-term retention and team stability. Therefore, the stock options and RSUs granted to our executive officers in February 2021 vest over four years with 33% vesting in equal quarterly installments between the first and second anniversaries of the vesting commencement date of December 31, 2020, 33% vesting in equal quarterly installments between the second and third anniversaries of the vesting commencement date of December 31, 2020 and 34% vesting in equal quarterly installments between the third and fourth anniversaries of the vesting commencement date of December 31, 2020, subject to the executive’s 44 continued employment with us. In addition to the February 2021 grants, our compensation and talent management committee also granted equity awards to certain executive officers in 2021 in connection with new hires and promotions with specific vesting schedules, as described further in “Executive Compensation—Additional Executive Officer Awards” and “Executive Compensation—Grants of Plan- Based Awards Table” below. After considering the factors described in “Oversight of Executive Compensation Program— Compensation-Setting Process” above, our compensation and talent management committee approved the following equity awards in February 2021 for our then-existing named executive officers in 2021 as part of its annual executive compensation review: Named Executive Officer Jeff Lawson . . . . . . . . . . . . . . . . . . . Khozema Shipchandler(2) . . . . . . . . George Hu . . . . . . . . . . . . . . . . . . . . Chee Chew(3) . . . . . . . . . . . . . . . . . . Stock Options to Purchase Shares of Class A Common Stock (number of shares) 34,132 18,126 18,126 18,126 Time-Based RSUs (number of shares) 18,345 9,742 9,742 9,742 Aggregate Grant Date Fair Value ($)(1) 13,927,474 7,396,184 7,396,184 7,396,184 (1) The amounts reported in this column represent the aggregate grant date fair value of the RSUs and stock options granted to the named executive officer in the fiscal year ended December 31, 2021, calculated in accordance with FASB ASC Topic 718. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service- vesting conditions. The valuation assumptions used in determining such amounts are described in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 22, 2022. The amounts reported in this column reflect the accounting cost for these RSUs and stock options and do not correspond to the actual economic value that may be received by the named executive officers upon the vesting or settlement of the RSUs or the exercise of the stock options or sale of the shares of common stock underlying such stock options. (2) In connection with his appointment as Chief Operating Officer in October 2021, Mr. Shipchandler also received (1) a one-time stock option award with a grant date fair value of $2,303,576 and (2) a one-time restricted stock unit award with a grant date fair value of $2,231,126. Please see “Summary Compensation Table” and “Grants of Plan-Based Awards Table” for additional information. (3) Mr. Chew’s employment at Twilio ended effective May 17, 2021. All unvested RSUs and unvested stock options expired immediately upon termination. Additional Executive Officer Awards Mr. Manor received a (1) one-time stock option award with a grant date fair value of $8,098,119 and (2) one-time restricted stock units award with a grant date fair value of $33,687,986 in connection with his commencement of employment with us in November 2021. The shares subject to the option vest over four years in equal monthly installments, and the RSUs vest over four years, with 1/16th of the RSUs vesting on February 15, 2022 and the remaining RSUs vesting in equal quarterly installments, in each case subject to continued employment with us. Mr. Boroditsky received a (1) one-time stock option award with a grant date fair value of $5,158,566 and (2) one-time restricted stock units award with a grant date fair value of $5,131,560 in connection with his expanded role in his position as Chief Revenue Officer in October 2021. The shares subject to this 45 P r o x y option vest in 24 equal monthly installments, and the RSUs vest over two years, with 1/8th of the RSU vesting on November 15, 2021 and the remaining RSUs vesting in equal quarterly installments, in each case subject to continued employment with us. On April 28, 2022, Mr. Boroditsky notified us of his intention to resign from his position as Chief Revenue Officer, effective immediately. Mr. Boroditsky’s last day of employment will be August 19, 2022 and the unvested portion of his stock option and RSUs will cease vesting and be cancelled as of such date. Mr. Shipchandler also received (1) a one-time stock option award with a grant date fair value of $2,303,576 and (2) a one-time restricted stock unit award with a grant date fair value of $2,231,126 in connection with this appointment as Chief Operating Officer, with vesting schedules consistent with his February 2021 awards. Mr. Wagner commenced employment with us in December 2021 and did not receive any equity awards in fiscal 2021, but was granted a new hire RSU award in January 2022 in accordance with his employment offer letter. Please see “Summary Compensation Table,” “Grants of Plan-Based Awards Table” and “Employment Agreements or Offer Letters with Named Executive Officers” below for additional information. Stock Options We believe that stock options provide a strong reward for growth in the market price of our common stock as their entire value depends on future stock price appreciation, as well as a strong incentive for our executive officers to remain employed with our Company as they require continued service to our Company through the vesting period. In 2021, the stock options to purchase shares of our Class A common stock that were granted by our compensation and talent management committee generally had a 10-year term. To balance retention and incentive dynamics for the stock option grants made in February 2021, the vesting schedule for such grants were set as follows: 33% of the shares subject to the stock option vest in equal quarterly installments between the first and second anniversaries of the “vesting commencement date” (December 31, 2020), 33% of the shares subject to the stock option vest in equal quarterly installments between the second and third anniversaries of the vesting commencement date and 34% of the shares subject to the stock option vest in equal quarterly installments between the third and fourth anniversaries of the vesting commencement date, subject to continued employment through each such vesting date. The options subject to Mr. Borodistky’s October 2021 grant expire three years from the date of his separation from service due to termination by the company without Cause or by Mr. Boroditsky for Good Reason, as those terms are defined in the Boroditsky Letter (as defined below), or 10 years from the date of the grant, whichever comes first. Stock options granted by our compensation and talent management committee to newly-hired executives generally have had a 10-year term and generally vested as to 25% of the shares subject to the stock option on the first anniversary of the employment commencement date and 1/48th of the shares subject to the stock option each month thereafter for the following three years, subject to continued service through each such vesting date. Effective February 1, 2022, and applicable retrospectively to affected employees, stock options previously granted to our executive officers vest in equal monthly installments from the applicable vesting commencement date, subject to the executive’s continued employment with us. Please see “Summary Compensation Table” and “Grants of Plan-Based Awards Table” below for additional information. Time-Based RSUs We believe time-based RSUs also provide a strong retention incentive for our executive officers, provide a moderate reward for growth in the value of our Class A common stock and, because they use fewer shares than stock options, are less dilutive to our stockholders. In 2021, similar to the stock option grants, in order to balance retention and incentive dynamics for the time-based RSU grants that may be settled in shares of our Class A common stock, the vesting schedule for such grants were set as follows: 33% of the shares subject to the award vest in equal quarterly installments between the first and second anniversaries of the “vesting commencement date” (December 31, 2020), 33% of the shares subject to the 46 award vest in equal quarterly installments between the second and third anniversaries of the vesting commencement date and 34% of the shares subject to the award vest in equal quarterly installments between the third and fourth anniversaries of the vesting commencement date, subject to continued employment through each such vesting date. Time-based RSUs that may be settled in shares of our Class A common stock that were granted by our compensation and talent management committee to newly-hired executives generally vested as to 25% of the shares subject to the award on the first anniversary of the first August 15, November 15, February 15 or May 15 to occur following the employment commencement date and 1/16th of the shares subject to the award each quarter thereafter for the following three years, subject to continued employment through each such vesting date. Effective February 1, 2022, and applicable retrospectively to affected employees, RSUs granted to new executive officers vest in equal quarterly installments from the applicable vesting commencement date, subject to the executive’s continued employment with us. The equity awards granted to our named executive officers in 2021 are set forth in the “Summary Compensation Table” and the “Grants of Plan-Based Awards Table” below. Health and Welfare Benefits Our executive officers, including our named executive officers, are eligible to receive the same employee benefits that are generally available to all of our full-time employees, subject to the satisfaction of certain eligibility requirements. These benefits include our medical, dental and vision insurance and life and disability insurance plans. In structuring these benefit plans, we seek to provide an aggregate level of benefits that are comparable to those provided by similar companies. P r o x y In addition, we maintain a tax-qualified Section 401(k) retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. Plan participants are able to defer eligible compensation subject to the applicable annual limits set forth in the Internal Revenue Code of 1986, as amended (the “Code”). In 2021, we matched 50% of the first 6% of contributions by plan participants, subject to annual contribution limits set forth in the Code. We have the ability to make discretionary contributions to the Section 401(k) plan but have not done so to date. The Section 401(k) plan is intended to be qualified under Section 401(a) of the Code with the plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the Section 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the Section 401(k) plan. Perquisites and Other Personal Benefits Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our executive officers, including our named executive officers, except as generally made available to our employees, or in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to award long-standing service to us, to make our executive officers more efficient and effective and for recruitment and retention purposes. During 2021, none of our named executive officers received perquisites or other personal benefits that were, in the aggregate, $10,000 or more for each individual, except for Mr. Lawson, our Chief Executive Officer, for whom we paid $3,350 for our matching contributions to his Section 401(k) account in 2021, and his $280,000 filing fee under HSR, as well as $5,595 and $275,335, respectively, for the related legal fees and tax gross-up. We believe that reimbursing our Chief Executive Officer for the HSR filing fee and its related legal fees and tax consequences was consistent with our decision to continue to compensate him almost entirely through equity-compensation arrangements. Absent this regulatory filing, our Chief Executive Officer would not be able to participate in our long-term incentive compensation program and, therefore, we determined that it was appropriate for us to reimburse him for this filing fee and any related tax liabilities. 47 In the future, we may provide perquisites or other personal benefits in limited circumstances. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by our compensation and talent management committee. Post-Employment Compensation Arrangements We believe that having in place reasonable and competitive post-employment compensation arrangements are essential to attracting and retaining highly qualified executive officers. In connection with our initial public offering in 2016, we adopted an executive severance plan (as amended and restated in June 2017, the “Amended and Restated Executive Severance Plan”) to provide more standardized severance payments and benefits to our executive officers. In March 2018, we divided our Amended and Restated Executive Severance Plan into three separate plans, which we further amended in March 2022. Our three plans currently apply to our Chief Executive Officer (the “CEO Severance Plan”), our key executive officers and senior vice-president level employees (the “Key Executive Severance Plan”, together with our CEO Severance Plan, the “Executive Severance Plans”) and our vice president-level employees (the “VP Severance Plan”). Our Chief Executive Officer participates in the CEO Severance Plan and our other named executive officers participate in the Key Executive Severance Plan. The Executive Severance Plans, as discussed in more detail in “Potential Payments Upon Termination or Change in Control—Executive Severance Plans” below are designed to help ensure the continued service of key executive officers in the event of a potential acquisition, to provide reasonable compensation to executive officers who leave our employ under specified circumstances and to align the interests of our executive officers and our stockholders when considering our long-term future. We believe that the severance payments and benefits provided to our executive officers under the Executive Severance Plans are appropriate in light of the post-employment compensation protections available to similarly-situated executive officers at companies in our compensation peer group and are an important component of each executive officer’s overall compensation as they help us to attract and retain our key executives who could have other job alternatives that may appear to them to be more attractive absent these protections. We also believe that the occurrence or potential occurrence of a change in control transaction will create uncertainty regarding the continued employment of our executive officers. In order to encourage them to remain employed with us during an important time when their prospects for continued employment following the transaction are often uncertain, we provide our executive officers with the opportunity to receive additional severance protections during a change in control protection period. In addition, we provide additional payment and benefit protections if an executive officer voluntarily terminates employment with us for good reason in connection with a change in control of our Company, because we believe that a voluntary termination of employment for good reason is essentially equivalent to an involuntary termination of employment by us without cause. The primary purpose of these arrangements is to keep our most senior executive officers focused on pursuing potential corporate transactions that are in the best interests of our stockholders regardless of whether those transactions may result in their own job loss. Reasonable post-acquisition payments and benefits should serve the interests of both the executive officer and our stockholders. To protect our Company’s interests, we require all participants of the Executive Severance Plans to sign a standard form of general release in favor of the Company prior to receiving any severance payments or benefits under the applicable plan. In addition, under the Executive Severance Plans, all payments and benefits provided in the event of a change in control of the Company are payable only if there is a qualifying loss of employment by a named executive officer (commonly referred to as a “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the Company and to avoid windfalls, both of which could occur if the vesting of equity awards accelerated automatically as a result of the transaction. 48 We do not provide excise tax payments (or “gross-ups”) relating to a change in control of our Company and have no such obligations in place with respect to any of our named executive officers. For detailed descriptions of the post-employment compensation arrangements we maintain with our named executive officers, as well as an estimate of the potential payments and benefits payable to our named executive officers under their post-employment compensation arrangements, see “Employment Agreements or Offer Letters with Named Executive Officers” and “Potential Payments Upon Termination or Change in Control” below. Other Compensation Policies and Practices Equity Awards Grant Policy Under our Amended and Restated Equity Award Grant Policy, we generally grant equity awards on a regularly scheduled basis to enhance the effectiveness of our internal control over our equity award grant process and to alleviate several of the burdens related to accounting for such equity awards, as follows: • Any grants of equity awards made in conjunction with the hiring of a new employee or the promotion of an existing employee will be made, if at all, regularly (either monthly or quarterly) and will be effective on the date such grant is approved by our board of directors or our compensation and talent management committee or such future date as is approved by our board of directors or our compensation and talent management committee. In no event will the effective date of an equity award made in conjunction with the hiring of a new employee precede the first date of employment. • Any grants of equity awards to existing employees (other than in connection with a promotion) will generally be made, if at all, on an annual or quarterly basis. Any such annual or quarterly grant will be effective on the date on which such grant is approved or such future date as is approved by our board of directors or our compensation and talent management committee. • All equity awards will be priced on the effective date of the award. The exercise price of all stock options will be equal to the closing market price on The New York Stock Exchange of one share of our Class A common stock on the effective date of grant, or, if no closing price is reported for such date, the closing price on the last day preceding such date for which a closing price is reported. If the grant of restricted stock or of RSUs is denominated in dollars, the number of shares of restricted stock or RSUs that are granted will generally be calculated by dividing the dollar value of the approved award by the average closing market price on The New York Stock Exchange of one share of our Class A common stock over the trailing 30-day period ending (i) five business days immediately prior to the effective date of grant for grants made pursuant to offer letters or award letters issued April 1, 2019 or later or (ii) on the last day of the month immediately prior to the month of the grant date for grants made pursuant to offer letters or award letters issued prior to April 1, 2019, with such total number of shares to be granted per recipient rounded up to the nearest whole share. • Our board of directors or our compensation and talent management committee may delegate to a committee comprising at least two of our executive officers all or part of the authority with respect to the granting of certain equity awards to employees (other than to such delegates), subject to certain limitations and requirements. Our board of directors and compensation and talent management committee have currently delegated authority to a subcommittee consisting of our Chief Operating Officer, Chief People Officer, Chief Legal Officer and Senior Vice President, Finance, to grant, without any further action required by the compensation and talent management committee, equity awards to all employees, except our executive officers, senior vice presidents and vice presidents. The purpose of this delegation of authority is to enhance the flexibility of equity award administration and to facilitate the timely grant of equity awards to non-management employees, particularly new employees, within specified limits approved from time to time by the 49 P r o x y compensation and talent management committee. As part of its oversight function, the compensation and talent management committee will review the list of grants made by the subcommittee at each regularly scheduled in-person meeting. Death Equity Acceleration Policy In December 2020, the compensation and talent management committee approved a policy providing that upon the termination due to death of an employee’s or non-employee director’s employment or other service relationship with the Company or any of its subsidiaries, any then outstanding equity awards held by the individual that vest solely based on continued employment or service will automatically receive two years of supplemental vesting. The policy applies both to awards granted prior to the adoption of the policy, as well as awards granted thereafter. Policy Prohibiting Hedging and Pledging of Equity Securities Our Amended and Restated Insider Trading Policy prohibits our employees, including our executive officers, and the non-employee members of our board of directors from engaging in any short sale and from buying or selling puts, calls, other derivative securities or any derivative securities that provide the economic equivalent of ownership of any of our securities or an opportunity, direct or indirect, to profit from any change in the value of our securities or engage in any other hedging transaction with respect to our securities, at any time. In addition, our Insider Trading Policy prohibits our employees, including our executive officers, and the non-employee members of our board of directors from using our securities as collateral in a margin account or from pledging our securities as collateral for a loan. Mr. Chew, our former Chief Product Officer, ceased to be employed by us as of May 17, 2021 and entered into pledging arrangements after his employment ceased with us. Stock Ownership Policy To further align the interests of our executive officers with those of our stockholders and to promote a long-term perspective in managing our Company, in April 2018, we adopted a stock ownership policy for our Chief Executive Officer and executive officers subject to Section 16 of the Exchange Act (“Section 16 Officers”), including each of our named executive officers. We amended and restated this stock ownership policy in September 2020 and in March 2022. In March 2022, we revised the stock ownership policy to, among other things, increase the salary-multiple for our named executive officers (other than our Chief Executive Officer) from one time to three times his or her annual base salary, eliminate pre-established share number thresholds, and eliminate vested but unexercised in-the-money options from the share ownership calculation. Our stock ownership policy, as amended, requires each named executive officer to acquire and hold a number of shares of our common stock equal in value to a multiple of such named executive officer’s annual base salary until he or she ceases to be our Chief Executive Officer or a Section 16 Officer, as applicable. The multiple for our Chief Executive Officer is six times his annual base salary and the multiple for our other named executive officers is three times his or her annual base salary. For purposes of our stock ownership policy, we only count directly and beneficially owned shares, including shares purchased through our ESPP or Section 401(k) Plan, if applicable, and shares underlying vested RSUs that are held or deferred. Each named executive officer has five years from the later of his or her designation as our Chief Executive Officer or Section 16 Officer, as applicable, or from the original effective date of the policy to obtain the required ownership level. Compensation Recovery Policy We intend to adopt a compensation recovery (“clawback”) policy once the SEC adopts final rules implementing the requirement of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 50 Tax and Accounting Considerations Deductibility of Executive Compensation Under Section 162(m) of the Internal Code (“Section 162(m)”), compensation paid to each of the Company’s “covered employees” that exceeds $1 million per taxable year is generally non-deductible. Although our compensation and talent management committee will continue to consider tax implications as one factor in determining executive compensation, it also looks at other factors in making its decisions and retains the flexibility to provide compensation for our executive officers in a manner consistent with the goals of our executive compensation program and the best interests of our stockholders, which may include providing for compensation that is not deductible by us due to the deduction limit under Section 162(m). Taxation of “Parachute” Payments Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of the Company that exceeds certain prescribed limits, and that the Company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We have not agreed to provide any executive officer, including any named executive officer, with a “gross-up” or other reimbursement payment for any tax liability that the executive officer might owe as a result of the application of Sections 280G or 4999 of the Code. Section 409A of the Internal Revenue Code Section 409A of the Code imposes additional significant taxes in the event that an executive officer, director or service provider receives “deferred compensation” that does not satisfy the requirements of Section 409A of the Code. Although we do not maintain a traditional nonqualified deferred compensation plan for our executive officers, Section 409A of the Code does apply to certain severance arrangements, bonus arrangements and equity awards, and we have structured all such arrangements and awards in a manner to either avoid or comply with the applicable requirements of Section 409A of the Code. For our non-employee directors, we provide a Non-Employee Directors’ Deferred Compensation Program, which has been structured to comply with the applicable requirements of Section 409A of the Code. Accounting for Stock-Based Compensation We follow the Financial Accounting Standard Board’s Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”) for our stock-based compensation awards. FASB ASC Topic 718 requires us to measure the compensation expense for all share-based payment awards made to our employees and non-employee members of our board of directors, including options to purchase shares of our common stock and other stock awards, based on the grant date fair value of these awards. This cost is recognized as an expense following the straight-line attribution method over the requisite service period. This calculation is performed for accounting purposes and reported in the executive compensation tables required by the federal securities laws, even though the recipient of the awards may never realize any value from such awards. Compensation Risk Assessment In consultation with management and Compensia, our compensation and talent management committee’s independent compensation consultant, in March 2021, our compensation and talent management committee assessed our compensation plans, policies and practices for named executive officers and other employees and concluded that they do not create risks that are reasonably likely to have a material adverse effect on us. This risk assessment included, among other things, a review of our cash and equity incentive-based compensation plans to ensure that they are aligned with our performance goals and overall target total direct compensation to ensure an appropriate balance between fixed and variable pay components. Our compensation and talent management committee conducts this assessment annually. 51 P r o x y Summary Compensation Table The following table provides information regarding the total compensation, for services rendered in all capacities, that was paid to or earned by our named executive officers during the fiscal years ended December 31, 2019, 2020 and 2021. Name and principal position Year Salary ($) Bonus ($) Stock awards ($)(1) Jeff Lawson . . . . . . . . . . . . . . . . . 2021 133,990 2020 133,700 2019 133,700 Chief Executive Officer and Chairperson 6,926,889 — 6,753,009 — 5,670,863 Option awards ($)(1) 7,000,586 6,741,058 6,068,675 Khozema Shipchandler(5) Chief Operating Officer and Principal Financial Officer . . . . . 2021 744,362 2020 622,465 2019 567,000 — 5,909,608(6) — 3,452,811 — — 6,021,278(6) 3,446,740 — Eyal Manor(7) . . . . . . . . . . . . . . . 2021 86,538 — 33,687,986(8) 8,098,119(8) Chief Product Officer Non- equity incentive compensation ($) All other compensation ($) Total ($) — — — — — — — 564,280(2) 159,105(3) 419,338(4) 14,625,745 13,786,872 12,292,576 6,736(2) 8,525(3) 7,000(4) 12,682,764 7,530,541 574,000 2,077(2) 41,874,814 Marc Boroditsky(9) . . . . . . . . . . . 2021 473,600 — 7,737,831 7,765,427 597,503(10) 6,777(2) 16,581,138 Chief Revenue Officer Dana R. Wagner(11) Chief Legal Officer . . . . . . . . . . 2021 11,538 250,000 — — George Hu . . . . . . . . . . . . . . . . . 2021 735,681 2020 669,358 2019 610,000 Former Chief Operating Officer — 3,678,482 — 3,445,617 — 3,780,539 3,717,702 3,439,574 4,045,783 Chee Chew(12) . . . . . . . . . . . . . . . 2021 205,515 2020 460,869 2019 395,769 Former Chief Product Officer — 3,678,482(13) — 4,292,780 — 9,445,072 3,717,702(13) 4,285,209 13,787,047 — — — — — — — — 261,569 4,845(2) 9,650(3) 7,696(4) 8,137,490 7,564,199 8,444,018 4,845(2) 10,357(3) 7,000(4) 7,606,825 9,049,215 23,634,888 (1) The amounts reported in this column represent the aggregate grant date fair value of the RSUs or stock options, as applicable, awarded to the named executive officers in the fiscal years ended December 31, 2019, 2020 and 2021, as applicable, calculated in accordance with FASB ASC Topic 718. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service-vesting conditions. The valuation assumptions used in determining such amounts are described in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 22, 2022. The amounts reported in this column reflect the accounting cost for RSUs or stock options, as applicable, and do not correspond to the actual economic value that may be received by the named executive officers upon the vesting or settlement of the RSUs or upon exercise of the stock options or sale of the shares of common stock underlying such stock options. (2) For Mr. Lawson, consists of a reimbursement from us for a $280,000 filing fee incurred under HSR related to Mr. Lawson’s stock ownership and $5,595 and $275,335, respectively, for the related legal fees and tax gross-up, as well as $3,350 for our matching contributions to his Section 401(k) account in 2021. For Messrs. Shipchandler, Manor, Boroditsky, Hu and Chew, consists of our Section 401(k) matching contributions to their respective Section 401(k) accounts in 2021. (3) For Mr. Lawson, consists of $113 for supplemental long-term disability insurance premiums, $3,358 for our matching contributions to his Section 401(k) account in 2020, $600 for a work from home stipend and $155,034 for personal security costs related to increased potential unrest around the 2020 presidential election. For Mr. Shipchandler, consists of $300 for supplemental long-term disability insurance premiums, $7,365 for our matching contributions to his Section 401(k) account in 2020, $600 for a work from home stipend, $200 for a tax related stipend and $60 for a gym and wellness reimbursement. For Mr. Hu, consists of $300 for supplemental long-term disability insurance premiums, $8,550 for our matching contributions to his Section 401(k) account in 2020, $600 for a work from home stipend and $200 for a tax related stipend. For Mr. Chew, consists of $300 for supplemental long-term disability insurance premiums, $8,550 for our matching contributions to his Section 401(k) account in 2020, $600 for a work from home stipend, $200 for a tax related stipend and $707 for a trip related reward payment. 52 (4) For Mr. Lawson, consists of a reimbursement from us for a $280,000 filing fee incurred under HSR related to Mr. Lawson’s stock ownership, $6,723 and $128,517, respectively, for the related legal fees and tax gross-up, $730 for supplemental long-term disability insurance premiums, as well as $3,368 for our matching contributions to his Section 401(k) account in 2019. For Mr. Shipchandler, consists of $7,000 for our matching contributions to his Section 401(k) account in 2019. For Mr. Hu, consists of $696 for supplemental long-term disability insurance premiums, as well as $7,000 for our matching contributions to his Section 401(k) account in 2019. For Mr. Chew, consists of $7,000 for our matching contributions to his Section 401(k) account in 2019. (5) The table reflects Mr. Shipchandler’s increased base salary and additional equity awards in connection with his appointment as Chief Operating Officer in October 2021. (6) This amount includes one-time equity awards in connection with Mr. Shipchandler’s appointment as Chief Operating Officer as follows: (a) RSUs with a grant date fair value of $2,231,126 and (b) options with a grant date fair value of $2,303,576. (7) Mr. Manor was appointed our Chief Product Officer effective November 15, 2021 and an executive officer effective December 15, 2021. He was not employed by us in 2019 and 2020. Mr. Manor’s 2021 base salary was prorated to his employment start date. (8) This amount reflects a one-time new hire equity award pursuant to Mr. Manor’s employment offer letter. For more information, see “Grants of Plan-Based Awards Table” below. (9) Mr. Boroditsky was appointed an executive officer effective December 15, 2021 and was not a named executive officer in 2019 and 2020. On April 28, 2022, Mr. Boroditsky notified us of his intention to resign from his position as Chief Revenue Officer, effective immediately. Mr. Boroditsky’s last day of employment will be August 19, 2022. (10) This amount reflects commissions Mr. Boroditsky received in 2021 pursuant to our Sales Commission Plan. (11) Mr. Wagner was appointed our Chief Legal Officer effective December 13, 2021 and an executive officer effective December 15, 2021. He was not employed by us in 2019 and 2020. Mr. Wagner received a one-time sign-on bonus of $250,000, and his 2021 base salary was prorated to his employment start date. (12) Mr. Chew was appointed our Chief Product Officer on January 14, 2019 and resigned effective May 17, 2021. Mr. Chew’s 2019 and 2021 base salaries were prorated for the portion of 2019 and 2021, respectively, during which he was employed by us. (13) All equity awards granted to Mr. Chew in fiscal year 2021 were forfeited upon his resignation in May 2021. Grants of Plan-Based Awards Table The following table sets forth certain information with respect to all plan-based awards granted to our named executive officers during the fiscal year ended December 31, 2021. Name Type of Award Estimated Future Payouts Under Equity Incentive Plan Awards Grant Date Threshold ($) Target ($) Maximum ($) All Other Stock Awards: Number of Shares of Stock or Units (#) All Other Option Awards: Number of Securities Underlying Options (#) Exercise or Base Price of Option Awards ($/sh) Grant Date Fair Value of Stock and Option Awards ($)(1) P r o x y Time-Based RSUs Jeff Lawson . . . . . . . . . . . . . Time-Based Stock Option Khozema Shipchandler . . . Time-Based Stock Option 2/25/2021 2/25/2021 2/25/2021 Time-Based RSUs 2/25/2021 Time-Based Stock Option 11/11/2021 11/11/2021 Time-Based RSUs Eyal Manor . . . . . . . . . . . . . Time-Based Stock Option 12/20/2021 12/20/2021 4/20/2021 Time-Based RSUs 4/20/2021 Time-Based Stock Option 11/11/2021 11/11/2021 Time-Based RSUs — 2/25/2021 2/25/2021 2/25/2021 2/25/2021 Dana R. Wagner(4) George Hu . . . . . . . . . . . . . . Time-Based Stock Option Chee Chew(5) . . . . . . . . . . . . Time-Based Stock Option Marc Boroditsky . . . . . . . . . Time-Based Stock Option Time-Based RSUs Time-Based RSUs Time-Based RSUs . . . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 18,345(3) — 9,742(3) — 7,487(3) — 125,444(3) — 7,089(3) — 17,220(3) — — 9,742(3) — 9,742(3) 34,132(2) — 18,126(2) — 13,565(2) — 54,428(2) — 12,821(2) — 32,373(2) — — 18,126(2) — 18,126(2) — 377.59 — 377.59 — 298.00 — 268.55 367.65 — 298.00 — — 377.59 — 377.59 — 7,000,586 6,926,889 3,717,702 3,678,482 2,303,576 2,231,126 8,098,119 — 33,687,986 2,606,861 2,606,271 5,158,566 5,131,560 — 3,717,702 3,678,482 3,717,702 3,678,482 (1) The amounts reported in this column represent the aggregate grant date fair value of the RSUs and stock options, as applicable, granted to the named executive officer in the fiscal year ended December 31, 2021, calculated in accordance with FASB ASC Topic 718. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service-vesting conditions. The valuation assumptions used in determining such amounts are described in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 22, 2022. The amounts reported in this column do not correspond to the actual economic value that may be received by the named executive officers upon the vesting or settlement of the RSUs or the exercise of the stock options or sale of the shares of common stock underlying such stock options, as applicable. 53 (2) The stock options are subject to time-based vesting, as described in the footnotes to the “Outstanding Equity Awards at Fiscal Year-End Table” below. (3) The RSUs are subject to time-based vesting, as described in the footnotes to the “Outstanding Equity Awards at Fiscal Year-End Table” below. (4) Mr. Wagner was appointed our Chief Legal Officer effective December 13, 2021 and did not receive any equity awards in 2021. Mr. Wagner was granted a new hire RSU award in January 2022 in accordance with his employment offer letter. Please see “Employment Agreements or Offer Letters with Named Executive Officers” below for additional information. (5) All equity awards granted to Mr. Chew in fiscal year 2021 were forfeited upon his resignation in May 2021. Outstanding Equity Awards at Fiscal Year-End Table The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2021. Except as described below, all stock options and RSUs are subject to certain vesting acceleration provisions as provided in the applicable Executive Severance Plan. Option Awards(1)(2) Stock Awards(1)(2) Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Grant date Equity incentive plan awards: number of securities underlying unexercised unearned options (#) Option exercise price ($)(3) Option expiration date Number shares or units of stock that have not vested (#) Market value of shares or units of stock that have not vested ($)(4) Name Marc Boroditsky . . . . . . . . . . . . . Jeff Lawson . . . . . . . . . . . . . . . . . 12/31/2015 2/10/2017 2/20/2018 1/31/2019 2/22/2020 2/25/2021 2/20/2018 1/31/2019 2/22/2020 2/25/2021 Khozema Shipchandler . . . . . . . 11/01/2018 2/22/2020 2/25/2021 11/11/2021 11/01/2018 2/22/2020 2/25/2021 11/11/2021 Eyal Manor . . . . . . . . . . . . . . . . . 12/20/2021 12/20/2021 3/12/2015 4/20/2018 2/20/2019 2/20/2020 4/20/2021 11/11/2021 4/20/2018 2/20/2019 2/20/2020 8/20/2020 4/20/2021 11/11/2021 — 2/20/2018 1/31/2019 2/22/2020 2/25/2021 02/20/2018 02/21/2018 01/31/2019 02/22/2020 02/25/2021 — . . . . . . . . . . Dana R. Wagner(31) George Hu . . . . . . . . . . . . . . . . . Chee Chew(32) . . . . . . . . . . . . . . . 316,667(5) 163,890(5) 195,106 73,798 37,873 — — — — — 5,181 4,841 — — — — — — — — 46,250(5) 20,533 17,580 8,943 2,713 1,348 — — — — — — — 2,005(5) 24,599(5) 4,831(5) — — — — — — — — — 8,483(6) 36,899(7) 76,894(8) 34,132(9) — — — — 36,667(14) 39,317(8) 18,126(9) 13,565(15) — — — — 54,428(18) — 2,621(20) 7,240(21) 10,571(22) 10,108(23) 31,025(24) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 10.09 31.96 33.01 111.32 117.94 377.59 — — — — 76.63 117.94 377.59 298.00 — — — — 268.55 — 7.07 41.22 116.30 126.71 367.65 298.00 — — — — — — — 33.01 111.32 117.94 377.59 — — — — — — 12/30/2025 2/9/2027 2/19/2028 1/30/2029 2/21/2030 2/24/2031 — — — — 10/31/2028 2/21/2030 2/24/2031 11/11/2031 — — — — 12/20/2031 — 3/11/2025 4/19/2028 2/19/2029 2/20/2030 4/20/2031 11/11/2031(24) — — — — — — — 2/19/2028 1/30/2029 2/21/2030 2/24/2031 — — — — — — — — — — — — 6,363(10) 16,981(11) 38,363(12) 18,345(13) — — — — 27,721(16) 19,615(12) 9,742(13) 7,487(17) — 125,444(19) — — — — — — 1,573(25) 3,572(26) 5,476(27) 24,210(28) 5,759(29) 15,068(30) — — — — — 6,014(10) 3,007(10) 11,321(11) 19,575(12) 9,742(13) — — — — — — — 1,675,632 4,471,777 10,102,512 4,830,972 — — — — 7,300,048 5,165,414 2,565,458 1,971,627 — 33,034,423 — — — — — — 414,234 940,650 1,442,050 6,375,461 1,516,575 3,968,007 — — — — — 1,583,727 791,863 2,981,272 5,154,881 2,565,458 — (1) Equity awards granted prior to June 21, 2016 were granted pursuant to our 2008 Stock Option Plan (as amended and restated, the “2008 Plan”). Each stock option under the 2008 Plan is immediately exercisable. Equity awards granted on or after June 21, 2016 were granted pursuant to our 2016 Plan. 54 (2) Unless otherwise described in the footnotes below, the vesting of each equity award on a vesting date is subject to the applicable named executive officer’s continued employment with the Company through such vesting date. (3) (4) (5) (6) (7) (8) (9) This column represents the fair market value of a share of our common stock on the date of the grant, as determined by the administrator of our 2008 Plan or 2016 Plan, as applicable. This column represents the aggregate fair market value of the shares underlying the RSUs as of December 31, 2021, based on the closing price of our Class A common stock, as reported on The New York Stock Exchange, of $263.34 per share on December 31, 2021. The shares subject to the stock option are fully vested. The shares subject to the stock option vest as follows: 1/48 of the shares vested on March 15, 2018 and the remaining shares subject to the option vest in equal monthly installments over the following four years. The shares subject to the stock option vest as follows: 33% of the shares subject to the stock option vested on December 31, 2020, 33% of the shares subject to the stock option vest on December 31, 2021 and 34% of the shares subject to the stock option vest on December 31, 2022. The shares subject to the stock option vest as follows: 33% of the shares subject to the stock option shall vest in equal quarterly installments between the first and second anniversaries of December 31, 2019, 33% of the shares subject to the stock option shall vest in equal quarterly installments between the second and third anniversaries of December 31, 2019 and 34% of the shares subject to the stock option shall vest in equal quarterly installments between the third and fourth anniversaries of December 31, 2019. The shares subject to the stock option vest as follows: 33% of the stock option shall vest in equal quarterly installments between the first and second anniversaries of December 31, 2020, 33% of the stock option shall vest in equal quarterly installments between the second and third anniversaries of December 31, 2020 and 34% of the stock option shall vest in equal quarterly installments between the third and fourth anniversaries of December 31, 2020. (10) The RSUs vest as follows: 1/16 of the RSUs vested on May 15, 2018 and 1/16 of the RSUs vest quarterly for the next 15 quarters on August 15, November 15, February 15 and May 15, as applicable. (11) The RSUs vest as follows: 33% of the RSUs vested on December 31, 2020, 33% of the RSUs shall vest on December 31, 2021 and 34% of the RSUs shall vest on December 31, 2022. (12) The RSUs vest as follows: 33% of the RSUs shall vest in equal quarterly installments between the first and second anniversaries of December 31, 2019, 33% of the RSUs shall vest in equal quarterly installments between the second and third anniversaries of December 31, 2019 and 34% of the RSUs shall vest in equal quarterly installments between the third and fourth anniversaries of December 31, 2019. (13) The RSUs shall vest as follows: 33% shall vest in equal quarterly installments between the first and second anniversaries of December 31, 2020, 33% shall vest in equal quarterly installments between the second and third anniversaries of December 31, 2020 and 34% shall vest in equal quarterly installments between the third and fourth anniversaries of December 31, 2020. (14) The shares subject to the stock option vest as follows: 25% of the shares subject to the stock option vested on November 1, 2019, and the remaining shares subject to the stock option vest in equal monthly installments over the following three years. (15) The shares subject to the stock option vest as follows: 33% of the stock option shall vest in equal quarterly installments between the first and second anniversaries of December 31, 2021, 33% of the stock option shall vest in equal quarterly installments between the second and third anniversaries of December 31, 2021 and 34% of the stock option shall vest in equal quarterly installments between the third and fourth anniversaries of December 31, 2021. (16) The RSUs vest as follows: 25% of the RSUs vested on November 15, 2019 and the remaining RSUs vest in equal quarterly installments over the following three years, in each case on February 15, May 15, August 15 and November 15, as applicable. (17) The RSUs shall vest as follows: 33% shall vest in equal quarterly installments between the first and second anniversaries of December 31, 2021, 33% shall vest in equal quarterly installments between the second and third anniversaries of December 31, 2021 and 34% shall vest in equal quarterly installments between the third and fourth anniversaries of December 31, 2021. (18) The shares subject to the option vest as follows: 3/48th of the option shall vest on February 15, 2022 and the remaining shares subject to the option shall vest in equal monthly installments over the remaining 45 months. (19) The RSUs vest as follows: 1/16th of the RSUs shall vest on February 15, 2022 and the remaining RSUs shall vest in equal quarterly installments on February 15, May 15, August 15 and November 15, as applicable, for the remaining 15 quarters. (20) This award originally represented an option to purchase 25,154 shares, of which 2,000 options have been exercised. The shares subject to this option vest in 48 equal monthly installments, with the first installment on June 15, 2018. (21) The shares subject to this option vest in 48 equal monthly installments, with the first installment on March 15, 2019. (22) The shares subject to this option vest in 48 equal monthly installments, with the first installment on March 15, 2020. (23) The shares subject to this option vest as follows: 3/48th shall vest on May 15, 2021 and the remaining options shall vest in equal installments over the remaining 45 months. (24) The shares subject to this option vest in 24 equal monthly installments, with the first installment on December 11, 2021. The deadline to exercise the options is three years from the date of separation from service due to termination by the company without cause or by Mr. Boroditsky for good reason, as such terms are defined in the Boroditsky Letter (defined below), or 10 years from the date of the grant, whichever comes first. (25) The RSUs vest as follows: 1/48th of the RSUs shall vest on June 15, 2018 and the remaining RSUs shall vest in equal monthly installments over the following four years. (26) The RSUs vest as follows: 1/48th of the RSUs shall vest on March 15, 2019 and the remaining RSUs shall vest in equal monthly installments over the following four years. 55 P r o x y (27) The RSUs vest as follows: 1/48th of the RSUs shall vest on March 15, 2020 and the remaining RSUs shall vest in equal monthly installments over the following four years. (28) The RSUs vest as follows: 1/48th of the RSUs shall vest on September 15, 2020 and the remaining RSUs shall vest in equal monthly installments over the following four years. (29) The RSUs vest as follows: 1/48th of the RSUs shall vest on March 15, 2021 and the remaining RSUs shall vest in equal monthly installments over the following four years. (30) The RSUs vest as follows: 1/8th of the RSU shall vest on November 15, 2021 and the remaining RSUs shall vest in equal quarterly installments on February 15, May 15, August 15 and November 15 over the remaining two years. (31) Mr. Wagner was appointed our Chief Legal Officer effective December 13, 2021 and had no outstanding equity awards as of December 31, 2021. (32) Mr. Chew resigned in May 2021 and had no outstanding equity awards as of December 31, 2021. Option Exercises and Stock Vested Table The following table presents, for each of our named executive officers, the shares of our common stock that were acquired upon the exercise of stock options and vesting of RSUs and the related value realized during the fiscal year ending December 31, 2021. Name Jeff Lawson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Khozema Shipchandler . . . . . . . . . . . . . . . . . . . . . . . . . . . Eyal Manor(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marc Boroditsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dana R. Wagner(4) George Hu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chee Chew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option Awards Stock Awards Number of Shares Acquired on Exercise (#) — 49,994 — — — 744,735 146,639 Value Realized on Exercise ($)(1)(2) Number of Shares Acquired on Vesting (#) — 64,963 37,382 13,189,362 — — — 29,957 — — 63,290 186,370,597 13,154 38,308,200 Value Realized on Vesting ($)(1)(3) 21,159,499 12,867,199 — 10,375,087 — 21,518,443 4,693,529 (1) These values assume that the fair market value of the Class B common stock underlying certain of the stock options and RSUs, which is not listed or approved for trading on or with any securities exchange or association, is equal to the fair market value of our Class A common stock. Each share of Class B common stock is convertible into one share of Class A common stock at any time at the option of the holder or upon certain transfers of such shares. (2) The aggregate value realized upon the exercise of a stock option represents the difference between the aggregate market price of the shares of our Class A common stock, exercised on the date of exercise and the aggregate exercise price of the stock option. (3) The aggregate value realized upon the vesting and settlement of the RSUs represents the aggregate market price of the shares of our Class A common stock or Class B common stock (which is assumed to be equal to our Class A common stock as described in footnote (1) above), as applicable, that vested on the date of settlement. (4) Messrs. Manor and Wagner joined us in 2021 and have not vested in any equity awards. Employment Agreements or Offer Letters with Named Executive Officers We have entered into employment offer letters or promotion letters with each of our named executive officers, except our Chief Executive Officer, in connection with his or her employment with us that provide for, among other things, annual base salary and grants of equity awards. For a summary of the material terms and conditions of these arrangements, as well as an estimate of the potential payments and/or benefits payable to our named executive officers under these arrangements, see the description below and the section titled “—Potential Payments Upon Termination or Change in Control” below. Jeff Lawson We have not entered into an employment offer letter or employment agreement with Mr. Lawson. 56 Khozema Shipchandler On August 22, 2018, we entered into an employment offer letter with Mr. Shipchandler, who then served as our Chief Financial Officer. The employment offer letter provided for Mr. Shipchandler’s “at-will” employment and set forth his initial annual base salary and an initial stock option and RSU grant, as well as his eligibility to participate in our benefit plans generally. Mr. Shipchandler is subject to our standard employment, confidential information, invention assignment and arbitration agreement. Effective October 27, 2021, Mr. Shipchandler was appointed Chief Operating Officer. In connection therewith, the compensation and talent management committee of the board of directors approved an increase to Mr. Shipchandler’s base salary and stock option and RSU awards, as further described under “2021 Summary Compensation Table” and “Grants of Plan-Based Awards Table.” No other changes were made to Mr. Shipchandler’s existing compensatory or severance arrangements. Eyal Manor On October 8, 2021, we entered into an employment offer letter with Mr. Manor, who currently serves as our Chief Product Officer. The employment offer letter provided for Mr. Manor’s “at-will” employment and set forth his initial annual base salary and an initial RSU and option grant, as well as his eligibility to participate in our benefit plans generally. Mr. Manor is subject to our standard employment, confidential information, invention assignment and arbitration agreement. Dana R. Wagner On October 5, 2021, we entered into an employment offer letter with Mr. Wagner, who currently serves as our Chief Legal Officer. The employment offer letter provided for Mr. Wagner’s “at-will” employment and set forth his initial annual base salary, sign-on bonus, and initial RSU award, which was granted in January 2022, as well as his eligibility to participate in our benefit plans generally. Mr. Wagner is subject to our standard employment, confidential information, invention assignment and arbitration agreement. Marc Boroditsky On October 25, 2021, we entered into a promotion letter with Mr. Boroditsky in connection with his expanded role in his position as our Chief Revenue Officer (“Boroditsky Letter”). The Boroditsky Letter provided for Mr. Boroditsky’s “at-will” employment and set forth his annual base salary and stock option and RSU grants, as well as his eligibility to participate in our benefit plans generally. Mr. Boroditsky is subject to our standard employment, confidential information, invention assignment and arbitration agreement. On April 28, 2022, Mr. Boroditsky notified us of his intention to resign from his position as Chief Revenue Officer, effective immediately. Mr. Boroditsky’s last day of employment will be August 19, 2022. Mr. Boroditsky’s current salary, benefits and stock option and restricted stock unit award vesting schedules will remain in effect until August 19, 2022, subject to his continued employment through such date. George Hu Mr. Hu resigned as Chief Operating Officer effective October 27, 2021, following which he remained at the Company as a strategic advisor to help with the transition until January 3, 2022. Mr. Hu’s then- current salary, benefits and stock option and restricted stock unit award vesting schedules remained in effect until January 3, 2022. Potential Payments Upon Termination or Change in Control Executive Severance Plans We maintain three separate executive severance plans (i.e., the Chief Executive Officer Severance Plan and Key Executive Severance Plan, collectively the “Executive Severance Plans,” and the VP Severance Plan). We do not provide for any severance or change in control payments or benefits in our named executive officers’ employment offer letters (except for limited vesting acceleration provisions in our Chief Revenue Officer’s promotion letter). Each of our named executive officers, including our Chief 57 P r o x y Executive Officer and Chief Operating Officer and Principal Financial Officer, is a participant in the applicable Executive Severance Plan, as further described below. The Executive Severance Plans provide for certain payments and benefits in the event of a termination of employment, including an involuntary termination of employment in connection with a change in control of the Company. Our Executive Severance Plans provide that upon a termination of employment by us for any reason other than for “cause” (as defined in the applicable Executive Severance Plan), death or disability outside of the change in control period (i.e., the period beginning three months prior to and ending 12 months after, a “change in control,” as defined in the applicable Executive Severance Plan), an eligible participant will be entitled to receive, subject to the execution and delivery of an effective release of claims in our favor, (i) a lump sum cash payment equal to nine months of base salary for our Chief Executive Officer, and six months of base salary for our other named executive officers, and (ii) a monthly cash payment for up to nine months for our Chief Executive Officer and up to six months for our other named executive officers equal to the monthly contribution we would have made to provide health insurance to the named executive officer if he or she had remained employed by us. Pursuant to the CEO Severance Plan, our Chief Executive Officer is also entitled to such benefits upon a resignation of employment for “good reason” (as defined in the CEO Severance Plan) outside of the change in control period. In addition, upon a (i) termination of employment by us other than due to cause, death or disability or (ii) a resignation of employment for “good reason”, in each case, outside of the change in control period, our Chief Executive Officer will be entitled to 12 months of acceleration of vesting for outstanding and unvested time-based equity awards. The Executive Severance Plans also provide that upon a (i) termination of employment by us other than due to cause, death or disability or (ii) a resignation of employment for “good reason” (as defined in the applicable Executive Severance Plan), in each case, within the change in control period, an eligible participant will be entitled to receive, in lieu of the payments and benefits above and subject to the execution and delivery of an effective release of claims in our favor, (1) a lump sum cash payment equal to 18 months of base salary for our Chief Executive Officer and 12 months of base salary for our other named executive officers, (2) a monthly cash payment for up to 18 months for our Chief Executive Officer and up to 12 months for our other named executive officers equal to the monthly contribution we would have made to provide health insurance to the named executive officer if he or she had remained employed by us, and (3) full accelerated vesting of all outstanding and unvested equity awards held by our named executive officers; provided, that the performance conditions applicable to any stock-based awards subject to performance conditions will be deemed satisfied at the target level specified in the terms of the applicable award agreement. The payments and benefits provided under the Executive Severance Plans in connection with a change in control may not be eligible for a federal income tax deduction by us pursuant to Section 280G of the Code. These payments and benefits may also subject an eligible participant, including the named executive officers, to an excise tax under Section 4999 of the Code. If the payments or benefits payable to an eligible participant in connection with a change in control would be subject to the excise tax imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to him or her. Other Change in Control and Severance Arrangements The following table presents information concerning estimated payments and benefits that would be provided in the circumstances described above for each of the named executive officers who were serving as named executive officers as of the end of the fiscal year ending December 31, 2021. Messrs. Hu and Chew resigned as of October 27, 2021 and May 17, 2021, respectively, and received no compensation in connection with their terminations. The payments and benefits set forth below are estimated assuming that the termination or change in control event occurred on the last business day of our fiscal year ending December 31, 2021 using the 58 closing market price of our stock on that date. Actual payments and benefits could be different if such events were to occur on any other date or at any other price or if any other assumptions are used to estimate potential payments and benefits. Qualifying Termination Not in Connection with a Change in Control(1) Qualifying Termination in Connection with a Change in Control(2) Name Cash Severance ($) Continued Benefits ($) Equity Acceleration ($)(3)(4) Total ($) Cash Severance ($) Continued Benefits ($) Equity Acceleration ($)(3)(5) Jeff Lawson . . . . . . . . . . . . Khozema Shipchandler . . . Eyal Manor . . . . . . . . . . . . Marc Boroditsky . . . . . . . . Dana R. Wagner . . . . . . . . 100,500(6) 550,000(11) 450,000(11) 250,000(11) 300,000(11) 14,306(7) 9,367(12) 711(12) 9,673(12) 332(12) — — 25,787,225(8) 25,902,030 559,367 450,711 3,968,007(15) 4,227,680 300,332 — 201,000(9) 28,611(10) 1,100,000(13) 18,733(14) 900,000(13) 1,422(14) 500,000(13) 19,346(14) 665(14) 600,000(13) 39,824,557 29,565,334 33,034,423 17,748,040 — Total ($) 40,054,168 30,684,067 33,935,845 18,267,368 600,665 (1) A “qualifying termination” means a termination other than due to cause, death or disability (or a resignation for good reason, for Mr. Lawson) and “not in connection with a change in control” means outside of the change in control period. (2) A “qualifying termination” means a termination other than due to cause, death or disability or a resignation for good reason and “in connection with a change in control” means within the change in control period. Assumes that in connection with the change in control, outstanding equity awards would have otherwise been assumed, substituted or continued by the successor entity. (3) Represents the market value of the shares underlying the stock options and RSUs as of December 31, 2021, based on the closing price of our Class A common stock, as reported on The New York Stock Exchange, of $263.34 per share on December 31, 2021. (4) See “—Other Compensation Policies and Practices—Death Equity Acceleration Policy” which discusses the treatment of equity awards upon the termination due to death of an employee’s or non-employee director’s employment or other service relationship with the Company or any of its subsidiaries. (5) Represents acceleration of vesting of 100% of the total number of shares underlying outstanding and unvested stock options and P r o x y RSUs. (6) Represents nine months of our Chief Executive Officer’s annual base salary. (7) Represents nine months of our contribution towards health insurance, based on our actual costs to provide health insurance to our Chief Executive Officer immediately prior to termination. (8) Represents 12 months of accelerated vesting for outstanding and unvested time-based equity awards. (9) Represents 18 months of our Chief Executive Officer’s annual base salary. (10) Represents 18 months of our contribution towards health insurance, based on our actual costs to provide health insurance to our Chief Executive Officer immediately prior to termination. (11) Represents six months of the applicable named executive officer’s annual base salary. (12) Represents six months of our contribution toward health insurance, based on our actual costs to provide health insurance to the applicable named executive officer immediately prior to termination. (13) Represents 12 months of the applicable named executive officer’s annual base salary. (14) Represents 12 months of our contribution towards health insurance, based on our actual costs to provide health insurance to the applicable named executive officer immediately prior to termination. (15) Represents accelerated vesting for 100% of the outstanding and unvested time-based equity awards granted to Mr. Boroditsky in connection with his appointment as our Chief Revenue Officer. CEO Pay Ratio Pursuant to SEC rules, we are required to provide information regarding the relationship between the annual total compensation of our Chief Executive Officer, and the median of the annual total compensation of all of our employees (other than our Chief Executive Officer) for the year ended December 31, 2021: • the annual total compensation of our median employee was $166,789; and • the annual total compensation of our Chief Executive Officer was $14,625,745, as reported in the “Total Compensation” column in the “Summary Compensation Table” included in this proxy statement. 59 Based on this information, for 2021, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all our employees was 88:1. We believe this ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act. As a result of the increase in our number of employees from 4,629 employees as of December 31, 2020 to 7,867 employees as of December 31, 2021, we elected to identify a new median employee as of December 31, 2021. In doing so, we used the same methodology we employed to identify the median employee as of December 31, 2020. Specifically, as permitted by SEC rules, we reviewed total direct compensation based on our consistently applied compensation measure, which we calculated as actual salary paid to our employees for 2021, actual sales commission earned by our employees in 2021, and the grant date fair value of equity awards granted to our employees in 2021. We used December 31, 2021 to determine our employee population. In determining this population, we included all worldwide full-time and part-time employees other than our Chief Executive Officer. We excluded contractors, workers employed through a third-party provider, individuals with zero pay in 2021, and 380 employees of ValueFirst Digital Media Private Limited, which was acquired by us in 2021, from our employee population. For employees paid in other than U.S. dollars, we converted their compensation to U.S. dollars using the exchange rates used by us for various purposes in effect on December 31, 2021 and did not make any cost-of-living adjustments to such compensation. We did not annualize total direct compensation for employees employed by us for less than the full fiscal year. Using our consistently applied compensation measure, we identified a median employee who is a full-time U.S.-based salaried employee. Once we selected the individual who represented the median employee, we then calculated the annual total compensation for this employee using the same methodology we used for our named executive officers in our 2021 Summary Compensation Table to yield the median annual total compensation disclosed above. The SEC’s rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. We believe our methodologies are reasonable and best reflect how we view these metrics. However, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. COMPENSATION AND TALENT MANAGEMENT COMMITTEE REPORT Our compensation and talent management committee has reviewed and discussed the section titled “Compensation Discussion and Analysis” with management. Based on such review and discussion, our compensation and talent management committee has recommended to the board of directors that the section titled “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Respectfully submitted by the members of our compensation and talent management committee of the board of directors: Compensation and Talent Management Committee Jeffrey Immelt (Chairperson) Deval Patrick 60 EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2021 with respect to the shares of our common stock that may be issued under our existing equity compensation plans. We will not grant equity awards in the future under any of the equity compensation plans not approved by stockholders included in the table below. On February 1, 2019, in connection with our acquisition of SendGrid, Inc. (“SendGrid”), we assumed the shares reserved and available for issuance under SendGrid’s Amended and Restated 2009 Equity Incentive Plan (the “SendGrid 2009 Plan”), Amended and Restated 2012 Equity Incentive Plan (the “SendGrid 2012 Plan”) and Amended and Restated 2017 Equity Incentive Plan (the “SendGrid 2017 Plan”), and such shares became available for issuance under our 2016 Plan. On November 2, 2020, in connection with our acquisition of Segment, we assumed outstanding Segment stock options and RSUs under Segment’s Fifth Amended and Restated 2013 Stock Option and Grant Plan (the “Segment 2013 Plan”). On July 14, 2021, in connection with our acquisition of Zipwhip Inc. (“Zipwhip”), we assumed outstanding Zipwhip stock options and RSUs under Zipwhip’s 2008 Stock Plan (the “Zipwhip 2008 Plan”) and 2018 Equity Incentive Plan (“Zipwhip 2018 Plan”). (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) P r o x y Plan Category Equity compensation plans approved by stockholders(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 15,330,724 $87.7759(2) 31,032,934(3) Equity compensation plans not approved by stockholders(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 878,419 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,209,143 $44.5539 $ 78.10 — 31,032,934 (1) Includes the following plans: our 2008 Plan, 2016 Plan, and our ESPP. (2) Excludes shares issuable upon vesting of outstanding RSUs as of December 31, 2021, since such shares have no exercise price. (3) As of December 31, 2021, a total of 24,650,104 shares of our Class A common stock were reserved for issuance pursuant to the 2016 Plan. This number includes shares reserved and available for issuance under the SendGrid 2009 Plan, the SendGrid 2012 Plan and the SendGrid 2017 Plan that we assumed, which were approved by the stockholders of SendGrid, but not by a separate vote of our stockholders; such shares became available for issuance under our 2016 Plan, but awards using such shares may not be granted to individuals who were employed, immediately prior to the acquisition, by us or our subsidiaries. This number excludes the 9,023,405 shares that were added to the 2016 Plan as a result of the automatic annual increase on January 1, 2022. The 2016 Plan provides that the number of shares reserved and available for issuance under the 2016 Plan will automatically increase each January 1, beginning on January 1, 2017, by 5% of the outstanding number of shares of our Class A and Class B common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation and talent management committee. This number will be subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. The shares of Class A and Class B common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated, other than by exercise, under the 2016 Plan and the 2008 Plan will be added back to the shares of Class A common stock available for issuance under the 2016 Plan (provided, that any such 61 shares of Class B common stock will first be converted into shares of Class A common stock). The Company no longer makes grants under the 2008 Plan. As of December 31, 2021, a total of 6,382,830 shares of our Class A common stock were available for future issuance pursuant to the ESPP, which number includes shares subject to purchase during the current purchase period, which commenced on November 16, 2021 (the exact number of which will not be known until the purchase date on May 13, 2022) but excludes the 1,800,000 shares that were added to the ESPP as a result of the automatic annual increase on January 1, 2022. Subject to the number of shares remaining in the share reserve, the maximum number of shares purchasable by any participant on any one purchase date for any purchase period, including the current purchase period may not exceed 5,000 shares. The ESPP provides that the number of shares reserved and available for issuance under the ESPP will automatically increase each January 1, beginning on January 1, 2017, by the lesser of 1,800,000 shares of our Class A common stock, 1% of the outstanding number of shares of our Class A and Class B common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation and talent management committee. This number will be subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. (4) In connection with our acquisitions of SendGrid, Segment and Zipwhip, we assumed outstanding SendGrid, Segment and Zipwhip options and RSUs. As of December 31, 2021, there were (a) 170,970 shares issuable under such outstanding SendGrid stock options (with a weighted-average exercise price of $20.5093) and 31,049 shares issuable under such outstanding SendGrid RSUs; (b) 504,587 shares issuable under such outstanding Segment stock options (with a weighted-average exercise price of $51.7840) and 86,004 shares issuable under such outstanding Segment RSUs; and (c) 74,596 shares issuable under such outstanding Zipwhip stock options (with a weighted-average exercise price of $50.7560) and 11,213 shares issuable under such outstanding Zipwhip RSUs. No further grants may be made under any of these plans. 62 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information available to us with respect to the beneficial ownership of our capital stock as of April 30, 2022, for: • each of our named executive officers; • each of our directors; • all of our current directors and executive officers as a group; and • each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our Class A or Class B common stock. We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have based our calculation of percentage ownership of our common stock on 171,861,852 shares of our Class A common stock and 9,817,605 shares of our Class B common stock outstanding on April 30, 2022. We have deemed shares of our capital stock subject to stock options that are currently exercisable or exercisable within 60 days of April 30, 2022 to be outstanding and to be beneficially owned by the person holding the stock option for the purpose of computing the percentage ownership of that person. We have deemed shares of our capital stock subject to RSUs for which the service condition has been satisfied or would be satisfied within 60 days of April 30, 2022 to be outstanding and to be beneficially owned by the person holding the RSUs for the purpose of computing the percentage ownership of that person. However, we did not deem these shares subject to stock options or RSUs outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Twilio Inc., 101 Spear Street, First Floor, San Francisco, California 94105. Name of Beneficial Owner Shares % Shares % Voting %† Ownership % Shares Beneficially Owned Class A Common Stock Class B Common Stock P r o x y Named Executive Officers and Directors: Jeff Lawson(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Khozema Shipchandler(2) . . . . . . . . . . . . . . . . . . . Eyal Manor(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marc Boroditsky(4) . . . . . . . . . . . . . . . . . . . . . . . . . Dana R. Wagner(5) . . . . . . . . . . . . . . . . . . . . . . . . . George Hu(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chee Chew(7) Richard Dalzell(8) . . . . . . . . . . . . . . . . . . . . . . . . . . Byron Deeter(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . Donna L. Dubinsky(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jeff Epstein(11) Jeffrey Immelt(12) . . . . . . . . . . . . . . . . . . . . . . . . . . Deval Patrick(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . Erika Rottenberg(14) . . . . . . . . . . . . . . . . . . . . . . . All executive officers and directors as a group 559,749 38,814 20,531 130,490 6,595 74,862 134,008 13,829 515,166 5,892 26,484 17,456 1,644 8,382 * * * * * * * * * * * * * * 5,920,194 58.4 — — — — — — — — — — — — * — — — — — — — — — — * 76,500 15,300 21.8 * * * * * * * * * * * * * (11 persons)(15): . . . . . . . . . . . . . . . . . . . . . . . . . 1,214,542 0.7 6,011,994 58.9 22.3 63 3.6 * * * * * * * * * * * * * 4.0 Shares Beneficially Owned Class A Common Stock Class B Common Stock Name of Beneficial Owner Shares % Shares % Voting %† Ownership % 5% Stockholders: The Vanguard Group(16) . . . . . . . . . . . . . . . . . . . BlackRock, Inc.(17) . . . . . . . . . . . . . . . . . . . . . . . . Amazon.com NV Investment Holdings LLC(18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John Wolthuis(19) 10,443,890 9,295,211 6.1 5.4 — — — — — — 1,768,346 — — 1,478,474 18.0 15.1 3.9 3.4 6.6 5.5 5.7 5.1 * * * Represents beneficial ownership of less than one percent (1%) of the outstanding shares. † Percentage of total voting power represents voting power with respect to all shares of our Class A common stock and Class B common stock, as a single class. The holders of our Class A common stock are entitled to one vote per share, and the holders of our Class B common stock are entitled to ten votes per share. (1) Consists of (i) 68,316 shares of Class A common stock held of record by Mr. Lawson, as trustee of the Lawson Revocable Trust, (ii) 4,580,822 shares of Class B common stock held of record by Mr. Lawson, as trustee of the Lawson Revocable Trust, (iii) 1,022,705 shares of Class B common stock held of record by The Lawson 2014 Irrevocable Trust, J.P. Morgan Trust Company, as trustee, (iv) 491,433 shares of Class A common stock subject to outstanding options that are exercisable within 60 days of April 30, 2022, and (v) 316,667 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of April 30, 2022. (2) Consists of (i) 1,956 shares of Class A common stock held of record by Mr. Shipchandler, (ii) 29,928 shares of Class A common stock subject to outstanding options that are exercisable within 60 days of April 30, 2022 and (iii) 6,930 shares of Class A common stock issuable upon the settlement of RSUs releasable within 60 days of April 30, 2022. (3) Consists of (i) 4,753 shares of Class A common stock held of record by Mr. Manor, (ii) 7,938 shares of Class A common stock subject to outstanding options that are exercisable within 60 days of April 30, 2022 and (iii) 7,840 shares of Class A common stock issuable upon the settlement of RSUs releasable within 60 days of April 30, 2022. (4) Consists of (i) 8,323 shares of Class A common stock held of record by Mr. Boroditsky, (ii) 115,261 shares of Class A common stock subject to outstanding options that are exercisable within 60 days of April 30, 2022 and (iii) 6,906 shares of Class A common stock issuable upon the settlement of RSUs releasable within 60 days of April 30, 2022. (5) Consists of 6,595 shares of Class A common stock issuable upon the settlement of RSUs releasable within 60 days of April 30, 2022 for Mr. Wagner. (6) Consists of 74,862 shares of Class A common stock held of record by Mr. Hu, as trustee of the Hu/Luo Family 2005 Trust. (7) Consists of 134,008 shares of Class A common stock held of record by Mr. Chew, all of which are pledged as collateral to secure certain personal indebtedness. (8) Consists of (i) 13,829 shares of Class A common stock held of record by Mr. Dalzell and (ii) 76,500 shares of Class B common stock subject to outstanding options that are exercisable within 60 days of April 30, 2022. (9) Consists of (i) 16,514 shares of Class A common stock held of record by Mr. Deeter and (ii) 498,652 shares of Class A Common stock held of record by Byron B. Deeter and Allison K. Deeter Trustees TD July 28, 2000. 64 (10) Consists of 5,892 shares of Class A Common stock held of record by Ms. Dubinsky, as trustee of the Shustek-Dubinsky Family Trust. (11) Consists of 26,484 shares of Class A common stock held of record by Mr. Epstein, as Trustee of the Epstein Family Revocable Trust. (12) Consists of (i) 16,413 shares of Class A common stock held of record by Mr. Immelt and (ii) 1,043 shares of Class A common stock issuable upon the settlement of RSUs releasable within 60 days of April 30, 2022. (13) Consists of 1,644 shares of Class A common stock held of record by Mr. Patrick. (14) Consists of (i) 8,382 shares of Class A common stock held of record by Ms. Rottenberg, as trustee of the Erika Rottenberg Revocable Trust and (ii) 15,300 shares of Class B common stock held of record by Ms. Rottenberg, as trustee of the Erika Rottenberg Revocable Trust. (15) Consists of (i) 662,835 shares of Class A common stock held of record, (ii) 5,618,827 shares of Class B common stock held of record, (iii) 529,299 shares of Class A common stock subject to outstanding stock options that are exercisable within 60 days of April 30, 2022, (iv) 393,167 shares of Class B common stock subject to outstanding stock options that are exercisable within 60 days of April 30, 2022 and (v) 22,408 shares of Class A common stock issuable upon the settlement of RSUs releasable within 60 days of April 30, 2022. (16) Based on information reported by The Vanguard Group on Schedule 13G/A filed with the SEC on February 10, 2022. Of the shares of Class A common stock beneficially owned, The Vanguard Group reported that it has sole dispositive power with respect to 10,091,990 shares, shared dispositive power with respect to 351,900 shares, sole voting power with respect to no shares and shared voting power with respect to 147,064 shares. The Vanguard Group listed their address as 100 Vanguard Blvd., Malvern, Pennsylvania 19355. (17) Based on information reported by BlackRock, Inc. on Schedule 13G/A filed with the SEC on February 8, 2022. Of the shares of Class A common stock beneficially owned, Blackrock, Inc. reported that it has sole dispositive power with respect to 9,295,211 shares and sole voting power with respect to 8,022,375. BlackRock, Inc. listed its address as 55 East 52nd Street, New York, New York 10055. (18) Based on shares held of record by Amazon.com NV Investment Holdings LLC as of April 30, 2022 and registered with our transfer agent. Amazon NV Investment Holdings LLC’s address is listed as 410 Terry Avenue North, Seattle, WA 98109. (19) Consists of 1,478,474 shares of Class B common stock held of record by Mr. Wolthuis. P r o x y 65 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In addition to the compensation arrangements discussed in the section titled “Executive Compensation,” including employment, termination of employment and change in control arrangements, the following is a description of each transaction since the beginning of our last fiscal year, and each currently proposed transaction in which: • we have been or are to be a participant; • the amount involved exceeded or exceeds $120,000; and • any of our directors, executive officers, or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest. Investors’ Rights Agreement We are party to an investors’ rights agreement which provides, among other things, that certain holders of our capital stock have the right to demand that we file a registration statement or request that their shares of our capital stock be covered by a registration statement that we are otherwise filing. The parties to the investors’ rights agreement include entities affiliated with Jeff Lawson, our Chief Executive Officer and current director, an entity affiliated with Jeff Epstein, our current director, Evan Cooke, a former director, and Amazon.com NV Investment Holdings LLC and John Wolthuis, holders of more than 5% of our Class B common stock. Sublease with Numenta In the second quarter of fiscal year 2021, we entered into a sublease with Numenta, Inc. (“Numenta”), whereby we subleased 2,420 square feet of our unoccupied Redwood City office space to Numenta. Donna Dubinsky, a member of our board of directors, serves as the Chief Executive Officer and a director of Numenta. The sublease was entered into on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and at market rates. The term of the sublease is for 12 months commencing on August 1, 2021, with Numenta having the option to renew for two 12-month extension periods. The rent was initially set at $18,225 per month, and if Numenta opts to renew the sublease, the rent for the first and second 12-month extension periods includes set increases at $18,771.75 per month and $19,334.90 per month, respectively. If such options to renew are exercised by Numenta, the aggregate payments expected to be made under the sublease over the 36 month period is approximately $675,979.80, which is in compliance with the NYSE and LTSE director independence standards and does not exceed the greater of $1 million or 2% of Numenta’s consolidated gross revenues. In January 2022, Numenta timely notified us of its intention to exercise the option to renew the sublease for the first additional 12-month period. Accordingly, the rent will increase to $18,771.75 per month effective August 1, 2022. Other Transactions We have granted stock options and RSUs to our named executive officers and certain of our directors. See the section titled “Executive Compensation—Individual Compensation Arrangements—Long-Term Incentive Compensation”, “Executive Compensation—Outstanding Equity Awards at Fiscal Year-End Table” and “Board of Directors and Corporate Governance—Non-Employee Director Compensation” for a description of these stock options and RSUs. We have entered into severance and change in control arrangements with certain of our executive officers pursuant to employment offer letters and/or our severance plan that, among other things, provides for certain severance and change in control payments and benefits. See the sections titled “Executive Compensation—Post-Employment Compensation Arrangements” and “Executive Compensation— Potential Payments Upon Termination or Change in Control.” 66 Other than as described above under this section titled “Certain Relationships and Related Party Transactions,” since January 1, 2021, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arm’s-length dealings with unrelated third parties. Indemnification of Officers and Directors Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following: • any breach of their duty of loyalty to our Company or our stockholders; • any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; • unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or • any transaction from which they derived an improper personal benefit. Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law. In addition, our second amended and restated bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our second amended and restated bylaws provide that we may indemnify our employees and agents to the extent not prohibited by the Delaware General Corporation Law or other applicable law. Our second amended and restated bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions. Further, we have entered into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers. The limitation of liability and indemnification provisions that are included in our amended and restated certificate of incorporation, second amended and restated bylaws and in indemnification agreements that we have entered into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a 67 P r o x y stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law. Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our Company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Policies and Procedures for Related Party Transactions As set forth in our audit committee charter, our audit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. Our policy regarding transactions between us and related persons provides that a related person is defined as a director, executive officer, nominee for director or greater than 5% beneficial owner of our Class A and Class B common stock or the capital stock of one or more of our subsidiaries, in each case since the beginning of the most recently completed year, and any of their immediate family members. Our audit committee charter provides that our audit committee shall review and approve or disapprove any related party transactions. 68 OTHER MATTERS 2021 Annual Report and SEC Filings Our financial statements for the year ended December 31, 2021 are included in our annual report on Form 10-K, which we will make available to stockholders at the same time as this proxy statement. Our annual report and this proxy statement are posted on our website at https://investors.twilio.com and are available from the SEC at its website at www.sec.gov. You may also obtain a copy of our annual report without charge by sending a written request to Investor Relations, Twilio Inc., 101 Spear Street, First Floor, San Francisco, California 94105. * * * The board of directors does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly presented at the Annual Meeting, the persons named in the enclosed proxy card will have discretion to vote shares they represent in accordance with their own judgment on such matters. It is important that your shares be represented at the Annual Meeting, regardless of the number of shares that you hold. You are, therefore, urged to vote by telephone or by using the Internet as instructed on the enclosed proxy card or execute and return, at your earliest convenience, the enclosed proxy card in the envelope that has also been provided. THE BOARD OF DIRECTORS San Francisco, California May 5, 2022 P r o x y 69 APPENDIX A KEY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURE INFORMATION Set forth below in this Appendix A is important information about how we measure Active Customer Accounts and Dollar-Based Net Expansion Rate, as well as a reconciliation of our non-GAAP to GAAP financial measures. 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 years ended December 31, 2021, 2020 and 2019, revenue from Active Customer Accounts represented over 99% of total revenue in each period. A single organization may constitute multiple unique Active Customer Accounts if it has multiple account identifiers, each of which is treated as a separate Active Customer Account. Dollar-Based Net Expansion Rate Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing Active Customer Accounts and to increase their use of the platform. An important way in which we have historically tracked performance in this area is by measuring the Dollar-Based Net Expansion Rate for Active Customer Accounts. Our Dollar-Based Net Expansion Rate increases when such Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product. Our Dollar-Based Net Expansion Rate decreases when such Active Customer Accounts cease or reduce their usage of a product or when we lower usage prices on a product. As our customers grow their businesses and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of revenue in a quarterly reporting period) that has created a new Active Customer Account, this new Active Customer Account is tied to, and revenue from this new Active Customer Account is included with, the original Active Customer Account for the purposes of calculating this metric. We believe that measuring Dollar-Based Net Expansion Rate provides a more meaningful indication of the performance of our efforts to increase revenue from existing customers. For historical periods through December 31, 2019, our Dollar-Based Net Expansion Rate compared the revenue from Active Customer Accounts, other than large Active Customer Accounts that have never entered into 12-month minimum revenue commitment contracts with us, in a quarter to the same quarter in the prior year. For reporting periods starting with the three months ended March 31, 2020, our Dollar- Based Net Expansion Rate compares the revenue from all Active Customer Accounts in a quarter to the same quarter in the prior year. To calculate the Dollar-Based Net Expansion Rate, we first identify the cohort of Active Customer Accounts that were Active Customer Accounts in the same quarter of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. When we calculate Dollar-Based Net Expansion Rate for periods longer than one quarter, we use the average of the applicable quarterly Dollar-Based Net Expansion Rates for each of the quarters in such period. 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. As a result of the change in calculation of Dollar- Based Net Expansion Rate, unless specifically identified as being calculated based on total revenue, any A-1 P r o x y Dollar-Based Net Expansion Rates disclosed by us in our SEC filings, press releases and presentations prior to the date of our press release for the three months ended March 31, 2020, will not be directly comparable to our Dollar-Based Net Expansion Rates going forward. Non-GAAP Financial Measures We use the following non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which use similar non-GAAP financial information to supplement their GAAP results. Non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from similarly-titled non-GAAP measures used by other companies. Whenever we use a non-GAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with generally accepted accounting principles. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures. Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin For the periods presented, we define non-GAAP income (loss) from operations and non-GAAP operating margin as GAAP loss from operations and GAAP operating margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below: Reconciliation: Loss from operations . . . . . . . . . . . . . . . . . . . . . . . Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP adjustments: Stock-based compensation . . . . . . . . . . . . . . . . . . Amortization of acquired intangibles . . . . . . . . . Acquisition-related expenses . . . . . . . . . . . . . . . . Charitable contributions . . . . . . . . . . . . . . . . . . . . Payroll taxes related to stock-based Year Ended December 31, 2021 2020 2019 (In thousands) $(915,584) $(492,901) $(369,785) (32)% (28)% (33)% 632,285 198,784 7,449 31,169 361,911 98,494 21,765 18,993 264,318 72,807 15,713 — compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,417 27,389 15,188 Non-GAAP income (loss) from operations . . $ 2,520 $ 35,651 $ (1,759) Non-GAAP operating margin . . . . . . . . . . . . . —% 2% —% A-2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 For the transition period from to Commission File Number: 001-37806 TWILIO INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 26-2574840 (I.R.S. Employer Identification Number) 101 Spear Street, First Floor San Francisco, California 94105 (Address of principal executive offices) (Zip Code) (415) 390-2337 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the act: Title of each class Trading Symbol(s) Name of each exchange on which registered Class A Common Stock, par value $0.001 per share TWLO New York Stock Exchange Long-Term Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes È No ‘ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: Yes ‘ No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes È No ‘ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Non-accelerated filer ‘ Accelerated filer ‘ Large accelerated filer È Smaller reporting company ‘ Emerging growth company ‘ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ‘ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È The aggregate market value of stock held by non-affiliates as of June 30, 2021 (the last business day of the registrant’s most recently completed second quarter) was $51.0 billion based upon $394.16 per share, the closing price on June 30, 2021 on the New York Stock Exchange. Determination of stock ownership by non-affiliates was made solely for the purpose of responding to this requirement and the registrant is not bound by this determination for any other purpose. On February 15, 2022, 171,702,846 shares of the registrant’s Class A common stock and 9,820,605 shares of registrant’s Class B common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive Proxy Statement for the 2022 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, 2021. F o r m 1 0 - K TWILIO INC. Annual Report on Form 10-K For the Fiscal Year Ended December 31, 2021 TABLE OF CONTENTS PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . PART III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6 20 62 63 63 63 64 66 66 83 84 135 135 136 136 137 137 137 137 137 138 142 F o r m 1 0 - K 1 Special Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “can,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about: • the impact of the coronavirus disease of 2019 (“COVID-19”) pandemic on the global economy, our customers, employees and business; • our future financial performance, including our revenue, cost of revenue, gross margin and operating expenses, ability to generate positive cash flow and ability to achieve and sustain profitability; • anticipated technology trends, such as the use of and demand for cloud communications; • our ability to continue to build and maintain credibility with the global software developer community; • our ability to attract and retain customers to use our products; • the evolution of technology affecting our products and markets; • our ability to introduce new products and enhance existing products; • our ability to comply with modified or new industry standards, laws and regulations applying to our business, including the General Data Protection Regulation (“GDPR”), the Schrems II decision invalidating the EU-US Privacy Shield, the California Consumer Privacy Act of 2018 (“CCPA”) and other privacy or cybersecurity regulations that may be implemented in the future, and Signature- based Handling of Asserted Information Using toKENs (“SHAKEN”) and Secure Telephone Identity Revisited (“STIR”) standards (together, “SHAKEN/STIR”) and other robocalling prevention and anti-spam standards and increased costs associated with such compliance; • potential harm caused by compromises in security, data and infrastructure, including cybersecurity protections, investments and resources and costs required to prevent, detect and remediate potential cybersecurity threats, incidents and breaches of ours or our customers’ systems or information; • our ability to optimize our network service provider coverage and connectivity; • our ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on our platform; • our ability to work closely with email inbox service providers to maintain deliverability rates; • our ability to pass on our savings associated with our platform optimization efforts to our customers; • the impact and expected results from changes in our relationships with our larger customers; • our ability to attract and retain enterprises and international organizations as customers for our products; • our ability to form and expand partnerships with technology partners and consulting partners; 2 • our ability to successfully enter into new markets and manage our international expansion; • the attraction and retention of qualified employees and key personnel; • our ability to effectively manage our growth and future expenses and maintain our corporate culture; • our ability to compete effectively in an intensely competitive market; • the sufficiency of our cash and cash equivalents to meet our liquidity needs; • our anticipated investments in sales and marketing, research and development and additional systems and processes to support our growth; • our ability to maintain, protect and enhance our intellectual property; • our ability to successfully defend litigation brought against us; • our ability to service the interest on our 3.625% senior notes due 2029 (“2029 Notes”), our 3.875% notes due 2031 (“2031 Notes,” and together with the 2029 Notes, the “Notes”), and repay such Notes; • our customers’ and other platform users’ violation of our policies or other misuse of our platform; • our expectations about the impact of climate change, natural disasters, public health epidemics and other natural catastrophic events and man-made problems such as data security breaches or terrorism; and • our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Summary of Risk Factors and Uncertainties Associated with Our Business” below, in Part I, Item 1A, “Risk Factors,” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. 3 F o r m 1 0 - K Summary of Risk Factors and Uncertainties Associated with Our Business Our business is subject to numerous risks and uncertainties outside of our control. One, or a combination, of these risks and uncertainties could materially affect any of those matters as to which we have made forward-looking statements and cause our actual results or an actual event or occurrence to differ materially from those results or an event or occurrence described in a forward-looking statement. Some of the principal risks associated with our business include the following: • the impact of the global COVID-19 pandemic; • new and unproven markets for our products and platform; • our ability to effectively manage our rapid growth; • fluctuations in our quarterly results and our ability to meet securities analysts’ and investors’ expectations; • our ability to maintain and enhance our brand and increase market awareness of our company and products; • limitations on the use and adoption of our solutions due to privacy laws, data collection and transfer restrictions and related domestic or foreign regulations; • our ability to maintain and grow our relationships with existing customers and have them increase their usage of our platform; • our ability to attract new customers in a cost-effective manner; • our ability to develop enhancements to our products and introduce new products that achieve market acceptance; • our ability to compete effectively in the markets in which we participate; • our history of losses and uncertainty about our future profitability; • our ability to increase adoption of our products by enterprises; • our ability to expand our relationships with existing technology partner customers and add new technology partner customers; • significant risks associated with expansion of our international operations; • compliance with applicable laws and regulations; • telecommunications-related regulations and future legislative or regulatory actions; • our ability to obtain or retain geographical, mobile, regional, local or toll-free numbers and to effectively process requests to port such numbers in a timely manner due to industry regulations; • our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements or preferences; • our ability to provide monthly uptime service level commitments of a minimum of 99.95% under our agreements with customers; • any breaches of our networks or systems, or those of AWS or our service providers; • defects or errors in our products; • any loss or decline in revenue from our largest customers; • litigation by third parties for alleged infringement of their proprietary rights; 4 • exposure to substantial liability for intellectual property infringement and other losses from indemnity provisions in various agreements; • our ability to successfully utilize or to integrate acquired businesses and technologies successfully or to achieve the expected benefits of such acquisitions, partnerships and investments; • the loss of our senior management and other key employees; • our use of open source software; • our reliance on SaaS technologies from third parties; • potentially adverse tax consequences on our global operations and structure; • fraudulent usage of or activity relating to our products; • unfavorable conditions in our industry or the global economy; • requirement of additional capital to support our business and its availability on acceptable terms, if at all; • exposure to foreign currency exchange rate fluctuations; • our ability to use our net operating losses and certain other tax attributes to offset future taxable income and taxes; • our failure to maintain an effective system of disclosure controls and internal control over financial reporting; • the risks of pandemics, earthquakes, fire, floods and other natural catastrophic events and of interruption by man-made problems such as power disruptions, computer viruses, data security breaches or terrorism; • volatility of the trading price of our Class A common stock; • potential decline in the market price of our Class A common stock due to substantial future sales of shares; • requirement of a significant amount of cash to service our future debt; and • our ability to raise the funds necessary for the repayment of the 2029 Notes and 2031 Notes for cash. F o r m 1 0 - K 5 Item 1. Business Overview PART I Software developers are reinventing nearly every aspect of business today. Yet as developers, we repeatedly encountered an area where we could not innovate—communications. Because communication is a fundamental human activity and vital to building great businesses, we wanted to incorporate communications into our software applications, but the barriers to innovation were too high. Twilio was started to solve this problem in 2008. Twilio spent over a decade building the leading cloud communication platform, but communications is just the beginning. Twilio’s vision is to become the leading customer engagement platform, ultimately providing businesses with the holy grail—a single view of the customer journey and the ability to take action, delivering real-time, personalized communications. We believe the future of customer engagement will be written in software by the developers of the world—our customers. Cloud platforms are a category of software that enable developers to build and manage applications without the complexity of creating and maintaining the underlying infrastructure. These platforms have arisen to enable a fast pace of innovation across a range of categories, such as computing and storage. We are the leader in the cloud communications platform category. We enable developers to build, scale and operate real-time customer engagement within 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. These APIs are focused on the business challenges that a developer is looking to address, allowing our customers to more quickly and easily build better ways to engage with their customers throughout their journey. Our engagement platform also includes a set of APIs that enable developers to embed voice, messaging, video and email capabilities into their applications, and are designed to support almost all the fundamental ways humans communicate, unlocking innovators to address just about any communication market. The Super Network is our software layer that allows our customers’ software to communicate with connected devices globally. It interconnects with communications networks and inbox service providers around the world and continually analyzes data to optimize the quality and cost of communications that flow through our platform. The Super Network also contains a set of APIs giving our customers access to more foundational components of our platform, like phone numbers and session initiation protocol (“SIP”) Trunking. In February 2019 we acquired SendGrid, Inc. (“SendGrid”), the leading email API platform. Email is an important channel for businesses to communicate with their customers and incorporating SendGrid’s products into our platform allows us to enable businesses to engage with their customers via email effectively and at scale. In November 2020 we acquired Segment.io, Inc. (“Segment”), the market-leading customer data platform. Segment provides businesses a unified customer view to better understand their customers and engage more effectively, enabling us to drive personalization at scale. The acquisition expands and strengthens use cases across customer service, marketing, sales, product and analytics and accelerates Twilio’s journey to build the world’s leading customer engagement platform. In July 2021 we acquired Zipwhip, Inc., (“Zipwhip”) a leading provider of toll-free messaging in the United States. Zipwhip’s customizable APIs enable organizations to text enable their existing toll-free phone numbers in minutes and seamlessly fit texting into their workflows. We had over 256,000 Active Customer Accounts as of December 31, 2021, representing organizations big and small, old and young, across nearly every industry, with one thing in common: they are competing 6 by using the power of software to build differentiated customer engagement experiences. With our customer engagement platform, our customers are disrupting existing industries and creating new ones. For example, our customers’ software applications use our platform to notify a diner when a table is ready, provide enhanced application security through two-factor authentication to safely recognize a customer, connect potential buyers to real estate agents, and power large, omni-channel contact centers. The range of applications that developers build with the Twilio platform has proven to be nearly limitless. Our goal is for Twilio to be in the toolkit of every software developer in the world, from small businesses to major enterprises. Because big ideas often start small, we encourage developers to experiment and iterate on our platform. We love when developers explore what they can do with Twilio, because one day they may have a business problem that they will use our products to solve. As our customers succeed, we share in their success primarily through our usage-based revenue model. Our revenue grows as customers increase their usage of a product, extend their usage of a product to new applications or adopt a new product. We believe the most useful indicator of this increased activity from our existing customer accounts is our Dollar-Based Net Expansion Rate, which for historical periods through December 31, 2019, compares the revenue from a cohort of Active Customer Accounts, other than Variable Customer Accounts, in a period to the same period in the prior year. As previously announced in our Annual Report on Form 10-K filed with the SEC on March 2, 2020, commencing with the three-month period ended March 31, 2020, we calculate our Dollar-Based Net Expansion Rate by comparing total revenue from a cohort of Active Customer Accounts in a period to the same period in the prior year (the “New DBNE Definition”). 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. Under the New DBNE Definition, our Dollar- Based Net Expansion Rate was 131% and 137% for the years ended December 31, 2021 and 2020, respectively. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Dollar-Based Net Expansion Rate.” Our Platform Approach Twilio’s mission is to unlock the imagination of builders. Our plan is to be the leading customer engagement platform. We enable builders—the developers of the world—to build, scale and operate real- time communications within software applications, ultimately empowering every developer and company to improve their interactions with their customers. This enables businesses to create novel and creative new consumer experiences that delight their customers and differentiate their companies from their competitors. Our platform approach enables developers to build this future. Using our software, developers are able to incorporate communications and customer data into applications that span a range of industries and functionalities. Our technology partner customers also embed our products in solutions they sell to other businesses. Part of our core strategy is to provide a broad set of lower-level building blocks that can be used to build practically any digital experience. By doing this, we allow developers’ creativity to flourish across the widest set of use cases—some of which have not even been invented yet. What are some of the common customer problems we are solving? • Contact Center. Twilio gives companies complete control and flexibility to rapidly deploy remote agents, digital channels, self-service and integrations for lower costs and higher productivity. • Alerts and Notifications. From delivery notifications to critical emergency alerts, Twilio provides the building blocks to develop critical communications across messaging channels (short message service (“SMS”), multimedia message service (“MMS”), Short Codes, Toll-Free, WhatsApp, Facebook Messenger, and Google Business Messages), voice and email channels. 7 F o r m 1 0 - K • User Identity Verification. Customers can use a globally optimized multi-channel user verification solution to combat fraud, reduce fake user sign-ups and authorize sensitive account actions. • Field services and contactless delivery. Our customers can use Twilio Conversations to ensure privacy with masked communications, provide granular session control over user permissions, session duration and roles and keep private information private. • Marketing. Email and SMS campaign support to target, nurture and develop new customer relationships. • Customer Loyalty. Customers can send reminders about reward programs through email or messaging to drive repeat purchases through loyalty incentives. • Twilio For Good. Twilio partners with nonprofit organizations through Twilio.org, our social impact division, to use the power of communications to help solve social challenges, such as an SMS hotline to fight human trafficking, an emergency volunteer dispatch system, appointment reminders for medical visits in developing nations and more. Our Platform Segment Customer Data Platform Our acquisition of Segment added the leading customer data platform to Twilio’s platform. While every business needs a complete view of their customers, data is typically siloed across many disparate systems. Segment’s platform and APIs allow companies to collect, clean and control their customer data, providing a single view of customers across channels for more effective engagement. When combined with Twilio’s communication channels, this insight enables businesses to delight their customers with personalized, timely and impactful communications on the right channel at the right time. The Segment platform includes: • Connections. Collect event data from mobile apps, websites and servers with one API, then pull in contextual data from cloud-based apps like customer relationship management (“CRM”), payment systems and internal databases to build a unified picture of the customer. • Personas. Use identity resolutions to take event data from across devices and channels, merge the data together, and create unified customer profiles to build and enrich audiences, and activate audiences across marketing tools with a single view of the customer. • Privacy. Comply with laws and regulations, such as General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act of 2018 (“CCPA”), by using first-party data, collected and privatized with Segment, instead of increasingly regulated third-party data. • Protocols. Standardize data collection to create a single source of truth for customer data that is clean, consistent, and compliant, and adheres to a well thought out tracking plan. Channel APIs Our Channel APIs consist of software products that can be used individually or in combination to build rich contextual communications within applications. We offer flexible building blocks that enable our customers to build what they need. Our easy-to-use developer APIs provide a programmatic channel to access our software. Our Channel APIs include: MessagingX Twilio Programmable Messaging is an API to send and receive SMS, MMS and over-the-top (“OTT”) (WhatsApp and Facebook Messenger) messages globally. It uses intelligent sending features to ensure messages reliably reach end users wherever they are. Our customers build use cases, such as appointment 8 reminders, delivery notifications, order confirmations and many two-way and conversational use cases, such as customer care. Programmable Messaging includes: • SMS. Programmatically send and receive SMS messages around the world, supporting localized languages in nearly every market. This includes support for the new 10-digit long code routes in the United States (“U.S.”). • MMS. Exchange picture messages and more over U.S. and Canadian phone numbers from customer applications with built-in image transcoding and media storage. • Toll-Free SMS. Send and receive text messages with the same toll-free number used for voice calls in the U.S. and Canada. • High-Throughput Toll-Free SMS. Starting at 25 messages per second, High-Throughput Toll Free SMS lets you send and receive a higher volume of messages with the same toll-free number used for voice calls in the U.S. and Canada. • OTT channels. Programmatically send, receive and track messages to messaging apps such as WhatsApp and Facebook Messenger. We charge on a per-message basis for most of our Programmable Messaging products. Voice Twilio Programmable Voice allows developers to build solutions to make and receive phone calls globally. They can make, manage and route calls to a browser, an app, a phone or anywhere else one can take a call. Developers can also incorporate advanced voice functionality such as text-to-speech, conferencing, recording and transcription. Through advanced call control software, developers can build customized applications that address use cases such as contact centers, call tracking and analytics solutions and anonymized communications. Our voice software works over both the traditional public switched telephone network (“PSTN”) and over Internet Protocol (“VoIP”). Programmable Voice includes: • Twilio Voice. Initiate, receive and manage phone calls globally, end to end through traditional voice technology or between web browsers and landlines or mobile phones. • Call Recording. Securely record, store, transcribe and retrieve voice calls in the cloud. • Global Conference. Integrate audio conferencing that intelligently routes calls through cloud data centers in the closest geographic region to reduce latency. • Voice Insights. Call quality and performance data at the fingertips of our customers. Beyond details of a single call, every account on Twilio has access to the Voice Insights Dashboard, a powerful tool in Twilio Console that provides out-of-the-box visibility to key performance indicators and data to understand changes in call behavior. • Media Streams. Allows for real-time access to the raw audio stream of your phone calls. Through Media Streams our customers can fork the media of a phone call in real-time, effectively creating a copy of the initial audio stream that can be routed to your own application or to a third party to power advanced capabilities of your choosing. • SHAKEN/STIR. Signature-based Handling of Asserted Information Using toKENs (“SHAKEN”) and Secure Telephone Identity Revisited (“STIR”) standards (together, “SHAKEN/STIR”) is a protocol mandated by the Federal Communications Commission (“FCC”) to combat the rise in unwanted robocalls and unlawful caller ID spoofing. When adopted, carriers can present a trust indicator, like “Caller Verified,” to recipients’ phones. SHAKEN/STIR is free to all Twilio customers and allows them to increase answer rates for their calls by giving their calls the highest attestation under the SHAKEN and STIR caller authentication framework. 9 F o r m 1 0 - K • Programmable Voice SIP Interfaces. Enables voice infrastructure to be augmented with cloud capabilities. • Emergency Calling. Twilio’s Emergency Calling for SIP API enables emergency call routing to Public Safety Answering Points (“PSAPs”) in the U.S., Canada and the United Kingdom (“UK”). • Bring Your Own Carrier Trunking (“BYOC”). Enables connection of customer’s PSTN carrier to Twilio’s programmable platform. Email The Twilio SendGrid Email API solves email delivery challenges at scale and ensures our customers’ email program lives up to their product experience. Our Email API provides the flexibility for our customers to build customized solutions, as well as helpful shortcuts to streamline integration and optimize their inbox placement. Businesses use our email products for both marketing messages as well as transactional emails, including shipping notifications, friend requests, password resets and sign-up confirmations. Twilio SendGrid Email API includes: • Integrations. Businesses can integrate our email API with multiple leading development frameworks and client libraries in multiple programming languages. • Internet Protocol (“IP”) Management. Domains and links can be customized, whether sending from shared IP address pools or from a dedicated IP address, to improve reputation management and delivery. • Deliverability. Our proprietary Mail Transfer Agent (“MTA”) optimizes for inbox placement while offering tools for sender reputation management and expert deliverability professional services. Our real-time email address validation API checks email address legitimacy before sending to improve deliverability. • Sender Authentication. Our custom Sender Policy Framework and DomainKeys Identified Mail record creation is designed to eliminate domain spoofing and phishing. • Mobile support. Our deep linking functionality enables email engagement for mobile apps. • Security. Our two-factor authentication, API key permissions and Event Webhook Security helps enable secure management of our Email API by our customers. Video Programmable Video provides developers with the building blocks to add voice and video to web and mobile applications. Developers can address multiple use cases such as video consultations, telemedicine, distance learning, recruiting, social networking and more by using Programmable Video’s global cloud infrastructure to build on WebRTC. They can use our JavaScript, iOS or Android SDKs, quickstarts and open source sample code to launch applications in minutes, then customize them to meet the unique needs of their use case. With Video Insights, developers can monitor the performance of their video applications directly from the Twilio Console. Twilio Live Twilio Live gives developers the tools to create immersive, interactive audio or video live streaming experiences. Low-latency delivery enables speakers and audience members to engage via chat, polls, and inviting audience members “on stage” to speak. Developers can build interactive shopping experiences, broadcast events such as conferences or concerts, fitness, and more using live streaming APIs, SDKs, and sample code optimized for iOS, Android, and all major browsers. 10 Conversations The Twilio Conversations API allows developers to build rich, one-to-one and group interactions for customer support and commerce use cases. The unified messaging API provides cross-channel support for SMS and MMS, Chat, WhatsApp, Facebook Messenger, and Google Business Messages – all while archiving message history, preserving participant identity, and reducing time to market with software development kits (“SDKs”) and pre-built mobile and web user interfaces. Solutions As we observe the customer engagement use cases that are most common and the workflows our customers find most challenging, we create Solutions. We bring these Solutions to a broader audience, including non-technical customers, in the form of higher level APIs. These solutions are built on top of our Channel APIs to offer more fully implemented functionality for a specific purpose, such as contact center or two-factor authentication. This saves developers significant time in building their applications. The higher level APIs in this layer of our platform are focused on addressing a massive opportunity to recreate and modernize the field of customer engagement. We charge on a per-seat or per-use basis for our Solutions, which include: Contact Center Businesses must continually adapt to stay ahead of customers’ changing expectations. Twilio Flex is the industry’s only fully programmable contact center platform that allows companies to deploy a broad array of customer engagement channels while providing the tools to easily create, change or extend any part of their custom solution. Twilio Flex enables businesses to rapidly deploy tailored cloud contact centers free from the limitations of software-as-a-service (“SaaS”) applications. User Verification Online fraud has exploded from a minor nuisance to a major factor in how businesses operate today requiring advanced solutions to register, onboard and recognize customers. Twilio Verify is a managed solution that takes care of channel orchestration and management as well as security and business logic. Using our two-factor authentication APIs (“Twilio Verify”), developers can add an extra layer of security to their applications with second-factor passwords sent to a user via SMS, voice, email or push notifications. Twilio Verify provides user authentication codes through a variety of formats based on the developer’s needs. Codes can be delivered through the Authy app on registered mobile phones, desktop or smart devices or via SMS and voice automated phone calls. In addition, authentication can be determined through a push notification on registered smartphones. To allow developers to know exactly who they are sending messages to, Twilio Lookup allows developers to validate number format, device type and provider prior to sending messages or initiating calls. F o r m 1 0 - K Marketing Campaigns Marketing Campaigns is built on top of SendGrid’s proven email infrastructure to help digital marketers build and send email campaigns at scale—faster than ever. With drag and drop editing, approachable automation and powerful contacts management, Marketing Campaigns help marketers attract and retain customers more efficiently. Marketing Campaigns include email design and templates, list management, dynamic content and email testing. Super Network While developers build applications with our software, Twilio manages the connections between the internet and the global telecommunications network. We call this the Twilio Super Network and it is a global network of connections with numerous carriers globally to provide connectivity in approximately 80 countries. 11 We do not own any physical network infrastructure. We use software to build a high performance network that optimizes performance for our customers, provides resiliency and redundancy to our platform and helps to minimize disruption from carrier delays or outages. Through handling massive volumes of traffic, we are able to detect issues often before our customers or carrier partners do. We receive real-time feedback on handset deliverability through a number of carriers and destinations and we use this data for our own routing decisions. The Twilio Super Network operates a 24/7 global operations center that constantly monitors the carrier networks, alongside Twilio’s dedicated communications engineers who optimize for changing traffic patterns. The Super Network also contains a set of APIs giving our customers access to more foundational components of our platform, like phone numbers, and SIP Trunking. The Super Network features include: • Phone Number Provisioning. Acquire local, national, mobile and/or toll-free phone numbers on demand in approximately 80 countries and connect them into the customers’ applications. • Elastic SIP Trunking. Connect legacy voice applications to our Super Network over IP infrastructure with globally available phone numbers and pay-as-you-go pricing. Twilio’s Emergency Calling for SIP Trunking feature enables emergency call routing to PSAPs in the U.S., Canada and the UK. • Interconnect. Connect privately to Twilio to enable enterprise grade security and quality of service for Twilio Voice and Elastic SIP Trunking. We charge on a per-minute or per-phone number basis for most of our Super Network products. IoT The most challenging aspect of connecting previously unconnected devices lies in making the connection reliable and secure enough to perform and add value for years on end. Twilio’s IoT offerings therefore make connectivity simpler and coding of connected devices more reliable so that our customers can focus on building differentiated IoT experiences versus building and maintaining the required infrastructure underneath. Our customers use Twilio IoT for use cases, such as asset or fleet tracking, smart building management, consumer wearables (often pulling in other Twilio products such as Voice, Video, and Flex), predictive maintenance and inventory management. Our Business Model for Innovators Our goal is to include Twilio in the toolkit of every developer in the world, from small businesses to major enterprises. Because big ideas often start small, developers need the freedom and tools to experiment and iterate on their ideas. In order to empower developers to experiment, our developer-first business model is low friction, eliminating the upfront costs, time and complexity that typically hinder innovation. Additionally, our model encourages experimentation and enables developers to grow as customers as their ideas succeed. Developers can begin building with a free trial. They have access to self-service documentation and free customer support to guide them through the process. Once developers determine that our software meets their needs, they can flexibly increase consumption and pay based on usage. In short, we acquire developers like consumers and enable them to spend like enterprises. Our Growth Strategy We are the leader in the cloud communications platform category based on revenue, market share and reputation and intend to continue to set the pace for innovation. We also have the leading market share in the Customer Data Platform category. Our overall strategy is to develop great APIs that developers love. These developers are our champions and bring us “in” to companies of every type, most 12 frequently utilizing our messaging and email tools as an entry point. This “in” motion creates initial relationships with customers of all sizes including major enterprises that allow us to move “up” the software stack and provide those companies with software solutions that address their customer engagement requirements from marketing to sales and support. Today, we offer Twilio Campaigns for marketing, Twilio Flex for customer support and Twilio Verify to onboard and recognize customers. The more strategic nature of these software products also allows us to move up the organization chart, interacting with more senior and strategic purchasers. This “in” and “up” strategy is a motion we work on improving every day. We will also continue to invest aggressively in our platform approach, which prioritizes increasing our reach and scale. We intend to pursue the following growth strategies: • Continue Significant Investment in our Technology Platform. We will continue to invest in building new software capabilities and extending our platform to bring the power of contextual customer engagement to a broader range of applications, geographies and customers. We have a substantial research and development team, comprising approximately 39% of our headcount as of December 31, 2021. • Grow Our Developer Community and Accelerate Adoption. We will continue to enhance our relationships with developers globally and seek to increase the number of developers on our platform. In addition to adding new developers, we believe there is significant opportunity for revenue growth from developers who already have registered accounts with us but have not yet built their software applications with us, or whose applications are in their infancy and will grow with Twilio into an Active Customer Account. As of December 31, 2021, we had more than 256,000 Active Customer Accounts on our platform. • Increase Our International Presence. Our platform serves over 180 countries today, making it as simple to communicate from São Paulo as it is from San Francisco. Customers outside the U.S. are increasingly adopting our platform, and for the years ended December 31, 2021 and 2020, revenue from international customer accounts accounted for 34% and 27% of our total revenue, respectively. We are investing to meet the requirements of a broader range of global developers and enterprises. We plan to grow internationally by continuing to expand our operations outside of the U.S. and collaborating with international strategic partners. • Further Penetrate the Enterprises. We plan to drive greater awareness and adoption of Twilio from enterprises across industries. We intend to further increase our investment in sales and marketing to meet evolving enterprise needs globally, in addition to extending our enterprise-focused use cases and platform capabilities, like our Twilio Enterprise Plan. Additionally, we believe there is significant opportunity to expand our relationships with existing enterprise customers. • Expand Our Partner Channel. Our Twilio Build partner program is focused on growing our community of technology and consulting partners. Twilio Build’s ecosystem of partners offers customers both packaged applications and consulting expertise that make it possible for any customer to innovate with Twilio regardless of region, industry, business model or development resources. To help our partners grow their businesses and innovate for their customers, this program provides go-to-market support, certification and training programs and a partner success team. We have relationships with a number of technology partner customers that embed our products in the solutions that they sell to other businesses. We intend to expand our relationships with existing technology partner customers and to add new technology partner customers. We plan to invest in a range of initiatives to encourage increased collaboration with, and generation of revenue from, technology partner customers. We have developed relationships with consulting partners who provide consulting and development services for organizations that have limited software development expertise to build our platform into their software applications. We intend to continue to invest in and develop the ecosystem for our solutions in partnership with consulting partners to accelerate awareness and adoption of our platform. 13 F o r m 1 0 - K • Selectively Pursue Acquisitions and Strategic Investments. We may selectively pursue acquisitions and strategic investments in businesses and technologies that strengthen our platform. From 2015 through 2021, we made several acquisitions which have allowed us to expand our platform and service offerings to include features such as a cloud-based API to seamlessly embed two-factor authentication and phone verification into any application, Web Real-Time-Communication (“Web RTC”) media processing technologies, contact center analytics, software mobile network infrastructure and language recognition capabilities. In addition, our acquisition of SendGrid in February 2019 allowed us to add a leading e-mail API platform to our product offerings, our acquisition of Segment in November 2020 allowed us to add the market-leading customer data platform to our product offerings and our acquisition of Zipwhip in July 2021 allowed us to expand the toll-free channel, offering developers and businesses another affordable, trusted, high-quality engagement option via messaging-enabled toll-free numbers. The Twilio Magic We believe there’s a unique spirit to Twilio, manifested in who we are and how we work together. We value and invest in a positive culture of optimism, innovation, and accountability. Our values, which we call the Twilio Magic, remind us every day who we are at our core and guide how we act and how we make decisions. We are Builders. We are Owners. We are Curious. We are Positrons. Twilio.org We believe communications play a critical role in solving some of the world’s toughest social challenges. Through Twilio.org, which is a part of our company and not a separate legal entity, we donate and sell our products at a reduced rate to social impact organizations and provide grant funding to help scale organizations’ mission. In 2015, we reserved 1% of Twilio’s common stock to fund Twilio.org. We have periodically replenished that initial reserve and as of December 31, 2021, the number of shares of Twilio Class A common stock set aside for Twilio.org operations was 618,857. We started Twilio.org so that more people around the world have the opportunity to thrive. In 2021, over 7,500 social impact organizations used Twilio products and funding to reach more than 500 million people worldwide. 2021 marked another year of living through the COVID-19 pandemic and Twilio products and funding were used by over 1,200 organizations to provide more than 300 million people with vaccine and COVID-19 related information. Information on our key Environmental, Social and Governance (“ESG”) programs, goals and commitments, and certain metrics can be found in our annual Impact Report, available on our website at https://investors.twilio.com/governance. Website references throughout this document are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this report. While we believe that our ESG goals align with our long-term growth strategy and financial and operational priorities, they are aspirational and may change, and there can be no assurance that they will be met. Our Employees and Human Capital Resources As of December 31, 2021, we had a total of 7,867 employees, including 2,964 employees located outside of the U.S. None of our U.S. employees are represented by a labor union with respect to their employment. Employees in certain of our non-U.S. subsidiaries have the benefits of collective bargaining arrangements at the national level. We consider our relations with our employees to be good and have not experienced interruptions of operations or work stoppages due to labor disagreements. 14 Diversity, Equity and Inclusion We are driving a diversity, equity and inclusion (“DEI”) strategy based on the principles of antiracism. At Twilio, we use “antiracism” as an umbrella term for actively identifying and eliminating racism/ oppression by changing systems, organizational structures, policies, practices, and attitudes, so that power is shared equitably. By educating and empowering Twilions to think and operate through an antiracist lens, we’ll be able to build a more diverse workforce, promote equity for all communities in the workplace and foster safe, inclusive environments. Following our commitment to become an antiracist organization, we began the work to embed and operationalize antiracism across the business, with a strong focus on education. In 2021, over 100 senior Twilio executives participated in an antiracism workshop, with continued learning planned in 2022. We are growing our partnerships with global organizations to help us find, grow, and keep diverse talent in various demographics, regions, and countries. We are coordinating antiracist learning opportunities through employee resource group (“ERG”) specific programming and events. Lastly, we continue to maintain healthy pay parity, ensuring that employees with the same job and location are paid fairly relative to one another, regardless of gender or race. We will continue to grow our DEI resources and global footprint to make sure DEI scales along with the business. Most recently, we expanded the DEI team and launched new ERG chapters globally. This will ensure we are translating antiracism and amplifying DEI efforts across all teams and regions. Compensation and Benefits Twilio is committed to delivering a comprehensive compensation and benefits program that provides support for all of our employees’ well-being. We provide competitive compensation and benefits to attract and retain talented employees, including offering market-competitive salaries, sales commissions for our sales teams, and equity. We generally offer full-time employees equity at the time of hire and through annual equity grants, as well as provide an employee stock purchase plan, to foster a strong sense of ownership and engage our employees in being committed to our long-term success. We ensure that our compensation is fair for all employees, regardless of classifications, such as race and gender. We routinely run a rigorous statistical analysis to ensure compensation is fair, taking into account factors that should impact pay, like role, level, location and performance. Our full-time employees are eligible to receive, subject to the satisfaction of certain eligibility requirements, our comprehensive benefits package including our medical, dental and vision insurance and life and disability insurance plans. In addition, we provide time off, as well as maintain a tax-qualified 401(k) retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. In 2021, we matched 50% of the first 6% of contributions by plan participants, subject to annual contribution limits set forth in the Internal Revenue Code of 1986, as amended. In structuring these benefit plans, we seek to provide an aggregate level of benefits that are comparable to those provided by similar companies. COVID-19 Response To support employee well-being, Twilio established a number of new programs in response to the COVID-19 pandemic and the transition to full-time work from home. We established No Meeting Fridays, created flexible work schedule options, gave employees a home office stipend, a caregiver stipend, free Care.com membership and paid time off through our COVID-19 Support Leave to care for themselves or family members impacted by COVID-19. Research and Development Our research and development efforts are focused on building a trusted, smart engagement platform and enhancing our existing products and developing new products and features. 15 F o r m 1 0 - K Our research and development organization is predominantly built around small development teams. Our small development teams foster greater agility, which enables us to develop new, innovative products and make rapid changes to our infrastructure that increase resiliency and operational efficiency. Our development teams designed, built and continue to expand our customer engagement platform, our core platforms stack and Super Network. As of December 31, 2021, we had 3,103 employees in our research and development organization. We intend to continue to invest in our research and development capabilities to extend our platform and bring the power of contextual communications to a broader range of applications, geographies and customers. Sales and Marketing Our sales and marketing teams work together closely to drive awareness and adoption of our platform, accelerate customer acquisition and generate revenue from customers. We have a strategy to grow within our customers that we refer to as our “in and up” strategy. We get in to new customers through our messaging and email products, often directly via developers, then build on those relationships to grow our footprint with broader adoption and higher value products. Our go-to-market model is primarily focused on initiating customer relationships by reaching and serving the needs of developers. We are a pioneer of developer evangelism and education and have cultivated a large global developer community. We reach developers through community events and conferences, including our annual SIGNAL customer and developer conference, to demonstrate how every developer can create differentiated applications incorporating communications using our products. Once developers are introduced to our platform, we provide them with a low-friction trial experience. By accessing our easy-to-configure APIs, extensive self-service documentation and customer support team, developers can build our products into their applications and then test such applications during an initial free trial period that we provide. Once they have decided to use our products beyond the initial free trial period, customers provide their credit card information and only pay for the actual usage of our products, for a majority of our products. Our Flex contact center platform is generally offered on a per user, per month basis or on a usage basis per agent hour. Our email API is offered on a monthly subscription basis, while our Marketing Campaigns product is priced based on the number of email contacts stored on our platform and the number of monthly emails sent to those contacts through our email API. Our self-serve pricing matrix is publicly available and it allows for customers to receive tiered discounts as their usage of our products increases. As customers’ use of our products grows larger, some enter into negotiated contracts with terms that dictate pricing, and typically include some level of minimum revenue commitments. Historically, we have acquired the substantial majority of our customers through this self- service model. As customers expand their usage of our platform, we expand our relationships with them to include business leaders within their organizations. We supplement our self-service model with account executives and customer success managers aimed at engaging customers through a direct sales approach to expand usage and ensure satisfaction. To help increase our awareness in the enterprise, we have expanded our marketing efforts through programs like our Twilio Engage roadshow, where we seek to bring business leaders and developers together to discuss the future of customer engagement. We have developed products to support this effort as well, like the Twilio Enterprise Plan, which provides capabilities for advanced security, access management and granular administration. Our sales organization targets technical leaders and business leaders who are seeking to leverage software to drive superior customer engagement and competitive differentiation. As we educate these leaders on the benefits of developing applications incorporating our products to differentiate their business, they often consult with their developers regarding implementation. We believe that developers are often advocates for our products as a result of our developer-focused approach. Our sales organization includes sales development, inside sales, field sales, specialty sales and sales engineering personnel. 16 When potential customers do not have the available developer resources to build their own applications, we refer them to either our technology partners who embed our products in the solutions that they sell to other businesses (such as contact centers and sales force and marketing automation), or our professional services team or outside consulting partners who provide consulting and development services for organizations that have limited software development expertise to build our platform into their software applications. As of December 31, 2021, we had 3,661 employees in our sales and marketing organization. Customer Support We have designed our products and platform to be self-service and to require minimal customer support. To enable this, we provide all of our users with helper libraries, comprehensive documentation, how-tos and tutorials. We supplement and enhance these tools with the participation of our engaged developer community. In addition, we provide support options to address the individualized needs of our customers. All developers get free support and system status notifications. Our developers can also engage with the broader Twilio community to resolve issues. We also offer three paid tiers of support with increasing levels of availability and guaranteed response times. Our highest tier plan, intended for our largest customers, includes a dedicated support engineer, duty manager coverage and quarterly status reviews. Our support model is global, with 24x7 coverage and support offices located throughout the world, with our larger offices located in the U.S., Ireland, Colombia, India, and Singapore. We currently derive an insignificant amount of revenue from fees for customer support. We also offer professional services which provide in-depth, hands-on, fee-based packages of advisory, software architecture, integration and coding services to existing and prospective customers and partners to optimize their use of the Twilio platform. Our goal is to help our customers achieve business results faster. Offerings include services for implementing contact center solutions, email implementation and deliverability, customer data platform design, and configuration and integration of communications capabilities. Competition The market for cloud communication platforms is rapidly evolving and increasingly competitive. We believe that the principal competitive factors in our market are: • completeness of offering; • credibility with developers; • global reach; • ease of integration and programmability; • product features; • platform scalability, reliability, security and performance; • brand awareness and reputation; • the strength of sales and marketing efforts; • customer support; and, • the cost of deploying and using our products. We believe that we compete favorably on the basis of the factors listed above. We believe that none of our competitors currently competes directly with us across all of our product offerings. 17 F o r m 1 0 - K Our competitors fall into four primary categories: • legacy on-premises vendors; • regional network service providers that offer limited developer functionality on top of their own physical infrastructure; • smaller software companies that compete with portions of our product line; and, • SaaS companies and cloud platform vendors that offer prepackaged applications and platforms. Some of our competitors have greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets and larger intellectual property portfolios. As a result, certain of our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, some competitors may offer products or services that address one or a limited number of functions at lower prices, with greater depth than our products or in geographies where we do not operate. With the introduction of new products and services and new market entrants, we expect competition to intensify in the future. Moreover, as we expand the scope of our platform, we may face additional competition. Intellectual Property We rely on a combination of patent, copyright, trademark and trade secret laws in the U.S. and other jurisdictions, as well as license agreements and other contractual protections, to protect our proprietary technology. We also rely on a number of registered and unregistered trademarks to protect our brand. As of December 31, 2021, in the U.S., we had been issued 197 patents, which expire between 2029 and 2040. As of such date, we also had 36 issued patents in foreign jurisdictions, all of which are related to U.S. patents and patent applications. We have also filed various applications for protection of certain aspects of our intellectual property in the U.S. and internationally. In addition, as of December 31, 2021, we had 50 trademarks registered in the U.S. and 416 trademarks registered in foreign jurisdictions. We further seek to protect our intellectual property rights by implementing a policy that requires our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law. Despite our efforts to protect our technology and proprietary rights through intellectual property rights, licenses and other contractual protections, unauthorized parties may still copy or otherwise obtain and use our software and other technology. In addition, we intend to continue to expand our international operations, and effective intellectual property, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Further, companies in the communications and technology industries may own large numbers of patents, copyrights and trademarks and may frequently threaten litigation, or file suit against us based on allegations of infringement or other violations of intellectual property rights. We currently are subject to, and expect to face in the future, allegations that we have infringed the intellectual property rights of third parties, including our competitors and non-practicing entities. Regulatory We are subject to a number of U.S. federal and state and foreign laws and regulations that involve matters central to our business. These laws and regulations may involve privacy, data protection, intellectual property, competition, telecommunications, broadband, Voice over Internet Protocol 18 (“VoIP”), consumer protection, export taxation or other subjects. Many of the laws and regulations to which we are subject are still evolving and being tested in courts and by regulatory authorities and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate. Because U.S., federal, state and foreign laws and regulations have continued to develop and evolve rapidly, it is possible that we or our products or our platform may not be, or may not have been, compliant with each such applicable law or regulation. For example, the General Data Protection Regulation (“GDPR”) and the United Kingdom’s GDPR (“UK GDPR”) impose strict requirements for processing the personal information of individuals located, respectively within the European Economic Area (“EEA”) and the United Kingdom (“UK”). Noncompliance with the GDPR and UK GDPR can result in, for example, bans on data processing and fines of up to the greater of 20 million euros (£17.5 million for the UK GDPR) or 4% of annual global revenue. Further, individuals may initiate litigation related to our processing of their personal information. Given the breadth and depth of changes in data protection obligations, meeting the requirements of GDPR has required significant time and resources, including a review of our technology and systems currently in use against the requirements of GDPR. Our actual or perceived failure to comply with laws, regulations or contractual commitments regarding privacy, data protection and data security could lead to costly legal action, adverse publicity, significant liability and decreased demand for our services, which could adversely affect our business, results of operations and financial condition. In addition, laws such as the Telephone Consumer Protection Act of 1991 (“TCPA”), restrict telemarketing and the use of automatic SMS text messages without explicit customer consent. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages are continuously evolving and developing. If we do not comply with these laws or regulations, or if our customers fail to do so, we could face direct liability. Compliance with these laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations and competitive position as compared to prior periods, and we do not currently anticipate material capital expenditures for environmental control facilities, of which we currently have none. For additional information about government regulation applicable to our business, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. Corporate Information Twilio Inc. was incorporated in Delaware in March 2008. Our principal executive offices are located at 101 Spear Street, First Floor, San Francisco, California 94105, and our telephone number is (415) 390-2337. Our website address is www.twilio.com. Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K. Twilio, the Twilio logo and other trademarks or service marks of Twilio appearing in this Annual Report on Form 10-K are the intellectual property of Twilio. Trade names, trademarks and service marks of other companies appearing in this Annual Report on Form 10-K are the intellectual property of their respective holders. Information about Geographic Revenue Information about geographic revenue is set forth in Note 12 of our Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Available Information Our filings are available to be viewed and downloaded free of charge through our investor relations website after we file them with the Securities and Exchange Commission (“SEC”). Our filings include our 19 F o r m 1 0 - K Annual Report on Form 10-K, 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 the SEC. Our investor relations website is located at http://investors.twilio.com. The SEC also maintains an Internet website that contains periodic and current reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. 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, including SEC 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 Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. Item 1A. Risk Factors A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline. Risks Related to Our Business and Our Industry The global COVID-19 pandemic may adversely impact our business, results of operations and financial condition. The rapid spread of COVID-19 globally has in the past disrupted, and may continue to disrupt, our day-to-day operations and the operations of our customers, partners and service providers for an indefinite period of time, including as a result of changing public health recommendations, travel restrictions and limitations, the duration, spread and severity and potential recurrence of the virus and its variants, as well as the efficacy of vaccines and vaccine distribution and the timing and trajectory of the economic recovery, all of which could negatively impact our business and results of operations and financial condition. While the global economy is reopening in various parts of the world, some countries and locations are reinstating lockdowns and other restrictions that make a recovery difficult to predict. This may result in differing levels of demand for our products as the priorities, resources, financial conditions and economic outlook of our customers, partners and service providers change, which could adversely affect or increase the volatility of our financial results. Certain industries were initially more negatively impacted by COVID-19, while others were positively impacted. It has been and, until the COVID-19 pandemic is contained, will continue to be more difficult for us to forecast usage levels and predict revenue trends for the more adversely impacted industries. Any prolonged contractions in industries historically impacted by COVID-19, along with any effects on supply chain or on other industries in which our customers, partners and service providers operate, could adversely impact our business, results of operations and financial condition. Additionally the COVID-19 pandemic has adversely affected global economic and market conditions, including causing labor shortages, supply chain disruptions and inflation, which are likely to continue for an extended period, and which could result in decreased business spending by our customers and prospective customers and business partners and third-party business partners, reduced demand for our 20 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. Specifically, we often enter into annual or multi-year, minimum commitment arrangements with our customers. If customers fail to pay us or reduce their spending with us, we may be adversely affected by an inability to collect amounts due, the cost of enforcing the terms of our contracts, including litigation, or a reduction in revenue. The continuing pandemic could also result in constrained supply or reduced customer demand and willingness to enter into or renew contracts with us, any of which could adversely impact our business, results of operations and overall financial performance in future periods. While we have developed and continue to develop plans to help mitigate the potential negative impact of the pandemic on our business, these efforts may not be effective, and a protracted economic downturn, including due to factors such as labor shortages, supply chain disruptions and inflation, may limit the effectiveness of our mitigation efforts. In addition, as companies continue to support a fully remote workforce, and begin to adapt to hybrid work environments, and as individuals increasingly utilize voice, video and messaging for their communication needs, there will be increased strain and demand for telecommunications infrastructure, including our voice, video and messaging products. Supporting increased demand will require us to make additional investments to increase network capacity, the availability of which may be limited. For example, if the data centers that we rely on for our cloud infrastructure and the network service providers that we interconnect with are unable to keep up with capacity needs or if governmental or regulatory authorities determine to limit our bandwidth, customers may experience delays, interruptions or outages in service. From time to time, including during the COVID-19 pandemic, our data center suppliers and our network service providers have had some outages which resulted in disruptions to service for some of our customers. Such traffic management measures could result in customers experiencing delays, interruptions or outages in services. Any of these events could harm our reputation, erode customer trust, cause customers to stop using our products, impair our ability to increase revenue from existing customers, impair our ability to grow our customer base, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations and financial condition. To the extent that the COVID-19 pandemic harms our business, results of operations and financial condition, many of the other risks described in this “Risk Factors” section will be exacerbated. We have experienced rapid growth and expect our growth to continue, and if we fail to effectively manage our growth, then our business, results of operations and financial condition could be adversely affected. We have experienced substantial growth in our business since inception. For example, our headcount has grown from 4,629 employees on December 31, 2020 to 7,867 employees on December 31, 2021. We have moved to a virtual on-boarding process since the imposition of COVID-19 restrictions on certain business activities. In addition, we are rapidly expanding our international operations. Our international headcount grew from 1,369 employees as of December 31, 2020 to 2,964 employees as of December 31, 2021. We expect to continue to expand our international operations in the future. We have also experienced significant growth in the number of customers, usage and amount of data that our platform and associated infrastructure support. This growth has placed and may continue to place significant demands on our corporate culture, operational infrastructure and management, particularly in light of virtual on-boarding. We believe that our corporate culture has been a critical component of our success. We have invested substantial time and resources in building our team and nurturing our culture. As we expand our business in the U.S. and non-U.S. regions and mature as a public company, we may find it difficult to maintain our corporate culture while managing this growth. In addition, the COVID-19 pandemic may have long-term effects on the nature of the office environment and remote working. Our employees generally continue to work from home as we continue a phased reopening of offices and, in February 2021, we announced a new 21 F o r m 1 0 - K Open Work hybrid work approach, under which most employees will have a choice about where and how they work. We face uncertainty as to whether Open Work, and any adjustments we may make to our model, will meet the needs and expectations of our workforce. Any failure to preserve the key aspects of our culture as we manage our anticipated growth and organizational changes could hurt our chance for future success, including our ability to recruit and retain employees, and effectively focus on and pursue our corporate objectives. This, in turn, could adversely affect our business, results of operations and financial condition. In addition, as we have rapidly grown, our organizational structure has become more complex. In order to manage these increasing complexities, we will need to continue to scale and adapt our operational, financial and management controls, as well as our reporting systems and procedures. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and management resources before our revenue increases and without any assurances that our revenue will increase. Finally, if this growth continues, it could strain our ability to maintain reliable service levels for our customers. If we fail to achieve the necessary level of efficiency in our organization as we grow, then our business, results of operations and financial condition could be adversely affected. Our quarterly results may fluctuate, and if we fail to meet securities analysts’ and investors’ expectations, then the trading price of our Class A common stock and the value of your investment could decline substantially. Our results of operations, including the levels of our revenue, cost of revenue, gross margin and operating expenses, have fluctuated from quarter to quarter in the past and may continue to vary significantly in the future. These fluctuations are a result of a variety of factors, many of which are outside of our control, and may be difficult to predict and may or may not fully reflect the underlying performance of our business. If our quarterly results of operations or forward-looking quarterly and annual financial guidance fall below the expectations of investors or securities analysts, then the trading price of our Class A common stock could decline substantially. Some of the important factors that may cause our results of operations to fluctuate from quarter to quarter include: • the impact of COVID-19 on our customers, partners and service providers, our pace of hiring and the global economy in general; • our ability to retain and increase revenue from existing customers and attract new customers; • fluctuations in the amount of revenue from our Active Customer Accounts; • our ability to attract and retain enterprises and international organizations as customers; • our ability to introduce new products and enhance existing products; • competition and the actions of our competitors, including pricing changes and the introduction of new products, services and geographies; • changes in laws, industry standards, regulations or regulatory enforcement in the United States or internationally, such as the invalidation of the EU-U.S. Privacy Shield by the Court of Justice of the European Union, the implementation and enforcement of new global privacy laws, such as the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act of 2018 (“CCPA”) and Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais) (Law No. 13,709/2018), and the adoption of SHAKEN/STIR and other robocalling prevention and anti-spam standards, all of which increase compliance costs; • changes to the policies or practices of third-party platforms, such as the Apple App Store and the Google Play Store, including with respect to Apple’s Identifier for Advertisers (IDFA), which helps advertisers assess the effectiveness of their advertising efforts, and with respect to transparency regarding data processing; 22 • the number of new employee hires during a particular period; • changes in network service provider fees that we pay in connection with the delivery of communications on our platform; • changes in cloud infrastructure fees that we pay in connection with the operation of our platform; • changes in our pricing as a result of our optimization efforts or otherwise; • reductions in pricing as a result of negotiations with our larger customers; • the rate of expansion and productivity of our sales force, including our enterprise sales force, which has been a focus of our recent expansion efforts; • changes in the size and complexity of our customer relationships; • the length and complexity of the sales cycle for our services, especially for sales to larger enterprises, government and regulated organizations; • change in the mix of products that our customers use during a particular period; • change in the revenue mix of U.S. and international products; • the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business, including investments in our international expansion, additional systems and processes and research and development of new products and services; • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products on our platform; • expenses in connection with mergers, acquisitions or other strategic transactions and the follow-on costs of integration; • the timing of customer payments and any difficulty in collecting accounts receivable from customers; • general economic conditions that may adversely affect a prospective customer’s ability or willingness to adopt our products, delay a prospective customer’s adoption decision, reduce the revenue that we generate from the use of our products or affect customer retention; • labor shortages, supply chain disruptions and rising inflation and our ability to control costs, including our operating expenses; • our ability to attract and retain qualified employees and key personnel; • changes in foreign currency exchange rates and our ability to effectively hedge our foreign currency exposure; • extraordinary expenses such as litigation or other dispute-related settlement payments; • sales tax and other tax determinations by authorities in the jurisdictions in which we conduct business; • the impact of new accounting pronouncements; and • fluctuations in stock-based compensation expense. The occurrence of one or more of the foregoing and other factors may cause our results of operations to vary significantly. As such, we believe that quarter-to-quarter comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of future performance. In addition, a significant percentage of our operating expenses is fixed in nature and is based on forecasted revenue trends. Accordingly, in the event of a revenue shortfall, we may not be able to mitigate the negative impact 23 F o r m 1 0 - K on our income (loss) and margins in the short term. If we fail to meet or exceed the expectations of investors or securities analysts, then the trading price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits. Additionally, global pandemics such as COVID-19 as well as certain large scale events, such as major elections and sporting events, can significantly impact usage levels on our platform, which has, and could in the future, cause fluctuations in our results of operations. We expect that significantly increased usage of all communications platforms, including ours, during certain seasonal and one-time events could impact delivery and quality of our products during those events. We also tend to experience increased expenses in connection with the hosting of SIGNAL, which we plan to continue to host annually. Such annual and one-time events may cause fluctuations in our results of operations and may impact both our revenue and operating expenses. If we are not able to maintain and enhance our brand and increase market awareness of our company and products, then our business, results of operations and financial condition may be adversely affected. We believe that maintaining and enhancing the “Twilio” brand identity and increasing market awareness of our company and products, particularly among developers, is critical to achieving widespread acceptance of our platform, to strengthen our relationships with our existing customers and to our ability to attract new customers. The successful promotion of our brand will depend largely on our continued marketing efforts, our ability to continue to offer high quality products, and our ability to successfully differentiate our products and platform from competing products and services. Our brand promotion and thought leadership activities may not be successful or yield increased revenue. In addition, independent industry analysts often provide reviews of our products and competing products and services, which may significantly influence the perception of our products in the marketplace. If these reviews are negative or not as strong as reviews of our competitors’ products and services, then our brand may be harmed. From time to time, our customers have complained about our products, such as complaints about our pricing and customer support. If we do not handle customer complaints effectively, then our brand and reputation may suffer, our customers may lose confidence in us and they may reduce or cease their use of our products. In addition, many of our customers post and discuss on social media about Internet-based products and services, including our products and platform. Our success depends, in part, on our ability to generate positive customer feedback and minimize negative feedback on social media channels where existing and potential customers seek and share information. If actions we take or changes we make to our products or platform upset these customers, then their online commentary could negatively affect our brand, reputation and customer trust. Complaints or negative publicity about us, our products or our platform could adversely impact our ability to attract and retain customers, and otherwise harm our business, results of operations and financial condition. The promotion of our brand also requires us to make substantial expenditures, and we anticipate that these expenditures will increase as our market becomes more competitive and as we expand into new markets. To the extent that these activities increase revenue, this revenue still may not be enough to offset the increased expenses we incur, including, but not limited to, as a result of recent inflationary pressures. The market for our products and platform continues to evolve, and may decline or experience limited growth, and is dependent in part on developers continuing to adopt our platform and use our products. We were founded in 2008, and we have been developing and providing a cloud-based platform that enables developers and organizations to integrate voice, messaging, video and email communications capabilities into their software applications. This market continues to evolve and is subject to a number of risks and uncertainties. We believe that our revenue currently constitutes a significant portion of the total revenue in this market, and therefore, we believe that our future success will depend in large part on the growth, if any, and evolution of this market. If developers and organizations do not recognize the need for 24 and benefits of our products and platform, they may decide to adopt alternative products and services to satisfy some portion of their business needs. In order to grow our business and extend our market position, we intend to focus on educating developers and other potential customers about the benefits of our products and platform, expanding the functionality of our products and bringing new technologies to market to increase market acceptance and use of our platform. Our ability to expand the market that our products and platform address depends upon a number of factors, including the cost, performance and perceived value associated with such products and platform. The market for our products and platform could fail to grow significantly or there could be a reduction in demand for our products as a result of a lack of developer acceptance, technological challenges, competing products and services, decreases in spending by current and prospective customers, weakening economic conditions, including due to labor shortages, supply chain disruptions and inflationary pressures, and other causes. If our market does not experience significant growth or demand for our products decreases, then our business, results of operations and financial condition could be adversely affected. Our actual or perceived failure to comply with increasingly stringent laws, regulations and contractual obligations relating to privacy, data protection and data security could harm our reputation and subject us to significant fines and liability or loss of business. We and our customers are subject to numerous domestic (for example, CCPA in California) and foreign (for example, the GDPR in the EU) privacy, data protection and data security laws and regulations that restrict the collection, use, disclosure and processing of personal information, including financial and health data. These laws and regulations are evolving, are being tested in courts, may result in increasing regulatory and public scrutiny of our practices relating to personal information and may increase our exposure to regulatory enforcement action, sanctions and litigation. The CCPA imposes obligations on businesses to which it applies. These obligations include, but are not limited to, providing specific disclosures in privacy notices and affording California residents certain rights related to their personal information. The CCPA allows for statutory fines for noncompliance. In addition, it is anticipated that the California Privacy Rights Act of 2020 (“CPRA”), effective January 1, 2023, will expand the CCPA. Similar laws have been enacted or been proposed at the state and federal levels. For example, Virginia and Colorado have each passed laws similar to but different from the CPRA that take effect in 2023. If we become subject to new privacy, data protection and data security laws, the risk of enforcement action against us could increase because we may become subject to additional obligations, and the number of individuals or entities that can initiate actions against us may increase (including individuals, via a private right of action, and state actors). Outside the United States, an increasing number of laws, regulations, and industry standards apply to privacy, data protection and data security. For example, the GDPR and the United Kingdom’s GDPR (“UK GDPR”) impose strict requirements for processing the personal information of individuals located, respectively within the European Economic Area (“EEA”) and the United Kingdom (“UK”). For example, under the GDPR, government regulators may impose temporary or definitive bans on data processing, as well as fines. Further, individuals may initiate litigation related to our processing of their personal information. As another example, the General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or “LGPD”) (Law No. 13,709/2018) may apply to our operations. The LGPD broadly regulates processing of personal information of individuals in Brazil and imposes compliance obligations and penalties comparable to those of the GDPR. Further, the interpretation and application of new domestic and foreign laws and regulations in many cases is uncertain, and our legal and regulatory obligations in such jurisdictions are subject to frequent and unexpected changes, including the potential for various regulatory or other governmental bodies to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties significantly. 25 F o r m 1 0 - K Similarly, with our registration as an interconnected VoIP provider with the Federal Communications Commission (“FCC”), we also must comply with privacy laws associated with customer proprietary network information (“CPNI”) rules in the U.S. If we fail to maintain compliance with these requirements, we could be subject to regulatory audits, civil and criminal penalties, fines and breach of contract claims, as well as reputational damage, which could impact the willingness of customers to do business with us. In addition to our legal obligations, our contractual obligations relating to privacy, data protection and data security have become increasingly stringent due to changes in laws and regulations and the expansion of our offerings. Certain privacy, data protection and data security laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers. In addition, we have begun to support customer workloads that involve the processing of protected health information and are required to sign business associate agreements (“BAAs”) with customers that subject us to the requirements under the U.S. Health Insurance Portability and Accountability Act of 1996 and the U.S. Health Information Technology for Economic and Clinical Health Act as well as state laws that govern health information. Our actual or perceived failure to comply with laws, regulations or contractual commitments regarding privacy, data protection and data security could lead to costly legal action, adverse publicity, significant liability, and decreased demand for our services, which could adversely affect our business, results of operations and financial condition. As a cumulative example of these risks, because our primary data processing facilities are currently in the U.S., we have experienced hesitancy, reluctance, or refusal by European or multinational customers to continue to use our services due to the potential risk posed to such customers as a result of the Court of Justice July 2020 ruling in the “Schrems II” case, as well as related guidance from the European Data Protection Board. For example, absent appropriate safeguards or other circumstances, the GDPR and laws in Switzerland and the UK generally restrict the transfer of personal information to countries outside of the EEA, such as the United States, that the European Commission does not consider as providing an adequate level of privacy, data protection and data security. If we cannot implement a valid mechanism for cross-border data transfers, we may face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal information from Europe or elsewhere. The inability to import personal information to the United States could significantly and negatively impact our business operations; limit our ability to collaborate with parties that are subject to data privacy and security laws; or require us to increase our personal information processing capabilities in Europe and/or elsewhere at significant expense. We and our customers are at risk of enforcement actions taken by an EU data protection authority during such time Twilio continues to require data transfers from the EEA for the provision of our services. While we are actively working to increase our data processing capabilities in Europe and other countries to limit or eliminate the need for data transfers out of the EEA, if we are unable to increase those capabilities quickly enough, and other valid solutions for personal information transfers to the United States or other countries are not available or are difficult to implement in the interim, we will likely face continuing reluctance from European and multinational customers to use our services and increased exposure to regulatory actions, substantial fines and injunctions against processing or transferring personal information from Europe. Our business depends on customers increasing their use of our products, and a loss of customers or decline in their use of our products could adversely affect our business, results of operations and financial condition. Our ability to grow and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing customers (including any customers acquired in connection with our acquisitions) and to have them increase their usage of our platform. If our customers do not increase their use of our products, then our revenue may decline, and our results of operations may be harmed. Customers are charged based on the usage of our products. Most of our customers do not have long-term contractual financial commitments to us and, therefore, most of our customers may reduce or cease their 26 use of our products at any time without penalty or termination charges. Customers may terminate or reduce their use of our products for any number of reasons, including if they are not satisfied with our products, the value proposition of our products or our ability to meet their needs and expectations, or due to the introduction of new competing products by competitors. For example, on February 26, 2021, a critical feature enablement service on our platform became overloaded, which resulted in connection issues across multiple products in our cloud communications platform that affected our customers for a limited number of hours. The service disruption had a widespread impact on our customers’ ability to use several of our products. We incurred certain costs associated with offering credits to our affected customers, but the overall impact was not material to our business. To protect our system from similar disruptions in the near term, we have significantly increased our server capacity and added additional caching layers to accommodate usage spikes. We also have undertaken longer term improvements to mitigate against future service disruptions, but there can be no guarantee that these actions or improvements will be effective in preventing or reducing such service disruptions. We cannot accurately predict customers’ usage levels, and the loss of customers or reductions in their usage levels of our products may each have a negative impact on our business, results of operations and financial condition and may cause our Dollar-Based Net Expansion Rate to decline in the future if customers are not satisfied with our products, the value proposition of our products or our ability to meet their needs and expectations. If a significant number of customers cease using, or reduce their usage of our products, then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue from customers. Such additional sales and marketing expenditures could adversely affect our business, results of operations and financial condition. If we are unable to attract new customers in a cost-effective manner, then our business, results of operations and financial condition would be adversely affected. In order to grow our business, we must continue to attract new customers in a cost-effective manner. We use a variety of marketing channels to promote our products and platform, such as developer events and developer evangelism, as well as search engine marketing and optimization. We periodically adjust the mix of our other marketing programs such as regional customer events, email campaigns, billboard advertising and public relations initiatives. If the costs of the marketing channels we use increase dramatically, then we may choose to use alternative and less expensive channels, which may not be as effective as the channels we currently use. As we add to or change the mix of our marketing strategies, we may need to expand into more expensive channels than those we are currently in, which could adversely affect our business, results of operations and financial condition. We will incur marketing expenses before we are able to recognize any revenue that the marketing initiatives may generate, and these expenses may not result in increased revenue or brand awareness. We have made in the past, and may make in the future, significant expenditures and investments in new marketing campaigns, and we cannot guarantee that any such investments will lead to the cost-effective acquisition of additional customers. If we are unable to maintain effective marketing programs, then our ability to attract new customers could be adversely affected, our advertising and marketing expenses could increase substantially, and our results of operations may suffer. If we do not develop enhancements to our products and introduce new products that achieve market acceptance, our business, results of operations and financial condition could be adversely affected. Our ability to attract new customers and increase revenue from existing customers depends in part on our ability to enhance and improve our existing products, increase adoption and usage of our products and introduce new products. The success of any enhancements or new products depends on several factors, including timely completion, adequate quality testing, actual performance quality, market-accepted pricing levels and overall market acceptance. Enhancements and new products that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may require reworking 27 F o r m 1 0 - K features and capabilities, may have interoperability difficulties with our platform or other products or may not achieve the broad market acceptance necessary to generate significant revenue. Furthermore, our ability to increase the usage of our products depends, in part, on the development of new use cases for our products, which is typically driven by our developer community and may be outside of our control. We also have invested, and may continue to invest, in the acquisition of complementary businesses, technologies, services, products and other assets that expand the products that we can offer our customers. We may make these investments without being certain that they will result in products or enhancements that will be accepted by existing or prospective customers. Our ability to generate usage of additional products by our customers may also require increasingly sophisticated and more costly sales efforts and result in a longer sales cycle. In addition, adoption of new products or enhancements may put additional strain on our customer support team, which could require us to make additional expenditures related to further hiring and training. If we are unable to successfully enhance our existing products to meet evolving customer requirements, increase adoption and usage of our products, develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, then our business, results of operations and financial condition would be adversely affected. The market in which we participate is intensely competitive, and if we do not compete effectively, our business, results of operations and financial condition could be harmed. The market for cloud communications is rapidly evolving, significantly fragmented and highly competitive, with relatively low barriers to entry in some segments. The principal competitive factors in our market include completeness of offering, credibility with developers, global reach, ease of integration and programmability, product features, platform scalability, reliability, deliverability, security and performance, brand awareness and reputation, the strength of sales and marketing efforts, customer support, as well as the cost of deploying and using our products. Our competitors fall into four primary categories: • legacy on-premises vendors; • regional network service providers that offer limited developer functionality on top of their own physical infrastructure; • smaller software companies that compete with portions of our product line; and • software-as a-service (“SaaS”) companies and cloud platform vendors that offer prepackaged applications and platforms. Some of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, more established customer relationships, larger budgets and significantly greater resources than we do. In addition, they have the operating flexibility to bundle competing products and services at little or no perceived incremental cost, including offering them at a lower price as part of a larger sales transaction. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, some competitors may offer products or services that address one or a limited number of functions at lower prices, with greater depth than our products or in different geographies. Our current and potential competitors may develop and market new products and services with comparable functionality to our products, and this could lead to us having to decrease prices in order to remain competitive. Customers utilize our products in many ways and use varying levels of functionality that our products offer or are capable of supporting or enabling within their applications. Customers that use many of the features of our products or use our products to support or enable core functionality for their applications may have difficulty or find it impractical to replace our products with a competitor’s products or services, while customers that use only limited functionality may be able to replace our products more easily with competitive offerings. Our customers also may choose to build some of the functionality our products provide or establish direct connectivity with network service providers, which may limit or eliminate their demand for our products. 28 With the introduction of new products and services and new market entrants, we expect competition to intensify in the future. In addition, some of our customers may choose to use our products and our competitors’ products at the same time. Further, customers and consumers may choose to adopt other forms of electronic communications or alternative communication platforms. Moreover, as we expand the scope of our products, we may face additional competition and, in some cases, may find our products in competition with those of our customers, which could cause them to replace our products with competitive offerings. If one or more of our competitors were to merge or partner with another of our competitors or our suppliers, the change in the competitive landscape could also adversely affect our ability to compete effectively. For example, certain of our competitors have engaged in acquisition activity in 2021 and may continue to do so in the future. In addition, some of our competitors have lower list prices than us, which may be attractive to certain customers even if those products have different or lesser functionality. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our business, results of operations and financial condition would be adversely affected. In addition, pricing pressures and increased competition generally could result in reduced revenue, reduced margins, increased losses or the failure of our products to achieve or maintain widespread market acceptance, any of which could harm our business, results of operations and financial condition. We have a history of losses and may not achieve or sustain profitability in the future. We have incurred net losses in each year since our inception, including net losses of $949.9 million, $491.0 million and $307.1 million in the years ended December 31, 2021, 2020 and 2019, respectively. We had an accumulated deficit of $2.1 billion as of December 31, 2021. We will need to generate and sustain increased revenue levels, and manage our operating expenses, in future periods to become profitable and, even if we do, we may not be able to maintain or increase our level of profitability. We expect to continue to expend substantial financial and other resources on, among other things: • investments in our engineering team, improvements in security and data protection, the development of new products, features and functionality and enhancements to our platform; • sales and marketing, including the continued expansion of our direct sales organization and marketing programs, especially for enterprises and for organizations outside of the United States, and expanding our programs directed at increasing our brand awareness among current and new developers; • expansion of our operations and infrastructure, both domestically and internationally; and • general administration, including legal, accounting and other expenses related to being a public company. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and Class A common stock may significantly decrease. If we are unable to increase adoption of our products by enterprises, our business, results of operations and financial condition may be adversely affected. Historically, we have relied on the adoption of our products by software developers through our self- service model for a majority of our revenue. Our ability to increase our customer base, especially among enterprises, and achieve broader market acceptance of our products will depend, in part, on our ability to effectively organize, focus and train our sales and marketing employees. 29 F o r m 1 0 - K Our ability to convince enterprises to adopt our products will depend, in part, on our ability to attract and retain sales employees with experience selling to enterprises. We believe that there is significant competition for experienced sales professionals with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth in the future will depend, in part, on our ability to recruit, train and retain a sufficient number of experienced sales professionals, particularly those with experience selling to enterprises. In addition, even if we are successful in hiring qualified sales employees, new hires require significant training and experience before they achieve full productivity, particularly for sales efforts targeted at enterprises and new territories. Our recent hires and planned hires may not become as productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we do business. Because we do not have a long history of targeting our sales efforts at enterprises, we cannot predict whether, or to what extent, our sales will increase as we organize and train our sales force or how long it will take for sales employees to become productive. As we seek to increase the adoption of our products by enterprises, including products like Flex, which is primarily aimed at complex contact center implementations at larger companies, we expect to incur higher costs and longer sales cycles. In the enterprise market segment, the decision to adopt our products may require the approval of multiple technical and business decision makers, including legal, security, compliance, procurement, operations and IT. In addition, while enterprise customers may quickly deploy our products on a limited basis, before they will commit to deploying our products at scale, they often require extensive education about our products and significant customer support time, engage in protracted pricing negotiations and seek to secure readily available development resources. In addition, sales cycles for enterprises are inherently more complex and less predictable than the sales through our self-service model, and some enterprise customers may not use our products enough to generate revenue that justifies the cost to obtain such customers. In addition, these complex and resource intensive sales efforts could place additional strain on our product and engineering resources. Further, enterprises, including some of our customers, may choose to develop their own solutions that do not include our products. They also may demand reductions in pricing as their usage of our products increases, which could have an adverse impact on our gross margin. As a result of our limited experience selling and marketing to enterprises, our efforts to sell to these potential customers may not be successful. If we are unable to increase the revenue that we derive from enterprises, then our business, results of operations and financial condition may be adversely affected. If we are unable to expand our relationships with existing technology partner customers and add new technology partner customers, our business, results of operations and financial condition could be adversely affected. We believe that the continued growth of our business depends in part upon developing and expanding strategic relationships with technology partner customers. Technology partner customers embed our software products in their solutions, such as software applications for contact centers and sales force and marketing automation, and then sell such solutions to other businesses. When potential customers do not have the available developer resources to build their own applications, we refer them to either our technology partners who embed our products in the solutions that they sell to other businesses or our consulting partners who provide consulting and development services for organizations that have limited software development expertise to build our platform into their software applications. As part of our growth strategy, we intend to expand our relationships with existing technology partner customers and add new technology partner customers. If we fail to expand our relationships with existing technology partner customers or establish relationships with new technology partner customers in a timely and cost-effective manner, or at all, then our business, results of operations and financial condition could be adversely affected. Additionally, even if we are successful at building these relationships but there are problems or issues with integrating our products into the solutions of these customers, our reputation and ability to grow our business may be harmed. 30 To deliver our products, we rely on network service providers and internet service providers for our network service and connectivity, and disruption or deterioration in the quality of these services or changes in network service provider fees that we pay in connection with the delivery of communications on our platform could adversely affect our business, results of operations and financial condition. We currently interconnect with network service providers around the world to enable the use by our customers of our products over their networks. Although we are in the process of acquiring authorization in many countries for direct access to phone numbers and for the provision of voice services on the networks of network service providers, we expect that we will continue to rely on network service providers for these services. Where we don’t have direct access to phone numbers, our reliance on network service providers has reduced our operating flexibility, ability to make timely service changes and control quality of service. In addition, the fees that we are charged by network service providers may change daily or weekly, while we do not typically change our customers’ pricing as rapidly. At times, network service providers have instituted additional fees due to regulatory, competitive or other industry related changes that increase our network costs. For example, in early 2020, a major U.S. mobile carrier introduced a new Application to Person (“A2P”) SMS service offering that adds a new fee for A2P SMS messages delivered to its subscribers, and other U.S. mobile carriers have added or are in the process of adding similar fees. While we have historically responded to these types of fee increases through a combination of further negotiating efforts with our network service providers, absorbing the increased costs or changing our prices to customers, there is no guarantee that we will continue to be able to do so in the future without a material negative impact to our business. In the case of these new carriers A2P SMS fees, after a short phase-in period where we absorbed the fees, we began on May 1, 2021 to pass these fees directly through to our customers who are sending SMS messages to these carriers’ subscribers. We expect that this will increase our revenue and cost of revenue, but will not impact the gross profit dollars received for sending these messages. However, mathematically this will have a negative impact on our gross margins. Additionally, our ability to respond to any new fees may be constrained if all network service providers in a particular market impose equivalent fee structures, if the magnitude of the fees is disproportionately large when compared to the underlying prices paid by our customers, or if the market conditions limit our ability to increase the price we charge our customers. Furthermore, many of these network service providers do not have long-term committed contracts with us and may interrupt services or terminate their agreements with us without notice. If a significant portion of our network service providers stop providing us with access to their infrastructure, fail to provide these services to us on a cost-effective basis, cease operations, or otherwise terminate these services, the delay caused by qualifying and switching to other network service providers could be time consuming and costly and could adversely affect our business, results of operations and financial condition. Further, if problems occur with our network service providers, it may cause errors or poor quality communications with our products, and we could encounter difficulty identifying the source of the problem. The occurrence of errors or poor quality communications on our products, whether caused by our platform or a network service provider, may result in the loss of our existing customers or the delay of adoption of our products by potential customers and may adversely affect our business, results of operations and financial condition. Further, we sometimes access network services through intermediaries who have direct access to network service providers. Although we are in the process of securing direct connections with network service providers in many countries, we expect that we will continue to rely on intermediaries for these services. These intermediaries sometimes have offerings that directly compete with our products and may stop providing services to us on a cost-effective basis. If a significant portion of these intermediaries stop providing services or stop providing services on a cost-effective basis, our business could be adversely affected. We also interconnect with internet service providers around the world to enable the use of our email products by our customers, and we expect that we will continue to rely on internet service providers for 31 F o r m 1 0 - K network connectivity going forward. Our reliance on internet service providers reduces our control over quality of service and exposes us to potential service outages and rate fluctuations. If a significant portion of our internet service providers stop providing us with access to their network infrastructure, fail to provide access on a cost-effective basis, cease operations, or otherwise terminate access, the delay caused by qualifying and switching to other internet service providers could be time consuming and costly and could adversely affect our business, results of operations, and financial condition. Our future success depends in part on our ability to drive the adoption of our products by international customers. In the years ended December 31, 2021, 2020 and 2019, we derived 34%, 27% and 29% of our revenue, respectively, from customer accounts located outside the United States. The future success of our business will depend, in part, on our ability to expand our customer base worldwide. While we have been rapidly expanding our sales efforts internationally, our experience in selling our products outside of the United States is, and our ability to conduct business in local currencies in certain jurisdictions may be or is, limited. Furthermore, our developer-first business model may not be successful or have the same traction outside the United States. As a result, our investment in marketing our products to these potential customers may not be successful. If we are unable to increase the revenue that we derive from international customers, then our business, results of operations and financial condition may be adversely affected. We are continuing to expand our international operations, which exposes us to significant risks. We are continuing to expand our international operations to increase our revenue from customers outside of the United States as part of our growth strategy. Between December 31, 2020 and December 31, 2021, our international headcount grew from 1,369 employees to 2,964 employees. We expect to open additional international offices and hire employees to work at these offices in order to reach new customers and gain access to additional technical talent. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks in addition to those we already face in the United States. Because of our limited experience with international operations or with developing and managing sales in international markets, our international expansion efforts may not be successful. In addition, we will face risks in doing business internationally that could adversely affect our business, including: • any long–term impact from the United Kingdom’s withdrawal from the European Union, commonly referred to as Brexit, which formally took effect on January 31, 2020. In particular, any such long-term impact from Brexit on our business and operations will depend, in part, on the outcome of the U.K.’s continuing negotiations on a number of matters not definitively addressed in the UK-EU Trade and Cooperation Agreement and may require us to expend significant time and expense to make adjustments to our business and operations; • the difficulty of managing and staffing international operations and the increased operations, travel, infrastructure and legal compliance costs associated with servicing international customers and operating numerous international locations; • our ability to effectively price our products in competitive international markets; • new and different sources of competition or other changes to our current competitive landscape; • understanding and reconciling different technical standards, data privacy and telecommunications regulations, registration and certification requirements outside the United States, which could prevent customers from deploying our products or limit their usage; • our ability to comply with the GDPR and Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais) (Law No. 13,709/2018), and laws, regulations and industry standards relating to data privacy, data protection, data localization and data security enacted in countries and other regions in which we operate or do business; 32 • potentially greater difficulty collecting accounts receivable and longer payment cycles; • higher or more variable network service provider fees outside of the United States; • the need to adapt and localize our products for specific countries; • the need to offer customer support in various languages; • difficulties in understanding and complying with local laws, regulations and customs in non-U.S. jurisdictions; • compliance with export controls and economic sanctions regulations administered by the Department of Commerce’s Bureau of Industry and Security and the Treasury Department’s Office of Foreign Assets Control; • compliance with various anti-bribery and anti-corruption laws such as the Foreign Corrupt Practices Act and United Kingdom Bribery Act of 2010; • changes in international trade policies, tariffs and other non-tariff barriers, such as quotas and local content rules; • more limited protection for intellectual property rights in some countries; • adverse tax consequences; • fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk; • currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars; • restrictions on the transfer of funds; • deterioration of political relations between the United States and other countries; • the impact of natural disasters and public health epidemics or pandemics such as COVID-19 on employees, contingent workers, partners, travel and the global economy and the ability to operate freely and effectively in a region that may be fully or partially on lockdown; and • political or social unrest or economic instability in a specific country or region in which we operate, which could have an adverse impact on our operations in that location. Also, due to costs from our international expansion efforts and network service provider fees outside of the United States, which generally are higher than domestic rates, our gross margin for international customers is typically lower than our gross margin for domestic customers. As a result, our gross margin may be impacted and fluctuate as we expand our operations and customer base worldwide. Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, results of operations and financial condition. Certain of our products are subject to telecommunications-related regulations, and future legislative or regulatory actions could adversely affect our business, results of operations and financial condition. As a provider of communications products, we are subject to existing or potential FCC regulations relating to privacy, telecommunications, consumer protection and other requirements. In addition, the extension of telecommunications regulations to our non-interconnected VoIP services could result in additional federal and state regulatory obligations and taxes. We are also in discussions with certain jurisdictions regarding potential sales and other taxes for prior periods that we may owe. In the event any of these jurisdictions disagree with management’s assumptions and analysis, the assessment of our tax 33 F o r m 1 0 - K exposure could differ materially from management’s current estimates, which may increase our costs of doing business and negatively affect the prices our customers pay for our services. If we do not comply with FCC rules and regulations, we could be subject to FCC enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our products. Any enforcement action by the FCC, which may be a public process, would hurt our reputation in the industry, could erode customer trust, possibly impair our ability to sell our VoIP products to customers and could adversely affect our business, results of operations and financial condition. Certain of our products are subject to a number of FCC regulations and laws that are administered by the FCC. Among others, we must comply (in whole or in part) with: • the Communications Act of 1934, as amended, which regulates communications services and the provision of such services; • the Telephone Consumer Protection Act, which limits the use of automatic dialing systems for calls and texts, artificial or prerecorded voice messages and fax machines; • the Communications Assistance for Law Enforcement Act, which requires covered entities to assist law enforcement in undertaking electronic surveillance; • requirements to safeguard the privacy of certain customer information; • payment of annual FCC regulatory fees and contributions to FCC-administered funds based on our interstate and international revenues; and • rules pertaining to access to our services by people with disabilities and contributions to the Telecommunications Relay Services fund. In addition, Congress and the FCC are attempting to mitigate the scourge of robocalls by requiring participation in a technical standard called SHAKEN/STIR, which allows voice carriers to authenticate caller ID, prohibiting malicious spoofing. Similarly, in May 2021, the Biden Administration issued an Executive Order requiring federal agencies to implement additional information technology security measures, including, among other things, requiring agencies to adopt multifactor authentication and encryption for data at rest and in transit to the maximum extent consistent with Federal records laws and other applicable laws. The Executive Order will lead to the development of secure software development practices and/or criteria for a consumer software labeling program, the criteria which will reflect a baseline level of secure practices, for software that is developed and sold to the U.S. federal government. Software developers will be required to provide visibility into their software and make security data publicly available. Due to this Executive Order, federal agencies may require us to modify our cybersecurity practices and policies, thereby increasing our compliance costs. If we are unable to meet the requirements of the Executive Order, our ability to work with the U.S. government may be impaired and may result in a loss of revenue. If we do not comply with any current or future rules or regulations that apply to our business, we could be subject to substantial fines and penalties, and we may have to restructure our offerings, exit certain markets or raise the price of our products. In addition, any uncertainty regarding whether particular regulations apply to our business, and how they apply, could increase our costs or limit our ability to grow. As we continue to expand internationally, we have become subject to telecommunications laws and regulations in the foreign countries where we offer our products. Internationally, we currently offer our products in over 180 countries. Our international operations are subject to country-specific governmental regulation and related actions that have increased and will continue to increase our costs or impact our products and platform or prevent us from offering or providing our products in certain countries. Moreover, the regulation of 34 communications platform-as-a-service (“CPaaS”) companies like us is continuing to evolve internationally and many existing regulations may not fully contemplate the CPaaS business model or how they fit into the communications regulatory framework. As a result, interpretation and enforcement of regulations often involve significant uncertainties. In many countries, including those in the European Union, a number of our products or services are subject to licensing and communications regulatory requirements which increases the level of scrutiny and enforcement by regulators. Future legislative, regulatory or judicial actions impacting CPaaS services could also increase the cost and complexity of compliance and expose us to liability. For example, in some countries, some or all of the services we offer are not considered regulated telecommunications services, while in other countries they are subject to telecommunications regulations, including but not limited to payment into universal service funds, licensing fees, provision of emergency services, provision of information to support emergency services and number portability. Specifically, the Australian Communications and Media Authority in 2019 issued a formal finding against several companies, including our Company, for failure to upload data into a centralized database for emergency services and, in the future, regulatory authorities in other jurisdictions in which we operate may also determine that we are a telecommunications company subject to similar regulations. Failure to comply with these regulations could result in our Company being issued remedial directions to undertake independent audits and implement effective systems, processes and practices to ensure compliance, significant fines or being prohibited from providing telecommunications services in a jurisdiction. Moreover, certain of our products may be used by customers located in countries where voice and other forms of IP communications may be illegal or require special licensing or in countries on a U.S. embargo list. Even where our products are reportedly illegal or become illegal or where users are located in an embargoed country, users in those countries may be able to continue to use our products in those countries notwithstanding the illegality or embargo. We may be subject to penalties or governmental action if consumers continue to use our products in countries where it is illegal to do so or if we use a local partner to provide services in a country and the local partner does not comply with applicable governmental regulations. Any such penalties or governmental action may be costly and may harm our business and damage our brand and reputation. We may be required to incur additional expenses to meet applicable international regulatory requirements or be required to raise the prices of services, or restructure or discontinue those services if required by law or if we cannot or will not meet those requirements. Any of the foregoing could adversely affect our business, results of operations and financial condition. If we are unable to obtain or retain geographical, mobile, regional, local or toll-free numbers, or to effectively process requests to port such numbers in a timely manner due to industry regulations, our business and results of operations may be adversely affected. Our future success depends in part on our ability to obtain allocations of geographical, mobile, regional, local and toll-free direct inward dialing numbers or phone numbers as well as short codes and alphanumeric sender IDs (collectively “Numbering Resources”) in the United States and foreign countries at a reasonable cost and without overly burdensome restrictions. Our ability to obtain allocations of, assign and retain Numbering Resources depends on factors outside of our control, such as applicable regulations, the practices of authorities that administer national numbering plans or of network service providers from whom we can provision Numbering Resources, such as offering these Numbering Resources with conditional minimum volume call level requirements, the cost of these Numbering Resources and the level of overall competitive demand for new Numbering Resources. In addition, in order to obtain allocations of, assign and retain Numbering Resources in the EU or certain other regions, we are often required to be licensed by local telecommunications regulatory authorities, some of which have been increasingly monitoring and regulating the categories of Numbering Resources that are eligible for provisioning to our customers. We have obtained licenses, and are in the process of obtaining licenses in various countries in which we do business, but in some countries, the 35 F o r m 1 0 - K regulatory regime around provisioning of Numbering Resources is unclear, subject to change over time, and sometimes may conflict from jurisdiction to jurisdiction. Furthermore, these regulations and governments’ approach to their enforcement, as well as our products and services, are still evolving and we may be unable to maintain compliance with applicable regulations, or enforce compliance by our customers, on a timely basis or without significant cost. Also, compliance with these types of regulation may require changes in products or business practices that result in reduced revenue. Due to our or our customers’ assignment and/or use of Numbering Resources in certain countries in a manner that violates applicable rules and regulations, we have been subjected to government inquiries and audits, and may in the future be subject to significant penalties or further governmental action, and in extreme cases, may be precluded from doing business in that particular country. We have also been forced to reclaim Numbering Resources from our customers as a result of certain events of non-compliance. These reclamations result in loss of customers, loss of revenue, reputational harm, erosion of customer trust, and may also result in breach of contract claims, all of which could have an adverse effect on our business, results of operations and financial condition. Due to their limited availability, there are certain popular area code prefixes that we generally cannot obtain. Our inability to acquire or retain Numbering Resources for our operations may make our voice and messaging products less attractive to potential customers in the affected local geographic areas. In addition, future growth in our customer base, together with growth in the customer bases of other providers of cloud communications, has increased, which increases our dependence on needing sufficiently large quantities of Numbering Resources. It may become increasingly difficult to source larger quantities of Numbering Resources as we scale and we may need to pay higher costs for Numbering Resources, and Numbering Resources may become subject to more stringent regulation or conditions of usage such as the registration and on-going compliance requirements discussed above. Additionally, in some geographies, we support number portability, which allows our customers to transfer their existing phone numbers to us and thereby retain their existing phone numbers when subscribing to our voice and messaging products. Transferring existing numbers is a manual process that can take up to 15 business days or longer to complete. Any delay that we experience in transferring these numbers typically results from the fact that we depend on network service providers to transfer these numbers, a process that we do not control, and these network service providers may refuse or substantially delay the transfer of these numbers to us. Number portability is considered an important feature by many potential customers, and if we fail to reduce any related delays, then we may experience increased difficulty in acquiring new customers. Any of the foregoing factors could adversely affect our business, results of operations and financial condition. If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements or preferences, our products may become less competitive. The market for communications in general, and cloud communications in particular, is subject to rapid technological change, evolving industry standards, changing regulations, as well as changing customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we are unable to develop new products that satisfy our customers and provide enhancements and new features for our existing products that keep pace with rapid technological and industry change, including but not limited to SHAKEN/STIR and applicable industry standards, our business, results of operations and financial condition could be adversely affected. If new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete effectively. 36 Our platform must integrate with a variety of network, hardware, mobile and software platforms and technologies, and we need to continuously modify and enhance our products and platform to adapt to changes and innovation in these technologies. For example, Apple, Google and other cell-phone operating system providers or inbox service providers have developed and, may in the future develop, new applications or functions intended to filter spam and unwanted phone calls, messages or emails. Third party platforms may also implement changes to their privacy policies or practices that may impact us or our customers. In addition, our network service providers may adopt new filtering technologies in an effort to combat spam or robocalling. Such technologies may inadvertently filter desired messages or calls to or from our customers. If cell-phone operating system providers, network service providers, our customers or their end users adopt new software platforms or infrastructure, we may be required to develop new versions of our products to work with those new platforms or infrastructure. This development effort may require significant resources, which would adversely affect our business, results of operations and financial condition. Any failure of our products and platform to operate effectively with evolving or new platforms and technologies could reduce the demand for our products. If we are unable to respond to these changes in a cost-effective manner, our products may become less marketable and less competitive or obsolete, and our business, results of operations and financial condition could be adversely affected. We substantially rely upon Amazon Web Services to operate our platform, and any disruption of or interference with our use of Amazon Web Services would adversely affect our business, results of operations and financial condition. We outsource a substantial majority of our cloud infrastructure to Amazon Web Services (“AWS”), which hosts our products and platform. Our customers need to be able to access our platform at any time, without interruption or degradation of performance. AWS runs its own platform that we access, and we are, therefore, vulnerable to service interruptions at AWS. We have experienced, and expect that in the future we may experience interruptions, delays and outages in service and availability due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Capacity constraints could be due to a number of potential causes, including technical failures, natural disasters, pandemics such as COVID-19, fraud or security attacks. In addition, if our security, or that of AWS, is compromised, or our products or platform are unavailable or our users are unable to use our products within a reasonable amount of time or at all, then our business, results of operations and financial condition could be adversely affected. In some instances, we may not be able to identify the cause or causes of these performance problems within a period of time acceptable to our customers. It may become increasingly difficult to maintain and improve our platform performance, especially during peak usage times, as our products become more complex and the usage of our products increases. To the extent that we do not effectively address capacity constraints, either through AWS or alternative providers of cloud infrastructure, our business, results of operations and financial condition may be adversely affected. In addition, any changes in service levels from AWS may adversely affect our ability to meet our customers’ requirements, result in negative publicity which could harm our reputation and brand and may adversely affect the usage of our platform. The substantial majority of the services we use from AWS are for cloud-based server capacity and, to a lesser extent, storage and other optimization offerings. AWS enables us to order and reserve server capacity in varying amounts and sizes distributed across multiple regions. We access AWS infrastructure through standard IP connectivity. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement for cause upon notice and upon our failure to cure a breach within 30 days from the date of such notification and may, in some cases, suspend the agreement immediately for cause upon notice. Although we expect that we could receive similar services from other third parties, if any of our arrangements with AWS are terminated, we could experience interruptions on our platform and in our ability to make our products available to customers, as well as delays and additional expenses in arranging alternative cloud infrastructure services. 37 F o r m 1 0 - K Any of the above circumstances or events may harm our reputation, erode customer trust, cause customers to stop using our products, impair our ability to increase revenue from existing customers, impair our ability to grow our customer base, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations and financial condition. We typically provide monthly uptime service level commitments of a minimum of 99.95% under our agreements with customers. If we fail to meet these contractual commitments, then our business, results of operations and financial condition could be adversely affected. Our agreements with customers typically provide for service level commitments. If we suffer extended periods of downtime for our products or platform and we are unable to meet these commitments, then we are contractually obligated to provide a service credit, which is typically 10% of the customer’s amounts due for the month in question. For example, on February 26, 2021, a critical feature enablement service on our platform became overloaded, which resulted in connection issues across multiple products in our cloud communications platform that affected our customers for a limited number of hours. The service disruption had a widespread impact on our customers’ ability to use several of our products. We incurred certain costs associated with offering credits to our affected customers, but the overall impact was not material to our business. We may also ultimately lose or see reduced utilization of our products by one or more customers as a result of the outage. In addition, the performance and availability of AWS or other service providers that provide our cloud infrastructures is outside of our control and, therefore, we are not in full control of whether we meet our service level commitments. As a result, our business, results of operations and financial condition could be adversely affected if we suffer unscheduled downtime that exceeds the service level commitments we have made to our customers. Any extended service outages could adversely affect our business and reputation and erode customer trust. Breaches of our networks or systems, or those of AWS or our service providers, could degrade our ability to conduct our business, compromise the integrity of our products, platform and data, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data. We depend upon our IT systems to conduct virtually all of our business operations, ranging from our internal operations and research and development activities to our marketing and sales efforts and communications with our customers and business partners. We may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods and other similar threats. Individuals or entities may attempt to penetrate our network security, or that of our platform, and to cause harm to our business operations, including by misappropriating our proprietary information or that of our customers, employees and business partners or to cause interruptions of our products and platform. In particular, cyberattacks and other malicious internet-based activity continue to increase in frequency and in magnitude generally, and cloud-based companies have been targeted in the past. In addition to threats from traditional computer hackers, malicious code, software vulnerabilities, supply chain attacks and vulnerabilities through our third-party partners, employees theft or misuse, password spraying, phishing, credential stuffing and denial-of-service attacks, we also face threats from sophisticated organized crime, nation-state, and nation-state supported actors who engage in attacks (including advanced persistent threat intrusions) that add to the risk to our systems (including those hosted on AWS or other cloud services), internal networks, our customers’ systems and the information that they store and process. Ransomware and cyber extortion attacks, including those perpetrated by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our 38 operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate or reduce the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. The COVID-19 pandemic and our remote workforce also pose increased risks to our IT systems and data. While we devote significant financial and employee resources to implement and maintain security measures, because the techniques used by such individuals or entities to access, disrupt or sabotage devices, systems and networks change frequently and may not be recognized until launched against a target, we may be required to make further investments over time to protect data and infrastructure as cybersecurity threats develop, evolve and grow more complex over time. We may also be unable to anticipate these techniques, and we may not become aware in a timely manner of such a security breach, which could exacerbate any damage we experience. Additionally, we depend upon our employees and contractors to appropriately handle confidential and sensitive data, including customer data, and to deploy our IT resources in a safe and secure manner that does not expose our network systems to security breaches or the loss of data. We have been and expect to be subject to cybersecurity threats and incidents, including denial-of-service attacks, employee errors or individual attempts to gain unauthorized access to information systems. Any data security incidents, including internal malfeasance or inadvertent disclosures by our employees or a third party’s fraudulent inducement of our employees to disclose information, unauthorized access or usage, virus or similar breach or disruption of us or our service providers, such as AWS, could result in loss of confidential information, damage to our reputation, erosion of customer trust, loss of customers, litigation, regulatory investigations, fines, penalties and other liabilities. For example, in 2020, SolarWinds Inc., one of our third party software service providers, was subject to a data security incident. We have completed our investigations of this incident and concluded that there was no adverse impact to us. Furthermore, we are required to comply with laws and regulations that require us to maintain the security of personal information and we may have contractual and other legal obligations to notify customers or other relevant stakeholders of security breaches. Such disclosures are costly, and the disclosures or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss and other similar harms. Security incidents and attendant consequences could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or mitigate the security breach. Accordingly, if our cybersecurity measures or those of AWS or our service providers, fail to protect against unauthorized access, attacks (which may include sophisticated cyberattacks), compromise or the mishandling of data by our employees and contractors, then our reputation, customer trust, business, results of operations and financial condition could be adversely affected. While we maintain errors, omissions and cyber liability insurance policies covering certain security and privacy damages, we cannot be certain that our existing insurance coverage will continue to be available on acceptable terms or will be available, and in sufficient amounts, to cover the potentially significant losses that may result from a security incident or breach or that the insurer will not deny coverage as to any future claim. Defects or errors in our products could diminish demand for our products, harm our business and results of operations and subject us to liability. Our customers use our products for important aspects of their businesses, and any errors, defects or disruptions to our products and any other performance problems with our products could damage our 39 F o r m 1 0 - K customers’ businesses and, in turn, hurt our brand and reputation and erode customer trust. We provide regular updates to our products, which have in the past contained, and may in the future contain, undetected errors, failures, vulnerabilities and bugs when first introduced or released. Real or perceived errors, failures or bugs in our products could result in negative publicity, loss of or delay in market acceptance of our platform, loss of competitive position, lower customer retention or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources to help correct the problem. In addition, we may not carry insurance sufficient to compensate us for any losses that may result from claims arising from defects or disruptions in our products. As a result, our reputation and our brand could be harmed, and our business, results of operations and financial condition may be adversely affected. We currently generate significant revenue from our largest customers, and the loss or decline in revenue from any of these customers could harm our business, results of operations and financial condition. In the years ended December 31, 2021, 2020 and 2019, our 10 largest Active Customer Accounts generated an aggregate of 11%, 14% and 13% of our revenue, respectively. In the event that any of our large customers do not continue to use our products, use fewer of our products, or use our products in a more limited capacity, or not at all, our business, results of operations and financial condition could be adversely affected. Additionally, the usage of our products by customers that do not have long-term contracts with us may change between periods. Those with no long-term contract with us may reduce or fully terminate their usage of our products at any time without notice, penalty or termination charges, which may adversely impact our results of operations. If we are unable to develop and maintain successful relationships with consulting partners, our business, results of operations and financial condition could be adversely affected. We believe that continued growth of our business depends in part upon identifying, developing and maintaining strategic relationships with consulting partners. As part of our growth strategy, we intend to further develop partnerships and specific solution areas with consulting partners. If we fail to establish these relationships in a timely and cost-effective manner, or at all, then our business, results of operations and financial condition could be adversely affected. Additionally, even if we are successful at developing these relationships but there are problems or issues with the integrations or enterprises are not willing to purchase through consulting partners, our reputation and ability to grow our business may be adversely affected. Any failure to offer high quality customer support may adversely affect our relationships with our customers and prospective customers, and adversely affect our business, results of operations and financial condition. Many of our customers depend on our customer support team to assist them in deploying our products effectively to help them to resolve post-deployment issues quickly and to provide ongoing support. If we do not devote sufficient resources or are otherwise unsuccessful in assisting our customers effectively, it could adversely affect our ability to retain existing customers and could prevent prospective customers from adopting our products. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support. We also may be unable to modify the nature, scope and delivery of our customer support to compete with changes in the support services provided by our competitors. Increased demand for customer support, without corresponding revenue, could increase costs and adversely affect our business, results of operations and financial condition. Our sales are highly dependent on our business reputation and on positive recommendations from developers. Any failure to maintain high quality customer support, or a market perception that we do not maintain high quality customer support, could erode customer trust and adversely affect our reputation, business, results of operations and financial condition. 40 Failure to set optimal prices for our products could adversely impact our business, results of operations and financial condition. For certain of our products, we primarily charge our customers based on their use of such products (“usage-based pricing”). One of the challenges to our usage-based pricing is that the fees that we pay to network service providers over whose networks we transmit communications can vary daily or weekly and are affected by volume and other factors that may be outside of our control and difficult to predict. This can result in us incurring increased costs that we may be unable or unwilling to pass through to our customers, which could adversely impact our business, results of operations and financial condition. We expect that we may need to change our pricing from time to time. In the past, we have sometimes reduced our prices either for individual customers in connection with long-term agreements or for a particular product. Further, as competitors introduce new products or services that compete with ours or reduce their prices, we may be unable to attract new customers or retain existing customers based on our historical pricing. As we expand internationally, we also must determine the appropriate price to enable us to compete effectively internationally. Moreover, enterprises, which are a primary focus for our direct sales efforts, may demand substantial price concessions. In addition, if the mix of products sold changes, including for a shift to IP-based products, then we may need to, or choose to, revise our pricing. As a result, in the future we may be required or choose to reduce our prices or change our pricing model, which could adversely affect our business, results of operations and financial condition. We have been sued and may, in the future, be sued by third parties for alleged infringement of their proprietary rights, which could adversely affect our business, results of operations and financial condition. There is considerable patent and other intellectual property development activity in our industry. We may also introduce or acquire new products or technologies, including in areas where we historically have not participated, which could increase our exposure to third party intellectual property claims. Our future success depends, in part, on not infringing the intellectual property rights of others and we may be unaware of the intellectual property rights of others that may cover some or all of our technology. Our competitors or other third parties have claimed and may, in the future, claim that our products or platform and underlying technology are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. For example, Telesign Corporation (“Telesign”) sued us in 2015 and 2016 alleging that we infringed four U.S. patents. The patent infringement allegations in the lawsuits related to our two-factor authentication use case, Authy, and an API tool to find information about a phone number. On October 19, 2018, a United States District Court in the Northern District of California entered judgment in our favor on all asserted claims, which was affirmed on appeal. We intend to vigorously defend ourselves against such lawsuits. During the course of these lawsuits, there may be announcements of the results of hearings and motions and other interim developments related to the litigation. If securities analysts or investors regard these announcements as negative, the trading price of our Class A common stock may decline. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our products, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners in connection with any such litigation and to obtain licenses or modify our products or platform, which could further exhaust our resources. Litigation is inherently uncertain and even if we were to prevail in the event of claims or litigation against us, any claim or litigation regarding intellectual property could be costly and time-consuming and divert the attention of our management and other employees from our business. Patent infringement, trademark infringement, trade secret misappropriation and other intellectual property claims and proceedings brought against us, whether successful or not, could harm our brand, business, results of operations and financial condition. 41 F o r m 1 0 - K Indemnity provisions in various agreements potentially expose us to substantial liability for data breach, intellectual property infringement and other losses. Our agreements with customers and other third parties typically include indemnification or other provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, loss or exposure of confidential or sensitive data, damages caused by us to property or persons or other liabilities relating to or arising from our products or platform or other acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. Large indemnity payments or damage claims from contractual breach could harm our business, results of operations and financial condition. Although typically we contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other current and prospective customers, demand for our products and adversely affect our business, results of operations and financial condition. We could incur substantial costs in protecting or defending our intellectual property rights, and any failure to protect our intellectual property could adversely affect our business, results of operations and financial condition. Our success depends, in part, on our ability to protect our brand and the proprietary methods and technologies that we develop under patent and other intellectual property laws in the U.S. and in non-U.S. jurisdictions so that we can prevent others from using our inventions and proprietary information. As of December 31, 2021, in the United States, we had been issued 197 patents, which expire between 2029 and 2040. As of such date, we also had 36 issued patents in non-U.S. jurisdictions, all of which are related to U.S. patents and patent applications. We have also filed various applications for protection of certain aspects of our intellectual property in the United States and internationally. There can be no assurance that additional patents will be issued or that any patents that have been issued or that may be issued in the future will provide significant protection for our intellectual property. As of December 31, 2021, we had 50 registered trademarks in the United States and 416 registered trademarks in non-U.S. jurisdictions. If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology and our business, results of operations and financial condition may be adversely affected. There can be no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when to file patent applications and trademark applications, will be adequate to protect our business. We could be required to spend significant resources to monitor and protect our intellectual property rights. Litigation has in the past, and may be necessary in the future, to enforce our intellectual property rights, determine the validity and scope of our proprietary rights or those of others, or defend against claims of infringement or invalidity. Such litigation could be costly, time- consuming and distracting to management, result in a diversion of significant resources, the narrowing or invalidation of portions of our intellectual property and have an adverse effect on our business, results of operations and financial condition. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights or alleging that we infringe the counterclaimant’s own intellectual property. Any of our patents, copyrights, trademarks or other intellectual property rights could be challenged by others or invalidated through administrative process or litigation. We also rely, in part, on confidentiality agreements with our business partners, employees, consultants, advisors, customers and others in our efforts to protect our proprietary technology, processes and methods. These agreements may not effectively prevent disclosure of our confidential information, and it may be possible for unauthorized parties to copy our software or other proprietary technology or information, or to develop similar software independently without our having an adequate remedy for unauthorized use or disclosure of our confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in these cases, we would not be able to assert any trade secret rights against those parties. Costly and time-consuming litigation could be necessary to 42 enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. In addition, the laws of some countries do not protect intellectual property and other proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, whether through acquisitions, international product development, regulatory compliance of local data sovereignty, or improving our services (e.g. reducing latency or ensuring redundancy) our exposure to unauthorized copying, transfer and use of our proprietary technology or information may increase. We cannot be certain that our means of protecting our intellectual property and proprietary rights will be adequate or that our competitors will not independently develop similar technology. If we fail to meaningfully protect our intellectual property and proprietary rights, our business, results of operations and financial condition could be adversely affected. We may acquire or invest in companies, which may divert our management’s attention and result in debt or dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments. We actively evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. For example, in November 2020, we acquired Segment for a total purchase price of $3.0 billion, of which approximately $2.5 billion represented the value of our Class A common stock issued at closing. The estimated transaction value of $3.2 billion, as previously announced, included certain shares of Class A common stock and assumed equity awards that are subject to future vesting. Accordingly, at closing, our stockholders incurred substantial dilution. Any future acquisitions or strategic transactions may result in additional dilution or require us to take on debt in order to finance any such transactions. For further risks related to our acquisitions, please see below under “Risks Related to our Acquisitions.” We also may enter into relationships with other businesses to expand our products and platform, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies, such as our recent proposed minority investment of $500.0 million to $750.0 million in Syniverse Corporation. Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties or delays in assimilating or integrating the businesses, technologies, products, employees or operations of the acquired companies, particularly if the key employees of the acquired company choose not to work for us, their products or services are not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. In addition, we may discover liabilities or deficiencies associated with the assets or companies we acquire or ineffective or inadequate controls, procedures or policies at an acquired business that were not identified in advance, any of which could result in significant unanticipated costs. Acquisitions also may disrupt our business, divert our resources or require significant management attention that would otherwise be available for development of our existing business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown risks or liabilities. Negotiating these transactions can be time consuming, difficult and expensive, and our ability to complete these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if announced, may not be completed. For one or more of those transactions, we may: • issue additional equity securities that would dilute our existing stockholders; • use cash that we may need in the future to operate our business; • incur large charges or substantial liabilities; 43 F o r m 1 0 - K • incur debt on terms unfavorable to us or that we are unable to repay; • encounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures; • invest in securities that are illiquid or decline in value; • encounter difficulties retaining the acquired company’s customers; or • become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. The occurrence of any of these foregoing could adversely affect our business, results of operations and financial condition. We depend largely on the continued services of our senior management and other key employees, the loss or incapacitation of any of whom could adversely affect our business, results of operations and financial condition. Our future performance depends on the continued services and contributions of our senior management and other key employees to execute on our business plan, to develop our products and platform, to deliver our products to customers, to attract and retain customers and to identify and pursue opportunities. The loss of services of senior management or other key employees could significantly delay or prevent the achievement of our development and strategic objectives. In particular, we depend to a considerable degree on the vision, skills, experience and effort of our co-founder and Chief Executive Officer, Jeff Lawson. None of our executive officers or other senior management are bound by a written employment agreement and any of them may terminate employment with us at any time with no advance notice. The replacement of any of our senior management would likely involve significant time and costs, and such loss could significantly delay or prevent the achievement of our business objectives. The loss of the services of any of our senior management or other key employees for any reason could adversely affect our business, results of operations and financial condition. If we are unable to hire, retain and motivate qualified employees, our business will suffer. Our future success depends, in part, on our ability to continue to attract and retain highly skilled employees. We believe that there is, and will continue to be, intense competition for highly skilled management, technical, sales and other employees with experience in our industry. In addition, we have experienced and may continue to experience employee turnover as a result of the ongoing “great resignation” occurring throughout the U.S. economy. New employees require training, take time before they achieve full productivity, and may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. In addition, our new Open Work hybrid approach to work, announced in February 2021, may not meet the expectations of our workforce. Further, labor is subject to external factors that are beyond our control, including our industry’s highly competitive market for skilled workers and leaders, cost inflation, the COVID-19 pandemic and workforce participation rates. We must provide competitive compensation packages and a high quality work environment to hire, retain and motivate employees. If we are unable to retain and motivate our existing employees and attract qualified employees to fill key positions, we may be unable to manage our business effectively, including the development, marketing and sale of our products, which could adversely affect our business, results of operations and financial condition. To the extent we hire employees from competitors, we also may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information. Volatility in, or lack of performance of, our stock price may also affect our ability to attract and retain key employees. If we are unable to retain our employees, our business, results of operations and financial condition could be adversely affected. 44 United States federal legislation and international laws impose certain obligations on the senders of commercial emails, which could minimize the effectiveness of our platform, and establish financial penalties for non-compliance, which could increase the costs of our business. The Federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, establishes certain requirements for commercial email messages and transactional email messages and specifies penalties for the transmission of email messages that are intended to deceive the recipient as to source or content. Among other things, the CAN-SPAM Act, obligates the sender of commercial emails to provide recipients with the ability to “opt-out” of receiving future commercial emails from the sender. In addition, some states have passed laws regulating commercial email practices that are significantly more restrictive and difficult to comply with than the CAN-SPAM Act. For example, Utah and Michigan prohibit the sending of email messages that advertise products or services that minors are prohibited by law from purchasing or that contain content harmful to minors to email addresses listed on specified child protection registries. Some portions of these state laws may not be preempted by the CAN-SPAM Act. In addition, certain non-U.S. jurisdictions in which we operate have enacted laws regulating the sending of email that are more restrictive than U.S. laws. For example, some foreign laws prohibit sending broad categories of email unless the recipient has provided the sender advance consent (or “opted-in”) to receipt of such email. If we were found to be in violation of the CAN-SPAM Act, applicable state laws governing email not preempted by the CAN-SPAM Act or foreign laws regulating the distribution of email, whether as a result of violations by our customers or our own acts or omissions, we could be required to pay large penalties, which would adversely affect our financial condition, significantly harm our business, injure our reputation and erode customer trust. The terms of any injunctions, judgments, consent decrees or settlement agreements entered into in connection with enforcement actions or investigations against our company in connection with any of the foregoing laws may also require us to change one or more aspects of the way we operate our business, which could impair our ability to attract and retain customers or could increase our operating costs. Our customers’ and other users’ violation of our policies or other misuse of our platform to transmit unauthorized, offensive or illegal messages, spam, phishing scams, and website links to harmful applications or for other fraudulent or illegal activity could damage our reputation, and we may face a risk of litigation and liability for illegal activities on our platform and unauthorized, inaccurate, or fraudulent information distributed via our platform. The actual or perceived improper sending of text messages or voice calls may subject us to potential risks, including liabilities or claims relating to consumer protection laws and regulatory enforcement, including fines. For example, the Telephone Consumer Protection Act of 1991 (“TCPA”) restricts telemarketing and the use of automatic SMS text messages without explicit customer consent. TCPA violations can result in significant financial penalties, as businesses can incur penalties or criminal fines imposed by the FCC or be fined up to $1,500 per violation through private litigation or state attorneys general or other state actor enforcement. Class action suits are the most common method for private enforcement. This has resulted in civil claims against our company and requests for information through third-party subpoenas. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages or voice calls are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face direct liability. Moreover, despite our ongoing and substantial efforts to limit such use, certain customers may use our platform to transmit unauthorized, offensive or illegal messages, calls, spam, phishing scams, and website links to harmful applications, reproduce and distribute copyrighted material or the trademarks of others without permission, and report inaccurate or fraudulent data or information. These issues also arise with respect to a portion of those users who use our platform on a free trial basis or upon initial use. These actions are in violation of our policies, in particular, our Acceptable Use Policy. However, our efforts to 45 F o r m 1 0 - K defeat spamming attacks, illegal robocalls and other fraudulent activity will not prevent all such attacks and activity. Such use of our platform could damage our reputation and we could face claims for damages, regulatory enforcement, copyright or trademark infringement, defamation, negligence, or fraud. Furthermore, enacting more stringent controls on our customers’ use of our platform to combat such violations of our Acceptable Use Policy could increase friction for our legitimate customers and decrease their use of our platform. Moreover, our customers’ and other users’ promotion of their products and services through our platform might not comply with federal, state, and foreign laws or of contractual requirements imposed by carriers, such as the CTIA Shortcode Agreement and associated policies. We rely on contractual representations made to us by our customers that their use of our platform will comply with our policies and applicable law, including, without limitation, our email and messaging policies. Although we retain the right to verify that customers and other users are abiding by certain contractual terms, our Acceptable Use Policy and our email and messaging policies and, in certain circumstances, to review their email, messages and distribution lists, our customers and other users are ultimately responsible for compliance with our policies, and we do not systematically audit our customers or other users to confirm compliance with our policies. We cannot predict whether our role in facilitating our customers’ or other users’ activities would expose us to liability under applicable state or federal law, or whether that possibility could become more likely if changes to current laws regulating content moderation, such as Section 230 of the Communications Decency Act are enacted. There are various Congressional, FCC and executive efforts to eliminate or restrict the scope of the protections under Section 230, which limits the liability of internet platforms for third-party content that is transmitted via those platforms and for good-faith moderation of offensive content. In addition, Florida and Texas adopted statutes intended to reduce or eliminate the protections granted under Section 230, although implementation of both statutes has been stayed by federal courts, and similar legislation was introduced in other states in 2021. Even if claims asserted against us do not result in liability, we may incur substantial costs in investigating and defending such claims. If we are found liable for our customers’ or other users’ activities, we could be required to pay fines or penalties, redesign business methods or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability. Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation. Our products and platform incorporate open source software, and we expect to continue to incorporate open source software in our products and platform in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products and platform. Moreover, although we have implemented policies to regulate the use and incorporation of open source software into our products and platform, we cannot be certain that we have not incorporated open source software in our products or platform in a manner that is inconsistent with such policies. If we fail to comply with open source licenses, we may be subject to certain requirements, including requirements that we offer our products that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from generating revenue from customers using products that contained the open source software and required to comply with onerous conditions or restrictions on these products. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our products and platform and to re-engineer our products or platform or discontinue offering our products to customers in the event re-engineering cannot 46 be accomplished on a timely basis. Any of the foregoing could require us to devote additional research and development resources to re-engineer our products or platform, could result in customer dissatisfaction and may adversely affect our business, results of operations and financial condition. Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our products, and could adversely affect our business, results of operations and financial condition. The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communications and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations could require us to modify our products and platform in order to comply with these changes. In addition, government agencies or private organizations have imposed and may impose additional taxes, fees or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally or result in reductions in the demand for Internet-based products and services such as our products and platform. In particular, a re-adoption of “network neutrality” rules in the United States, which President Biden supported during his campaign, could affect the services used by us and our customers. California’s state network neutrality law went into effect after a federal district court denied a motion for preliminary injunction on March 10, 2021, and that decision was affirmed by the U.S. Court of Appeals for the Ninth Circuit on January 28, 2022. A number of other states have adopted or are adopting or considering legislation or executive actions that would regulate the conduct of broadband providers. In addition, the use of the Internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease-of-use, accessibility and quality of service. The performance of the Internet and its acceptance as a business tool has been adversely affected by “viruses,” “worms,” and similar malicious programs. If the use of the Internet is reduced as a result of these or other issues, then demand for our products could decline, which could adversely affect our business, results of operations and financial condition. The technology industry is subject to increasing scrutiny that could result in government actions that would negatively affect our business. The technology industry is subject to intense media, political and regulatory scrutiny, both domestic and foreign, including on issues related to antitrust, privacy, and artificial intelligence, which exposes us to government investigations, legal actions and penalties. For instance, various regulatory agencies, including competition and consumer protection authorities, have active proceedings and investigations concerning multiple technology companies on antitrust and other issues. If we become subject to such investigations, we could be liable for substantial fines and penalties, be required to change our products and services or alter our business operations, receive negative publicity, or be subject to civil litigation, all of which could harm our business. Lawmakers also have proposed new laws and regulations, and modifications to existing laws and regulations, that affect the activities of technology companies, such as the recent legislative efforts to eliminate or modify Section 230 of the Communications Decency Act and to regulate platforms that offer apps and other similar actions in some U.S. states. If such laws and regulations are enacted or modified, they could impact us, even if they are not intended to affect our company. In addition, the introduction of new products and services, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations, and other scrutiny. The increased scrutiny of certain acquisitions in the technology industry also could affect our ability to enter into strategic transactions or to acquire other businesses. Compliance with new or modified laws and regulations could increase the cost of conducting our business, limit the opportunities to increase our revenues, or prevent us from offering products or services. 47 F o r m 1 0 - K While we have adopted policies and procedures designed to ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors or agents will not violate such laws and regulations. If we are found to have violated laws and regulations, it could materially adversely affect our reputation, financial condition and results of operations. We also could be harmed by government investigations, litigation, or changes in laws and regulations directed at our customers, business partners, or suppliers in the technology industry that have the effect of limiting our ability to do business with those entities. There can be no assurance that our business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations, litigation or changes to laws and regulations in the future. The standards imposed by private entities and inbox service providers to regulate the use and delivery of email have in the past interfered with, and may continue to interfere with, the effectiveness of our platform and our ability to conduct business. From time to time, some of our IP addresses have become, and we expect will continue to be, listed with one or more denylisting entities due to the messaging practices of our customers and other users. We may be at an increased risk of having our IP addresses denylisted due to our scale and volume of email processed, compared to our smaller competitors. There can be no guarantee that we will be able to successfully remove ourselves from those lists. Because we fulfill email delivery on behalf of our customers, denylisting of this type could undermine the effectiveness of our customers’ transactional email, email marketing programs and other email communications, all of which could have a material negative impact on our business, financial condition and results of operations. Additionally, inbox service providers can block emails from reaching their users or categorize certain emails as “promotional” emails and, as a result, direct them to an alternate or “tabbed” section of the recipient’s inbox. While we continually improve our own technology and work closely with inbox service providers to maintain our deliverability rates, the implementation of new or more restrictive policies by inbox service providers may make it more difficult to deliver our customers’ emails, particularly if we are not given adequate notice of a change in policy or struggle to update our platform or services to comply with the changed policy in a reasonable amount of time. If the open rates of our customers’ emails are negatively impacted by the actions of inbox service providers to block or categorize emails then customers may question the effectiveness of our platform and cancel their accounts. This, in turn, could harm our business, financial condition and results of operations. Our global operations subject us to potential liability under export control, economic trade sanctions, anti- corruption, and other laws and regulations, and such violations could impair our ability to compete in international markets and could subject us to liability for compliance violations. Certain of our products and services may be subject to export control and economic sanctions laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control. Exports of our products and the provision of our services must be made in compliance with these requirements. Although we take precautions to prevent our products from being provided in violation of such laws, we are aware of previous exports of certain of our products to a small number of persons and organizations that are the subject of U.S. sanctions or located in countries or regions subject to U.S. sanctions. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including: the possible loss of export privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, for a particular deployment may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. In addition, changes in our products or services, or changes in applicable export or economic sanctions regulations may create delays in the introduction and 48 deployment of our products and services in international markets, or, in some cases, prevent the export of our products or provision of our services to certain countries or end users. Any change in trade protection laws, policies, export, sanctions and other regulatory requirements affecting trade and investments, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could also result in decreased use of our products and services, or in our decreased ability to export our products or provide our services to existing or prospective customers with international operations. Any decreased use of our products and services or limitations on our ability to export our products and provide our services could adversely affect our business, results of operations and financial condition. Further, we incorporate encryption technology into certain of our products. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our customers’ ability to import our products into those countries. Encryption products and the underlying technology may also be subject to export control restrictions. Governmental regulation of encryption technology and regulation of exports of encryption products, or our failure to obtain required approval for our products, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products and provision of our services, including with respect to new releases of our products and services, may create delays in the introduction of our products and services in international markets, prevent our customers with international operations from deploying our products and using our services throughout their globally-distributed systems or, in some cases, prevent the export of our products or provision of our services to some countries altogether. We are also subject to U.S. and foreign anti-corruption and anti-bribery laws, including the Foreign Corrupt Practices Act, as amended, the UK Bribery Act 2010, and other anti-corruption laws and regulations in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and generally prohibit corrupt payments by our employees and third parties acting on our behalf from directly or indirectly authorizing, offering, or providing, improper payments or things of value to recipients in the public or private sector, and also require that we maintain accurate books and records and adequate internal controls. While we have implemented a global compliance program designed to reduce the risk of bribery and corruption-related violations, our employees or third parties acting on our behalf may fail to comply with our policies, resulting in violations of applicable anti-corruption laws and regulations. Such violations could result in significant fines and penalties, criminal liability for us, our individual officers or employees, prohibitions on our ability to conduct business, and potential reputational damage. Our reliance on SaaS technologies from third parties may adversely affect our business, results of operations and financial condition. We rely on hosted SaaS technologies from third parties in order to operate critical internal functions of our business, including enterprise resource planning, customer support and customer relations management services. If these services become unavailable due to extended outages or interruptions, or because they are no longer available on commercially reasonable terms or prices, our expenses could increase. As a result, our ability to manage our operations could be interrupted and our processes for managing our sales process and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and implemented, all of which could adversely affect our business, results of operations and financial condition. We may have additional tax liabilities, which could harm our business, results of operations and financial condition. Significant judgments and estimates are required in determining our provision for income taxes and other tax liabilities. Our tax expense may be impacted, for example, if tax laws change or are clarified to our detriment or if tax authorities successfully challenge the tax positions that we take, such as, for 49 F o r m 1 0 - K example, positions relating to the arms-length pricing standards for our intercompany transactions and our indirect tax positions. In determining the adequacy of our provision for income taxes, we assess the likelihood of adverse outcomes that could result if our tax positions were challenged by the Internal Revenue Service (“IRS”), and other tax authorities. Should the IRS or other tax authorities assess additional taxes as a result of examinations, we may be required to record charges to operations that could adversely affect our results of operations and financial condition. We conduct operations in many tax jurisdictions throughout the United States and internationally. In many of these jurisdictions, non-income-based taxes, such as sales, VAT, GST, and telecommunications taxes, are assessed on our operations or our sales to customers. We are subject to indirect taxes, and may be subject to certain other taxes, in some of these jurisdictions. We collect certain telecommunications- based taxes from our customers in certain jurisdictions, and we expect to continue expanding the number of jurisdictions in which we will collect these taxes in the future. Many states are also pursuing legislative expansion of the scope of goods and services that are subject to sales and similar taxes as well as the circumstances in which a vendor of goods and services must collect such taxes. Following the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., states are now free to levy taxes on sales of goods and services based on an “economic nexus,” regardless of whether the seller has a physical presence in the state. Any additional fees and taxes levied on our services by any state may adversely impact our results of operations. Historically, we have not billed or collected taxes in certain jurisdictions and, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), we have recorded a provision for our tax exposure in these jurisdictions when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated. We reserved $25.4 million and $17.7 million for domestic jurisdictions and jurisdictions outside of the U.S., respectively, on our December 31, 2021 balance sheet for these tax payments. These estimates include several key assumptions, including, but not limited to, the taxability of our products, the jurisdictions in which we believe we have nexus or a permanent establishment, and the sourcing of revenues to those jurisdictions. In the event these jurisdictions challenge our assumptions and analysis, our actual exposure could differ materially from our current estimates. If the actual payments we make to any jurisdiction exceed the accrual in our balance sheet, our results of operations would be harmed. In addition, some customers may question the incremental tax charges and seek to negotiate lower pricing from us, which could adversely affect our business, results of operations and financial condition. We are in discussions with certain jurisdictions regarding potential sales and other indirect taxes for prior periods that we may owe. If any of these jurisdictions disagree with management’s assumptions and analysis, the assessment of our tax exposure could differ materially from management’s current estimates. For example, San Francisco City and County has assessed us for $38.8 million in taxes, including interest and penalties, which exceeded the $11.5 million we had accrued for that assessment. We have paid the full amount, as required by law, and the payment made in excess of the accrued amount is reflected as a deposit on our balance sheet. We believe, however, that this assessment is incorrect and, after failing to reach a settlement, filed a lawsuit on May 27, 2021 contesting the assessment. However, litigation is uncertain and a ruling against us may adversely affect our financial position and results of operation. Our global operations and structure subject us to potentially adverse tax consequences. We generally conduct our global operations through subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. In particular, our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. Also, our tax expense could be affected depending on the applicability of withholding and other taxes (including withholding and indirect taxes on software licenses and related intercompany transactions) under the tax laws of certain jurisdictions in which we have business 50 operations. The relevant revenue and taxing authorities may disagree with positions we have taken generally, or our determinations as to the value of assets sold or acquired or income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one- time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Changes in global and U.S. tax legislation may adversely affect our financial condition, results of operations, and cash flows. We are unable to predict what global or U.S. tax reforms may be proposed or enacted in the future or what effects such future changes would have on our business. Any such changes in tax legislation, regulations, policies or practices in the jurisdictions in which we operate could increase the estimated tax liability that we have expensed to date and paid or accrued on our balance sheet; affect our financial position, future results of operations, cash flows, and effective tax rates where we have operations; reduce post-tax returns to our stockholders; and increase the complexity, burden, and cost of tax compliance. We are subject to potential changes in relevant tax, accounting, and other laws, regulations, and interpretations, including changes to tax laws applicable to corporate multinationals. For example, in the United States, Congress and the Biden administration have recently proposed legislation (which has not yet been enacted) to make various tax law changes, including to increase U.S. taxation of international business operations and impose a global minimum tax. While it is too early to predict the outcome of these proposals and they are subject to change, if enacted, they could have a material effect on our income tax liability. Certain government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational companies. In addition, the Organisation for Economic Co-operation and Development (the “OECD”) is conducting a project focused on base erosion and profit shifting in international structures, which seeks to establish certain international standards for taxing the worldwide income of multinational companies. In addition, the OECD is working on a “BEPS 2.0” initiative, which is aimed at (i) shifting taxing rights to the jurisdiction of the consumer and (ii) ensuring all companies pay a global minimum tax. On October 8, 2021, the OECD announced an agreement by members of the Inclusive Framework delineating an implementation plan, and on December 20, 2021, the OECD released model rules for the domestic implementation of a 15% global minimum tax. Further, several countries have proposed or enacted taxes applicable to digital services, which could apply to our business. As a result of these developments, the tax laws of certain countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest and penalties, and therefore could harm our business, cash flows, results of operations and financial position. The governments of countries in which we operate and other governmental bodies could make unprecedented assertions about how taxation is determined in their jurisdictions that are contrary to the way in which we have interpreted and historically applied the rules and regulations in our tax returns filed in such jurisdictions. New laws could significantly increase our tax obligations in the countries in which we do business or require us to change the way we operate our business. As a result of the large and expanding scale of our international business activities, many of these changes to the taxation of our activities could increase our worldwide effective tax rate and harm our financial position, results of operations, and cash flows. If we experience fraudulent activity relating to our products, we could incur substantial costs. Our products may be subject to fraudulent usage, including but not limited to revenue share fraud, domestic traffic pumping, subscription fraud, premium text message scams and other fraudulent schemes. Although our customers are required to set passwords or personal identification numbers to protect their 51 F o r m 1 0 - K accounts, third parties have in the past been, and may in the future be, able to access and use their accounts through fraudulent means. Furthermore, spammers attempt to use our products to send targeted and untargeted spam messages. We cannot be certain that our efforts to defeat spamming attacks will be successful in eliminating all spam messages from being sent using our platform. In addition, a cybersecurity breach of our customers’ systems could result in exposure of their authentication credentials, unauthorized access to their accounts or fraudulent calls on their accounts, any of which could adversely affect our business, results of operations and financial condition. We may require additional capital to support our business, and this capital might not be available on acceptable terms, if at all. We intend to continue to make investments to support our business and may require additional funds. In particular, we may seek additional funds to develop new products and enhance our platform and existing products, expand our operations, including our sales and marketing organizations and our presence outside of the United States, improve our infrastructure or acquire complementary businesses, technologies, services, products and other assets. In addition, we may use a portion of our cash to satisfy tax withholding and remittance obligations related to outstanding restricted stock units. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A and Class B common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth, scale our infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired, and our business, results of operations and financial condition may be adversely affected. We face exposure to foreign currency exchange rate fluctuations, and such fluctuations could adversely affect our business, results of operations and financial condition. As our international operations expand, our exposure to the effects of fluctuations in currency exchange rates grows. For example, global political and economic events, such as the COVID-19 pandemic, trade tariff developments and other geopolitical events have caused global economic uncertainty and variability in foreign currency exchange rates. While we have primarily transacted with customers and business partners in U.S. dollars, we have also conducted business in currencies other than the U.S. dollar. We expect to significantly expand the number of transactions with customers that are denominated in foreign currencies in the future as we continue to expand our business internationally. We also incur expenses for some of our network service provider costs outside of the United States in local currencies and for employee compensation and other operating expenses at our non-U.S. locations in the respective local currency. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in an increase to the U.S. dollar equivalent of such expenses. In addition, our international subsidiaries maintain net assets that are denominated in currencies other than the functional operating currencies of these entities. As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our results of operations due to transactional and translational remeasurements. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors and securities analysts who follow our stock, the trading price of our Class A common stock could be adversely affected. 52 We recently implemented a program to hedge transactional exposure against the Euro, and may do so in the future with respect to other foreign currencies. We also use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments. Our ability to use our net operating losses and certain other tax attributes to offset future taxable income and taxes may be subject to certain limitations. As of December 31, 2021, we had federal, state and foreign net operating loss carryforwards (“NOLs”), of $4.2 billion, $2.7 billion and $268.7 million, respectively. Utilization of these NOL carryforwards depends on our future taxable income, and there is risk that a portion of our existing NOLs could expire unused, and that even if we achieve profitability, the use of our unexpired NOLs would be subject to limitations, which could materially and adversely affect our operating results. U.S. federal NOLs generated in taxable years beginning before January 1, 2018, may be carried forward only 20 years to offset future taxable income, if any. Under current law, U.S. federal NOLs generated in taxable years beginning after December 31, 2017, can be carried forward indefinitely, but the deductibility of such U.S. federal NOLs in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to federal law. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, a corporation that undergoes an “ownership change” (generally defined as a greater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre- change NOLs and other pre-change tax attributes to offset post-change taxable income and taxes. Our existing NOLs and other tax attributes may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in the future, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which may be outside of our control, could result in an ownership change under Section 382 of the Code. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition and business combinations. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock. F o r m 1 0 - K 53 Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our results of operations. A change in accounting standards or practices may have a significant effect on our results of operations and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. For example, Accounting Standards Codification (“ASC”) 842, “Leases” that became effective January 1, 2019, had a material impact on our consolidated financial statements as described in detail in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021. Adoption of these types of accounting standards and any difficulties in implementation of changes in accounting principles, including the ability to modify our accounting systems, could cause us to fail to meet our financial reporting obligations, which result in regulatory discipline and harm investors’ confidence in us. If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired. As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. In addition, if we acquire additional businesses, we may not be able to successfully integrate the acquired operations and technologies and maintain internal control over financial reporting, if applicable, in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, and could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange or the Long-Term Stock Exchange. If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings. We review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. 54 As of December 31, 2021, we carried a net $6.3 billion of goodwill and intangible assets. An adverse change in market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or intangible assets. Any such charges may adversely affect our results of operations. Risks Related to Ownership of Our Class A Common Stock The trading price of our Class A common stock has been volatile and may continue to be volatile, and you could lose all or part of your investment. Prior to our initial public offering in June 2016, there was no public market for shares of our Class A common stock. On June 23, 2016, we sold shares of our Class A common stock to the public at $15.00 per share. From June 23, 2016, the date that our Class A common stock started trading on the New York Stock Exchange, through December 31, 2021, the trading price of our Class A common stock has ranged from $22.80 per share to $457.30 per share. The trading price of our Class A common stock may continue to fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; • announcements by us or our competitors of new products or services; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • changes in laws, industry standards, regulations or regulatory enforcement in the United States or internationally, GDPR, the California Consumer Privacy Act of 2018 and other privacy or cybersecurity regulations that may be implemented in the future, including the Schrems II decision invalidating the EU-U.S. Privacy Shield, SHAKEN/STIR and other robocalling prevention and anti-spam standards and increased costs associated with such compliance, as well as enhanced Know-Your-Client processes that impact our ability to market, sell or deliver our products; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses, products, services or technologies by us or our competitors; 55 F o r m 1 0 - K • changes in accounting standards, policies, guidelines, interpretations or principles; • any significant change in our management; and • general economic conditions, including due to the COVID-19 pandemic, labor shortages, supply chain disruptions, inflation and slow or negative growth of our markets. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Substantial future sales of shares of our Class A common stock could cause the market price of our Class A common stock to decline. The market price of our Class A common stock could decline as a result of substantial sales of our Class A common stock, particularly sales by our directors, executive officers and significant stockholders, or the perception in the market that holders of a large number of shares intend to sell their shares. Additionally, the shares of Class A common stock subject to outstanding options and restricted stock unit awards under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market upon issuance, subject to applicable insider trading policies. The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial public offering, including our directors, executive officers and their respective affiliates. This limits or precludes holders of our Class A common stock from the ability to influence corporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. As of December 31, 2021, our directors, executive officers and their respective affiliates, held in the aggregate 21.3% of the voting power of our capital stock. Because of the 10-to-one voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively will continue to have concentrated control of the combined voting power of our common stock and therefore may be able to control certain matters submitted to our stockholders for approval until the earlier of (i) June 28, 2023, or (ii) the date the holders of two-thirds of our Class B common stock elect to convert the Class B common stock to Class A common stock. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. 56 If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our Class A common stock adversely, the trading price of our Class A common stock and trading volume could decline. The trading market for our Class A common stock is influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who cover us change their recommendation regarding our Class A common stock adversely, or provide more favorable relative recommendations about our competitors, the trading price of our Class A common stock would likely decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price of our Class A common stock or trading volume to decline. Anti-takeover provisions contained in our amended and restated certificate of incorporation and second amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt. Our amended and restated certificate of incorporation, second amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Among other things, our amended and restated certificate of incorporation and second amended and restated bylaws include provisions: • authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our Class A and Class B common stock; • limiting the liability of, and providing indemnification to, our directors and officers; • limiting the ability of our stockholders to call and bring business before special meetings; • providing for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; • providing that our board of directors is classified into three classes of directors with staggered three-year terms; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and • providing for advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents certain stockholders holding more than 15% of 57 F o r m 1 0 - K our outstanding common stock from engaging in certain business combinations without approval of the holders of at least two-thirds of our outstanding common stock not held by such 15% or greater stockholder. Any provision of our amended and restated certificate of incorporation, second amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our Class A common stock. Our second amended and restated bylaws provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. Our second amended and restated bylaws provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: • any derivative action or proceeding brought on our behalf; • any action asserting a breach of fiduciary duty owed by our directors, officers, employees or our stockholders; • any action asserting a claim against us arising under the Delaware General Corporation Law; and • any action asserting a claim against us that is governed by the internal-affairs doctrine (the “Delaware Forum Provision”). The Delaware Forum Provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim under the Securities Act, for which the United States District Court for the Northern District of California has sole and exclusive jurisdiction (the “Federal Forum Provision”), as we are based in the State of California. In addition, our second amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder. The Delaware Forum Provision and the Federal Forum Provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or employees, which may discourage lawsuits against us and our directors, officers and employees. If a court were to find the Delaware Forum Provision and the Federal Forum Provision in our second amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. We do not expect to declare any dividends in the foreseeable future. We have never paid dividends and we do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our Class A common stock. Our indebtedness could adversely affect our financial condition. Risks Related to our Indebtedness As of December 31, 2021, we had $1.0 billion of indebtedness outstanding (excluding intercompany indebtedness). Our indebtedness could have important consequences, including: • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; 58 • requiring a portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; • increasing our vulnerability to adverse changes in general economic, industry and competitive conditions; • exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under a future revolving credit facility, may be at variable rates of interest; and • increasing our cost of borrowing. In addition, the indenture governs our 3.625% notes due 2029 (the “2029 Notes”) and our 3.875% notes due 2031 (the “2031 Notes,” and together with the 2029 Notes, the “Notes”) and contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, under the indenture governing the Notes, if not cured or waived, could permit the trustee, or permit the holders of the Notes to cause the trustee, to declare all or part of the Notes to be immediately due and payable or to exercise any remedies provided to the trustee and/or result in the acceleration of substantially all of our indebtedness. We may not be able to generate sufficient cash to service all of our indebtedness, including the Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our ability to make scheduled payments on or to refinance our debt obligations, including the Notes, depends on our financial condition and results of operations, which in turn are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the Notes. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the Notes. Our ability to restructure or refinance our debt will depend on, among other things, the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments and the indenture that governs the Notes may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations. If we cannot make scheduled payments on our indebtedness, we will be in default and holders of the Notes and other indebtedness could declare all outstanding principal and interest to be due and payable, the lenders under a future revolving credit facility could terminate their commitments to loan money, our secured lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. If we breach the covenants under our debt instruments, we would be in default under such instruments. The holders of such indebtedness could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation. 59 F o r m 1 0 - K The indenture governing the Notes contain cross-default provisions that could result in the acceleration of all of our indebtedness. A breach of the covenants under the indenture governing the Notes could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related indebtedness and may result in the acceleration of any other indebtedness to which a cross-acceleration or cross-default provision applies. In addition, an event of default under a revolving credit facility may permit the lenders thereunder to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay amounts due and payable under a secured credit facility, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our note holders accelerate the repayment of our borrowings, we and our guarantors may not have sufficient assets to repay that indebtedness. Additionally, we may not be able to borrow money from other lenders to enable us to refinance our indebtedness. Risks Related to our Acquisitions We may not realize potential benefits from our recent acquisitions, partnerships and investments because of difficulties related to integration, the achievement of synergies, and other challenges. We regularly acquire or invest in businesses and technologies that are complementary to our business through acquisitions, partnerships or investments, including several transactions in fiscal year 2021. There can be no assurances that our businesses can be combined in a manner that allows for the achievement of substantial benefits. Any integration process may require significant time and resources, and we may not be able to manage the process successfully as our ability to acquire and integrate larger or more complex companies, products, or technology in a successful manner is unproven. If we are not able to successfully integrate these acquired businesses with ours or pursue our customer and product strategy successfully, the anticipated benefits of such acquisitions may not be realized fully or may take longer than expected to be realized. Further, it is possible that there could be a loss of our key employees and customers, disruption of ongoing businesses or unexpected issues, higher than expected costs and an overall post-completion process that takes longer than originally anticipated. In addition, the following issues, among others, must be addressed in order to realize the anticipated benefits of our acquisitions, partnerships or investments: • combining the acquired businesses’ corporate functions with our corporate functions; • combining acquired businesses with our business in a manner that permits us to achieve the synergies anticipated to result from such acquisitions, the failure of which would result in the anticipated benefits of our acquisitions not being realized in the time frame currently anticipated or at all; • maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors; • determining whether and how to address possible differences in corporate cultures and management philosophies; • integrating the companies’ administrative and information technology infrastructure; • developing products and technology that allow value to be unlocked in the future; • evaluating and forecasting the financial impact of such acquisitions, partnerships and investments, including accounting charges; and • effecting potential actions that may be required in connection with obtaining regulatory approvals. In addition, at times the attention of certain members of our management and resources may be focused on integration of the acquired businesses and diverted from day-to-day business operations, which may disrupt our ongoing business. 60 We have incurred, and may continue to incur, significant, nonrecurring costs in connection with our acquisitions, partnerships and investments and integrating our operations with those of the acquired businesses, including costs to maintain employee morale and to retain key employees. Management cannot ensure that the elimination of duplicative costs or the realization of other efficiencies will offset the transaction and integration costs in the near term or at all. Purchase price accounting in connection with our acquisitions requires estimates that may be subject to change and could impact our consolidated financial statements and future results of operations and financial position. Pursuant to the acquisition method of accounting, the purchase price we pay for our acquired businesses is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values with any excess purchase price allocated to goodwill. The acquisition method of accounting is dependent upon certain valuations and other studies that are preliminary. Differences between these preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and the combined company’s future results of operations and financial position. General Risks Any legal proceedings or claims against us could be costly and time-consuming to defend and could harm our reputation regardless of the outcome. We are and may in the future become subject to legal proceedings and claims that arise in the ordinary course of business, such as disputes or employment claims made by our current or former employees. Any litigation, whether meritorious or not, could harm our reputation, will increase our costs and may divert management’s attention, time and resources, which may in turn seriously harm our business. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs and could seriously harm our business. Unfavorable conditions in our industry or the global economy or reductions in spending on information technology and communications could adversely affect our business, results of operations and financial condition. Our results of operations may vary based on the impact of changes in our industry or the global economy on our customers. Our results of operations depend in part on demand for information technology and cloud communications. In addition, our revenue is dependent on the usage of our products, which in turn is influenced by the scale of business that our customers are conducting. To the extent that weak economic conditions, including due to the COVID-19 pandemic, labor shortages, supply chain disruptions and inflation, geopolitical developments, such as existing and potential trade wars, and other events outside of our control such as the COVID-19 pandemic, result in a reduced volume of business for, and communications by, our customers and prospective customers, demand for, and use of, our products may decline. Furthermore, weak economic conditions may make it more difficult to collect on outstanding accounts receivable and increase our expenses. Additionally, we generate a portion of our revenue from small and medium-sized businesses, which may be affected by economic downturns and other adverse macroeconomic conditions to a greater extent than enterprises, and typically have more limited financial resources, including capital borrowing capacity, than enterprises. If our customers reduce their use of our products, or prospective customers delay adoption or elect not to adopt our products, as a result of a weak economy or rising inflation and increased costs, this could adversely affect our business, results of operations and financial condition. F o r m 1 0 - K 61 Our business is subject to the risks of pandemics, earthquakes, fire, floods and other natural catastrophic events, and to interruption by man-made problems such as power disruptions, computer viruses, data security breaches or terrorism. Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics such as COVID-19, terrorism, political unrest, cyber-attacks, geopolitical instability, war, the effects of climate change and other events beyond our control. For example, our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster, such as an earthquake, fire or flood, occurring at our headquarters, at one of our other facilities or where a business partner is located could adversely affect our business, results of operations and financial condition. Further, if a natural disaster or man-made problem were to affect our service providers, this could adversely affect the ability of our customers to use our products and platform. Natural disasters, pandemics, such as the COVID-19 pandemic, and acts of terrorism could cause disruptions in our or our customers’ businesses, national economies or the world economy as a whole. We also rely on our network and third-party infrastructure and enterprise applications and internal technology systems for our engineering, sales and marketing, and operations activities. Although we maintain incident management and disaster response plans, in the event of a major disruption caused by a natural disaster or man-made problem, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of data security and loss of critical data, any of which could adversely affect our business, results of operations and financial condition. In addition, computer malware, viruses and computer hacking, fraudulent use attempts and phishing attacks have become more prevalent in our industry, have occurred on our platform in the past and may occur on our platform in the future. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, integrity and availability of our products and technical infrastructure to the satisfaction of our users may harm our reputation and our ability to retain existing users and attract new users. In addition, global climate change could result in certain types of natural disasters occurring more frequently or with more intense effects. Any such events may result in users being subject to service disruptions or outages, and we may not be able to recover our technical infrastructure in a timely manner to maintain or resume operations, which may adversely affect our financial results. Climate change may have an impact on our business. While we seek to mitigate our business risks associated with climate change (such as drought, wildfires, hurricanes, increased storm severity and sea level rise), we recognize that there are inherent climate-related risks wherever business is conducted. Our primary locations may be vulnerable to the adverse effects of climate change. For example, certain of our offices have experienced, and are projected to continue to experience, climate-related events at an increasing frequency, including drought, heat waves, wildfires and resultant air quality impacts and power shutoffs associated with wildfire prevention. Changing market dynamics, global policy developments and the increasing frequency and impact of extreme weather events on critical infrastructure in the U.S. and elsewhere have the potential to disrupt our business, the business of our third-party suppliers and the business of our customers, and may cause us to experience losses and additional costs to maintain or resume operations. In addition, we may be subject to increased regulations, reporting requirements, standards or expectations regarding the environmental impacts of our business. Item 1B. Unresolved Staff Comments None. 62 Item 2. Properties We lease all of our facilities and do not own any real property. Our headquarters is located in San Francisco, California, where we have sub-leased several floors, consisting of 259,416 square feet of office space at 101 Spear Street. The sub-lease covers several floors for which the terms commenced on December 1, 2018 and April 1, 2020 and will be expiring at various dates between March 2025 and June 2028. Our existing lease obligations are secured by letters of credit with a cumulative value of $23.7 million as of December 31, 2021. We also lease approximately 600,000 square feet in various locations in North America, South America, Europe and Asia. This includes our international headquarters in Dublin, Ireland and regional offices used for business operations, sales, support, and product development. Additional information regarding our lease commitments is available in Note 6 of our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” included elsewhere in this Annual Report on Form 10-K. We intend to procure additional space in the future as we continue expand geographically and add employees. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations. Item 3. Legal Proceedings Refer to Note 13(b) of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our current material legal proceedings. Item 4. Mine Safety Disclosures Not applicable. 63 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity PART II Securities Market Price of Our Class A Common Stock Our Class A common stock is traded on the New York Stock Exchange and, as of August 2021, the Long-Term Stock Exchange under the symbol “TWLO.” As of January 31, 2022, we had 196 holders of record of our Class A and Class B common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. Dividend Policy We have never declared or paid any cash dividends on our capital stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Twilio Inc. under the Securities Act or the Exchange Act. We have presented below the cumulative total return to our stockholders between June 23, 2016 (the date our Class A common stock commenced trading on the NYSE) through December 31, 2021, in comparison to the S&P 500 Index and S&P 500 Information Technology Index. All values assume a $100 initial investment and data for the S&P 500 Index and S&P 500 Information Technology Index assume reinvestment of dividends. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock. $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Jun-16 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Twilio Inc S&P 500 Index S&P 500 Info Tech Index 64 Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities (a) Sales of Unregistered Securities In each of the years ended December 31, 2021 and 2020, Twilio.org donated 88,408 shares of our unregistered Class A common stock to an independent donor advised fund to further our philanthropic goals. The shares were “restricted securities” for purposes of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), and had an aggregate fair market value on the date of donation of $31.2 million and $19.0 million, respectively. In 2018, we issued $550.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2023 (the “Convertible Notes”). In connection with the offering of the Convertible Notes, we entered into privately-negotiated capped call transactions with certain counterparties (the “capped calls”). The capped calls each had an initial strike price of approximately $70.90 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Notes. The capped calls had initial cap prices of $105.04 per share, subject to certain adjustments. The capped calls covered, subject to anti-dilution adjustments, approximately 7,757,200 shares of Class A Common Stock. Refer to Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the Convertible Notes and capped calls. We offered and sold the Convertible Notes to the initial purchasers in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and for resale by the initial purchasers to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act. We relied on these exemptions from registration based in part on representations made by the initial purchasers in the purchase agreement dated May 14, 2018. On May 18, 2021, we issued a notice of redemption for our Convertible Notes and in June 2021, we redeemed all of the remaining outstanding principal amount of the Convertible Notes and settled all related capped call arrangements. These transactions are described in detail in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In connection with our acquisition of Zipwhip in July 2021, we issued an additional 526 shares of unregistered Class A common stock on November 15, 2021, pursuant to a post-closing adjustment. These issuances were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. (b) Use of Proceeds In February 2021, we closed a follow-on public offering, in which we sold 4,312,500 shares of Class A common stock at a price to the public of $409.60 per share, including shares sold in connection with the exercise of the underwriters’ option to purchase additional shares. The offer and sale of all of the shares in the follow-on offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-231794), which was declared effective by the SEC on May 29, 2019. We raised $1.8 billion in net proceeds after deducting offering expenses paid by us. No payments were made by us to directors, officers or persons owning 10 percent or more of our capital stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. There has been no material change in the planned use of proceeds from our follow-on offering as described in our final prospectus filed with the SEC on February 22, 2021, pursuant to Rule 424(b)(5). We invested the funds received in accordance with our board-approved investment policy, which provides for investments in obligations of the U.S. government, money market instruments, registered money market funds and corporate bonds. The managing underwriters of our follow-on offering were Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, Academy Securities, Inc., Cabrera Capital Markets LLC, and Siebert Williams Shank & Co., LLC. In August 2020, we closed a follow-on public offering, in which we sold 5,819,838 shares of Class A common stock at a price to the public of $247.00 per share, including shares sold in connection with the 65 F o r m 1 0 - K exercise of the underwriters’ option to purchase additional shares. The offer and sale of all of the shares in the follow-on offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-231794), which was declared effective by the SEC on May 29, 2019. We raised $1.4 billion in net proceeds after deducting underwriting discounts and commissions and offering expenses paid by us. No payments were made by us to directors, officers or persons owning 10 percent or more of our capital stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. There has been no material change in the planned use of proceeds from our follow-on offering as described in our final prospectus filed with the SEC on August 7, 2020, pursuant to Rule 424(b)(5). We invested the funds received in accordance with our board-approved investment policy, which provides for investments in obligations of the U.S. government, money market instruments, registered money market funds and corporate bonds. The managing underwriters of our follow-on offering were J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Goldman, Sachs & Co. and BofA Securities, Inc. In June 2019, we closed a follow-on public offering, in which we sold 8,064,515 shares of Class A common stock at a price to the public of $124.00 per share, including shares sold in connection with the exercise of the underwriters’ option to purchase additional shares. The offer and sale of all of the shares in the follow-on offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-231794), which was declared effective by the SEC on May 29, 2019. We raised $979.0 million in net proceeds after deducting underwriting discounts and commissions and offering expenses paid by us. No payments were made by us to directors, officers or persons owning 10 percent or more of our capital stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. There has been no material change in the planned use of proceeds from our follow-on offering as described in our final prospectus filed with the SEC on May 31, 2019, pursuant to Rule 424(b). We invested the funds received in accordance with our board-approved investment policy, which provides for investments in obligations of the U.S. government, money market instruments, registered money market funds and corporate bonds. The managing underwriters of our follow-on offering were Goldman, Sachs & Co. and J.P. Morgan Securities LLC. (c) Issuer Purchases of Equity Securities None. Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. 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 I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. Our fiscal year ends on December 31. Overview We are the leader in the cloud communications platform category. We enable developers to build, scale and operate real-time 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 66 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”, included elsewhere on this Annual Report on Form 10-K. We have achieved significant growth in recent periods. In the years ended December 31, 2021, 2020 and 2019, our revenue was $2.8 billion, $1.8 billion and $1.1 billion, respectively, and our net loss was $949.9 million, $491.0 million and $307.1 million, respectively. In the years ended December 31, 2021, 2020 and 2019, our 10 largest Active Customer Accounts generated an aggregate of 11%, 14% and 13% of our total revenue, respectively. Acquisition of Zipwhip, Inc. in 2021 In July 2021, we acquired Zipwhip, Inc. (“Zipwhip”), a leading provider of toll-free messaging in the United States, for a purchase price of $838.8 million. The purchase price was paid in the form of shares of our Class A common stock and cash and included fair value of pre-combination services of Zipwhip employees that was embedded in the unvested equity awards which we assumed on the acquisition closing date. Part of the cash was paid to settle the vested stock options of Zipwhip employees that were outstanding on the acquisition closing date. We assumed all unvested and outstanding stock options and restricted stock units of Zipwhip continuing employees as converted into our own respective equity awards at the conversion ratio provided in the Agreement and Plan of Merger and Reorganization. Vesting of Class A shares of our common stock and assumed equity awards that were subject to service conditions is recorded into our stock- based compensation expense as the services are provided. This acquisition is described in detail in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Because the acquisition of Zipwhip occurred during the year ended December 31, 2021, the information presented in this section with respect to the year ended December 31, 2021 includes the contribution of Zipwhip starting from July 14, 2021, the date of acquisition. The information with respect to the periods prior to the date of acquisition relates to Twilio on a standalone basis, not including Zipwhip. As a result, comparisons to prior periods may not be indicative of future results or future rates of growth. Acquisition of Segment.io, Inc. in 2020 In November 2020, we acquired Segment.io, Inc. (“Segment”), the market-leading customer data platform, for a purchase price of $3.0 billion. The purchase price was paid in the form of shares of our Class A common stock and cash and included fair value of pre-combination services of Segment employees that was embedded in the unvested equity awards which we assumed on the acquisition closing date. Part of the cash was paid to settle the vested equity awards of Segment employees that were outstanding on the acquisition closing date. We assumed all unvested and outstanding equity awards of Segment continuing employees as converted into our own equity awards at the conversion ratio provided in the Agreement and Plan of Reorganization. Vesting of Class A shares of our common stock and assumed equity awards that were subject to service conditions is recorded into our stock-based compensation expense over the period the services are provided. This acquisition is described in detail in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Because the acquisition of Twilio Segment occurred during the year ended December 31, 2020, the information presented in this section with respect to the year ended December 31, 2020 includes the contribution of Twilio Segment starting from November 2, 2020, the date of acquisition. The information with respect to periods prior to the date of acquisition relates to Twilio on a standalone basis, not including Segment. The information with respect to year 2021 includes Segment results for the full year. As a result, comparisons to prior periods or the current full year period may not be indicative of future results or future rates of growth. F o r m 1 0 - K 67 Investment in Syniverse Corporation In February 2021, we entered into a Framework Agreement, as amended, with Syniverse Corporation (“Syniverse”) and Carlyle 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 up 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 13(a) to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. On February 9, 2022, Syniverse mutually terminated a proposed Agreement and Plan of Merger with M-3 Brigade Acquisition II Corp. (“MBAC”) because the rate of MBAC shareholder redemptions for the proposed transaction would have exceeded the minimum cash condition for closing, which occurred as a result of recent changes in market conditions (“MBAC Transaction Termination”). Because of the MBAC Transaction Termination, Twilio will not purchase any shares of common stock of, or make any investment in, MBAC. The Framework Agreement, dated as of February 26, 2021, by and between Twilio, Syniverse and Carlyle Partners V Holdings, L.P., remains in full force and effect. The amendment, dated as of August 16, 2021, to the Framework Agreement terminated on February 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, whereby Twilio 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. Public Equity Offerings In February 2021, August 2020 and June 2019, we completed public equity offerings in which we sold 4,312,500 shares, 5,819,838 shares and 8,064,515 shares, respectively, of our Class A common stock at public offering prices of $409.60 per share, $247.00 per share and $124.00 per share, respectively. We received aggregate proceeds of $1.8 billion, $1.4 billion and $979.0 million, respectively, after deducting underwriting discounts and offering expenses paid by us. Issuance of 2029 and 2031 Senior Notes In March 2021, we issued and sold $1.0 billion aggregate principal amount of senior notes, consisting of $500.0 million principal amount of 3.625% notes due 2029 (the “2029 Notes”) and $500.0 million principal amount of 3.875% notes due 2031 (the “2031 Notes,” and together with the 2029 Notes, the “Notes”). The net proceeds from the offering of these Notes were approximately $984.7 million, after deducting underwriting discounts and issuance costs paid by us. These Notes are described in detail in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Redemption of Convertible Senior Notes and Capped Call Transactions During 2021 we issued a notice of redemption for our convertible senior notes due 2023 (the “Convertible Notes”) and on June 2, 2021, we redeemed all of the remaining outstanding principal amount of the notes. During 2021 and through the date of the redemption, we converted $343.7 million aggregate principal amount of the Convertible Notes by issuing 4,846,965 shares of our Class A common stock. The extinguishment of these notes resulted in a $29.0 million loss that is included in other (expenses) income, net, in our consolidated statement of operations included elsewhere in this Annual Report on Form 10-K. Concurrently with the principal redemption, we settled the related capped call arrangements that were entered into contemporaneously with the Convertible Notes offering in May 2018. The capped call arrangements were settled for gross cash consideration of $229.8 million that we received and recorded as additional paid-in-capital, net of $1.4 million of transaction costs and a $3.2 million realized gain. These transactions are described in detail in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 68 COVID-19 UPDATE The rapid spread of the COVID-19 globally has disrupted, and may continue to disrupt, our day-to-day operations and the operations of our customers, partners and service providers for an indefinite period of time, including as a result of changing public health recommendations, travel restrictions and limitations, the duration, spread and severity and potential recurrence of the virus and its variants, as well as the efficacy of vaccines and vaccine distribution and the timing and trajectory of the economic recovery, all of which could negatively impact our business and results of operations and financial condition. Since mid-March 2020, we have taken precautionary measures to protect our employees and contingent workers and to help minimize the spread of the virus by temporarily closing our worldwide offices and minimizing business travel. We have continued to monitor the progress of vaccination efforts around the world. In the second half of 2021, as COVID-19 related restrictions have eased in some geographies, we commenced a phased reopening for certain offices. 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 I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business, financial condition and results of operations. Key Business Metrics Year Ended December 31, 2020 2021 2019 Number of Active Customer Accounts (as of end date of period)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Revenue (in thousands)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dollar-Based Net Expansion Rate(2) . . . . . . . . . . . . . . . . Total Revenue Growth Rate(1) 256,000 $2,841,839 221,000 $1,761,776 179,000 $1,134,468 61% 131% 55% 137% 75% 135% F o r m 1 0 - K (1) Includes the contributions from our Zipwhip business, acquired July 14, 2021; Twilio Segment business, acquired November 2, 2020; Twilio SendGrid business, acquired February 1, 2019; and other smaller acquisitions from the dates of their respective acquisitions except for the Number of Active Customer Accounts, which excludes customer accounts from our Zipwhip business. (2) As previously announced in our Annual Report on Form 10-K filed with the SEC on March 2, 2020, commencing with the three-month period ended March 31, 2020, we calculate our Dollar-Based Net Expansion Rate by comparing total revenue from a cohort of Active Customer Accounts in a period to the same period in the prior year (the “New DBNE Definition”). To facilitate comparison between the periods presented, Dollar-Based Net Expansion Rate as presented in the table above has been calculated as if the New DBNE Definition had been in effect during that period. As a result of the New DBNE Definition, unless specifically identified as being calculated using total revenue, any Dollar-Based Net Expansion Rates disclosed by us in our SEC filings, press releases and presentations 69 prior to the date of our press release for the three months ended March 31, 2020, will not be directly comparable to our Dollar-Based Net Expansion Rates going forward. Unless an acquisition closes on the first day of a quarter, revenue from an acquisition will not impact this calculation until the quarter following the one year anniversary of the acquisition. 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 years ended December 31, 2021, 2020 and 2019, revenue from Active Customer Accounts represented over 99% of total revenue in each period. A single organization may constitute multiple unique Active Customer Accounts if it has multiple account identifiers, each of which is treated as a separate Active Customer Account. Dollar-Based Net Expansion Rate. Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing Active Customer Accounts and to increase their use of the platform. An important way in which we have historically tracked performance in this area is by measuring the Dollar-Based Net Expansion Rate for Active Customer Accounts. Our Dollar-Based Net Expansion Rate increases when such Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product. Our Dollar-Based Net Expansion Rate decreases when such Active Customer Accounts cease or reduce their usage of a product or when we lower usage prices on a product. As our customers grow their businesses and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of revenue in a quarterly reporting period) that has created a new Active Customer Account, this new Active Customer Account is tied to, and revenue from this new Active Customer Account is included with, the original Active Customer Account for the purposes of calculating this metric. We believe that measuring Dollar-Based Net Expansion Rate provides a more meaningful indication of the performance of our efforts to increase revenue from existing customers. For historical periods through December 31, 2019, our Dollar-Based Net Expansion Rate compared the revenue from Active Customer Accounts, other than large Active Customer Accounts that have never entered into 12-month minimum revenue commitment contracts with us, in a quarter to the same quarter in the prior year. For reporting periods starting with the three months ended March 31, 2020, our Dollar- Based Net Expansion Rate compares the revenue from all Active Customer Accounts in a quarter to the same quarter in the prior year. To calculate the Dollar-Based Net Expansion Rate, we first identify the cohort of Active Customer Accounts that were Active Customer Accounts in the same quarter of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. When we calculate Dollar-Based Net Expansion Rate for periods longer than one quarter, we use the average of the applicable quarterly Dollar-Based Net Expansion Rates for each of the quarters in such period. 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. As a result of the change in calculation of Dollar- Based Net Expansion Rate, unless specifically identified as being calculated based on total revenue, any Dollar-Based Net Expansion Rates disclosed by us in our SEC filings, press releases and presentations prior to the date of our press release for the three months ended March 31, 2020, will not be directly comparable to our Dollar-Based Net Expansion Rates going forward. 70 Net Loss Carryforwards At December 31, 2021, we had federal, state and foreign net operating loss carryforwards of approximately $4.2 billion, $2.7 billion and $268.7 million, respectively, and federal and state tax credits of approximately $132.9 million and $84.9 million, respectively. If not utilized, the federal and state loss carryforwards will expire at various dates beginning in 2029 and 2025, respectively, and the federal tax credits will expire at various dates beginning in 2029. The state tax credits can be carried forward indefinitely. At present, we believe that it is more likely than not that the federal and state net operating loss and credit carryforwards will not be realized. Accordingly, a full valuation allowance has been established for these tax attributes, as well as the rest of the federal and state deferred tax assets. Key Components of Statements of Operations Revenue. We derive our revenue primarily from usage-based fees earned from customers using the software products within our Channel APIs. These usage-based software products include offerings, such as Programmable Messaging, Programmable Voice and Programmable Video, among others. Some examples of the usage-based fees that we charge include 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 years ended December 31, 2021, 2020 and 2019, we generated 72%, 76% and 75% of our revenue, respectively, from usage-based fees. We also earn monthly flat fees from certain fee-based products, such as our Email API, Marketing Campaigns, 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 define U.S. revenue as revenue from customers with IP addresses or mailing addresses at the time of registration in the United States, and we define international revenue as revenue from customers with IP addresses or mailing addresses at the time of registration outside of the United States. Cost of Revenue and Gross Margin. Cost of revenue consists primarily of fees paid to network service providers. Cost of revenue also includes cloud infrastructure fees, direct costs of personnel, such as salaries and stock-based compensation for our customer support employees, and non-personnel costs, such as depreciation and amortization expense related to data centers and hosting equipment, amortization of capitalized internal use software development costs and acquired intangibles. Our arrangements with network service providers require us to pay fees based on the volume of phone calls initiated or text messages sent, as well as the number of telephone numbers acquired by us to service our customers. Our arrangements with our cloud infrastructure provider require us to pay fees based on our server capacity consumption. Our gross margin has been and will continue to be affected by a number of factors, including the timing and extent of our investments in our operations; our product mix; our ability to manage our network service provider and cloud infrastructure-related fees, including A2P SMS fees; the mix of U.S. revenue compared to international revenue; changes in foreign exchange rates; the timing of amortization 71 F o r m 1 0 - K of capitalized software development costs and acquired intangibles; and the extent to which we periodically choose to pass on our cost savings from platform optimization efforts to our customers in the form of lower usage prices. Operating Expenses. The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, sales commissions and bonuses and stock-based compensation. We also incur other non-personnel costs related to our general overhead expenses. We expect that our operating costs will increase in absolute dollars as we add additional employees and invest in our infrastructure to grow our business. Research and Development. Research and development expenses consist primarily of personnel costs, outsourced engineering services, cloud infrastructure fees for staging and development, amortization of capitalized internal use software development costs, depreciation and an allocation of our general overhead expenses. We capitalize the portion of our software development costs that meets the criteria for capitalization. We continue to focus our research and development efforts on adding new features and products, including new use cases, improving our platform and increasing the functionality of our existing products. Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, including commissions for our sales employees. Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities and developer evangelism, costs related to our SIGNAL customer and developer conferences, credit card processing fees, professional services fees, depreciation, amortization of acquired intangibles and an allocation of our general overhead expenses. 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 self-service model with an enterprise sales approach, expanding our sales channels, driving our go-to-market strategies, building our brand awareness and sponsoring additional marketing events. General and Administrative. General and administrative expenses consist primarily of personnel costs for our accounting, finance, legal, human resources and administrative support personnel. 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 13(d) to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Provision for Income Taxes. Our income tax provision or benefit consists primarily of income taxes, withholding taxes in foreign jurisdictions in which the Company conducts business and the tax benefit related to the release of valuation allowance from acquisitions. 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 non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial 72 information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which use similar non-GAAP financial information to supplement their GAAP results. Non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from similarly-titled non-GAAP measures used by other companies. Whenever we use a non-GAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with generally accepted accounting principles. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures. Non-GAAP Gross Profit and Non-GAAP Gross Margin. For the periods presented, we define non- GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below: Reconciliation: Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP adjustments: Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of acquired intangibles . . . . . . . . . . . . . . . . Payroll taxes related to stock-based compensation . . . . . Year Ended December 31, 2021 2020 2019 $1,390,713 (In thousands) $915,661 $608,917 49% 52% 54% 14,074 114,896 — 8,857 59,501 — 7,123 45,267 104 Non-GAAP gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,519,683 $ 984,019 $ 661,411 Non-GAAP gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53% 56% 58% Non-GAAP Operating Expenses. For the periods presented, we define non-GAAP operating expenses (including categories of operating expenses) as GAAP operating expenses (and categories of operating expenses) adjusted to exclude, as applicable, certain expenses as presented in the table below: Reconciliation: Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP adjustments: Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . Amortization of acquired intangibles . . . . . . . . . . . . . . Acquisition-related expenses . . . . . . . . . . . . . . . . . . . . . Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . Payroll taxes related to stock-based compensation . . . Year Ended December 31, 2021 2020 2019 $2,306,297 (In thousands) $1,408,562 $ 978,702 (618,211) (83,888) (7,449) (31,169) (48,417) (353,054) (38,993) (21,765) (18,993) (27,389) (257,195) (27,540) (15,713) — (15,084) F o r m 1 0 - K Non-GAAP operating expenses . . . . . . . . . . . . . . . . . . $1,517,163 $ 948,368 $ 663,170 73 Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin. For the periods presented, we define non-GAAP income (loss) from operations and non-GAAP operating margin as GAAP loss from operations and GAAP operating margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below: Reconciliation: Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP adjustments: Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . Amortization of acquired intangibles . . . . . . . . . . . . . . . Acquisition-related expenses . . . . . . . . . . . . . . . . . . . . . . Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . Payroll taxes related to stock-based compensation . . . . Year Ended December 31, 2021 2020 2019 $(915,584) (In thousands) $(492,901) $(369,785) (32)% (28)% (33)% 632,285 198,784 7,449 31,169 48,417 361,911 98,494 21,765 18,993 27,389 264,318 72,807 15,713 — 15,188 Non-GAAP income (loss) from operations . . . . . . . . . . $ 2,520 $ 35,651 $ (1,759) Non-GAAP operating margin . . . . . . . . . . . . . . . . . . . . . —% 2% —% 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 July 14, 2021, Twilio Segment after November 2, 2020; Twilio SendGrid after February 1, 2019, and all other acquisitions from the respective closing dates of each such 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 I, Item 1A, “Risk Factors.” 74 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 materially from our estimates. Year Ended December 31, 2021 2020 2019 (In thousands, except share and per share amounts) Consolidated Statements of Operations Data: Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of revenue(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Research and development (1)(2) . . . . . . . . . . . . . . . . . . . . . . . Sales and marketing (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative (1)(2) . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (expenses) income, net Loss before benefit for income taxes . . . . . . . . . . . . . . . . . Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss attributable to common stockholders . . . . . . . . . Net loss per share attributable to common stockholders, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ (1) Includes stock-based compensation expense as follows: 2,841,839 1,451,126 1,390,713 789,219 1,044,618 472,460 2,306,297 (915,584) (45,345) (960,929) 11,029 $ 1,761,776 846,115 $ 1,134,468 525,551 915,661 608,917 530,548 567,407 310,607 1,408,562 (492,901) (11,525) (504,426) 13,447 391,355 369,079 218,268 978,702 (369,785) 7,569 (362,216) 55,153 (949,900) $ (490,979) $ (307,063) (5.45) $ (3.35) $ (2.36) 174,180,465 146,708,663 130,083,046 Year Ended December 31, 2021 2020 2019 (In thousands) Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,074 258,672 213,351 146,188 $ 8,857 173,303 103,450 76,301 $ 7,123 126,012 60,886 70,297 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $632,285 $361,911 $264,318 (2) Includes amortization of acquired intangibles as follows: F o r m 1 0 - K 75 Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 $114,896 1,260 82,493 135 (In thousands) $59,501 — 38,915 78 $45,267 — 27,540 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $198,784 $98,494 $72,807 Year Ended December 31, 2021 2020 2019 Consolidated Statements of Operations, as a percentage of revenue: ** Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100% 48 51 46 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (expenses) income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss before benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 28 37 17 81 (32) (2) (34) * 52 30 32 18 80 (28) (1) (29) 1 54 34 33 19 86 (33) 1 (32) 5 Net loss attributable to common stockholders . . . . . . . . . . . . . . . . . . . . (33%) (28%) (27)% * Less than 0.5% of revenue. ** Columns may not add up to 100% due to rounding. Comparison of the Fiscal Years Ended December 31, 2021, 2020 and 2019 Revenue Year Ended December 31, 2021 2020 2019 2020 to 2021 Change 2019 to 2020 Change Total Revenue . . . . . . . . . . . . . . . $2,841,839 $1,761,776 (Dollars in thousands) $1,134,468 $1,080,063 61% $627,308 55% 2021 compared to 2020 In 2021, total revenue increased by $1.1 billion, or 61%, 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 products, Programmable Voice products and Email products, the adoption of additional products by our existing customers, the additional A2P fees imposed by certain carriers and revenue contributions from our acquisitions of Twilio Segment, Zipwhip and other businesses. The change in usage from our existing customers was reflected in our Dollar-Based Net Expansion Rate of 131% for the year ended December 31, 2021. The increase in usage was also attributable to a 16% increase in the number of Active Customer Accounts, from 221,000 as of December 31, 2020, to over 256,000 as of December 31, 2021. 76 In 2021, U.S. revenue and international revenue represented $1.9 billion or 66%, and $960.0 million, or 34%, respectively, of total revenue. In 2020, U.S. revenue and international revenue represented $1.3 billion, or 73%, and $479.6 million, or 27%, respectively, of total revenue. The increase in international revenue was attributable to the growth in usage of our products, particularly our Programmable Messaging products and Programmable Voice products, by our existing international Active Customer Accounts; a 14% increase in the number of international Active Customer Accounts driven in part by our focus on expanding our sales to customers outside of the United States; and revenue contribution from our recent acquisitions. 2020 compared to 2019 In 2020, total revenue increased by $627.3 million, or 55%, 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 products and Programmable Voice products, the adoption of additional products by our existing customers, and revenue contribution from our acquisition of our Twilio Segment business for the period from November 2, 2020, through December 31, 2020. This increase was partially offset by pricing decreases that we have implemented over time in the form of lower usage prices, in an effort to increase the reach and scale of our platform. The changes in usage and prices in 2020 were reflected in our Dollar-Based Net Expansion Rate of 137%. The increase in usage was also attributable to a 23% increase in the number of Active Customer Accounts, from 179,000 as of December 31, 2019, to over 221,000 as of December 31, 2020, which was also positively impacted by the customer accounts added through the acquisition of our Twilio Segment business. In 2020, U.S. revenue and international revenue represented $1.3 billion or 73%, and $479.6 million, or 27%, respectively, of total revenue. In 2019, U.S. revenue and international revenue represented $808.9 million, or 71%, and $325.6 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 products and Programmable Voice products, by our existing international Active Customer Accounts; a 23% increase in the number of international Active Customer Accounts driven in part by our focus on expanding our sales to customers outside of the United States; and revenue contribution from the acquisition of our Twilio Segment business. Cost of Revenue and Gross Margin Year Ended December 31, 2021 2020 2019 2020 to 2021 Change 2019 to 2020 Change Cost of revenue . . . . . . . . . . . . . . . . . . . Gross margin . . . . . . . . . . . . . . . . . . . . . $1,451,126 $846,115 (Dollars in thousands) $525,551 $605,011 49% 52% 54% 72% $320,564 61% F o r m 1 0 - K 2021 compared to 2020 In 2021, cost of revenue increased by $605.0 million, or 72%, compared to the same period last year. The increase in cost of revenue was primarily attributable to a $465.5 million increase in network service providers’ costs, which included the additional A2P fees imposed by certain carriers, and a $44.2 million increase in cloud infrastructure fees, all to support the growth in usage of our products. The increase was also due to a $55.4 million increase in the amortization expense of intangible assets that we acquired through business combinations. In addition, the year ended December 31, 2021, included cost of revenue from our recent acquisitions. In 2021, 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, 77 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, the impact of the acquisition of our Twilio Segment business and certain operational improvements. 2020 compared to 2019 In 2020, cost of revenue increased by $320.6 million, or 61%, compared to the same period last year. The increase in cost of revenue was primarily attributable to a $246.2 million increase in network service providers’ costs and a $32.3 million increase in cloud infrastructure fees, both to support the growth in usage of our products. The increase was also due to a $14.2 million increase in the amortization expense of intangible assets that we acquired through business combinations. In 2020, gross margin percentage declined compared to the same period last year. This decline was primarily driven by a re-acceleration in growth of our messaging business, an increase in amortization expense related to acquired intangible assets, the impact of an increasing mix of international product usage and an increase in network service provider fees in certain geographies, which we pass to our customers at cost. These declines were partially offset by the impact of the acquisition of our Twilio Segment business and certain operational improvements. Operating Expenses Year Ended December 31, 2021 2020 2019 2020 to 2021 Change 2019 to 2020 Change (Dollars in thousands) Research and development . . . . . . . . Sales and marketing . . . . . . . . . . . . . . General and administrative . . . . . . . . $ 789,219 1,044,618 472,460 $ 530,548 567,407 310,607 $391,355 369,079 218,268 $258,671 477,211 161,853 49% $139,193 36% 84% 198,328 54% 42% 52% 92,339 Total operating expenses . . . . . . . . $2,306,297 $1,408,562 $978,702 $897,735 64% $429,860 44% 2021 compared to 2020 In 2021, research and development expenses increased by $258.7 million, or 49%, compared to the same period last year. The increase was primarily attributable to a $225.0 million increase in personnel costs, net of a $15.7 million increase in capitalized software development costs, largely as a result of a 54% 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 addition, the year ended December 31, 2021 included research and development expenses and the impact of growth in headcount from our recent acquisitions. In 2021, sales and marketing expenses increased by $477.2 million, or 84%, compared to the same period last year. The increase was primarily attributable to a $331.5 million increase in personnel costs, largely as a result of a 74% average increase in sales and marketing headcount, as we continued to expand our sales efforts globally. The increase was also due to a $43.6 million increase related to the amortization of acquired intangible assets and a $31.6 million increase in advertising expenses. In addition, the year ended December 31, 2021 included sales and marketing expenses and the impact of growth in headcount from our recent acquisitions. In 2021, general and administrative expenses increased by $161.9 million, or 52%, compared to the same period last year. The increase was primarily attributable to a $142.1 million increase in personnel costs, largely as a result of a 75% average increase in general and administrative headcount, to support the growth of our business globally. The increase was also due to a $12.2 million increase in charitable contributions that we made through Twilio.org, $11.2 million increase in professional service fees incurred 78 in the ordinary course of business, offset by a $14.2 million decrease in professional services related to our acquisitions. In addition, the year ended December 31, 2021 included general and administrative expenses and the impact of growth in headcount from our recent acquisitions. 2020 compared to 2019 In 2020, research and development expenses increased by $139.2 million, or 36%, compared to the same period last year. The increase was primarily attributable to a $128.3 million increase in personnel costs, net of a $17.8 million increase in capitalized software development costs, largely as a result of a 63% 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. The increase was also due to a $13.3 million increase in our cloud infrastructure fees related to staging and development of our products. In addition, the year ended December 31, 2020 included research and development expenses and headcount from our recent acquisitions. In 2020, sales and marketing expenses increased by $198.3 million, or 54%, compared to the same period last year. The increase was primarily attributable to a $137.4 million increase in personnel costs, largely as a result of a 88% average increase in sales and marketing headcount, as we continued to expand our sales efforts in the United States and abroad. The increase was also due to a $11.4 million increase related to the amortization of acquired intangible assets and a $20.1 million increase in advertising expenses. In addition, the year ended December 31, 2020, included sales and marketing expenses and headcount from our recent acquisitions. In 2020, general and administrative expenses increased by $92.3 million, or 42%, compared to the same period last year. The increase was primarily attributable to a $25.4 million increase in personnel costs, largely as a result of a 66% average increase in general and administrative headcount, to support the growth of our business globally. The increase was also due to a $19.0 million increase in charitable contributions due to several donations made by Twilio.org, a $10.7 million increase in our allowance for estimated credit losses partially impacted by the COVID-19 environment and a $5.8 million increase in professional expenses related to our acquisitions of other business. Additionally, certain of our taxes increased by $7.9 million primarily in foreign jurisdictions and our professional services fees increased by $6.6 million. In addition, the year ended December 31, 2021 included general and administrative expenses and headcount from our recent acquisitions. 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 in June 2019, August 2020 and February 2021, respectively; (ii) the aggregate net proceeds of approximately $537.0 million, after deducting purchaser discounts and debt issuance costs paid by us, from the issuance of our Convertible Notes in May 2018; (iii) 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 in March 2021; (iv) the net proceeds of $228.4 million, after deducting transaction costs paid by us, from settlement of our capped call arrangements in June 2021; and (v) 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. Refer to Note 6, Note 10, Note 13(a) and Note 18 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for detailed discussions of our obligations and commitments related to leases, debt, other purchase obligations and our proposed minority investment in Syniverse 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, 79 F o r m 1 0 - K 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 I, 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 I, Item 1A, “Risk Factors.” Cash Flows The following table summarizes our cash flows: Year Ended December 31, 2021 2020 2019 Cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . Cash (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash, cash equivalents and $ (58,192) $ (2,489,996) 3,096,325 (In thousands) 32,654 (845,855) 1,493,311 $ 14,048 (1,285,792) 1,020,145 restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (191) 40 — Net increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 547,946 $ 680,150 $ (251,599) Cash Flows from Operating Activities In 2021, cash used in operating activities consisted primarily of our net loss of $949.9 million adjusted for non-cash items, including $632.3 million of stock-based compensation expense, $17.2 million of tax benefit related to release of valuation allowance in connection with our Zipwhip and prior acquisitions, $258.4 million of depreciation and amortization expense, $5.8 million amortization of the debt discount and issuance costs related to our long-term debt, $48.8 million of non-cash reduction to our operating right-of-use asset, $31.5 million amortization of deferred commissions and $185.1 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $196.0 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 $137.7 million primarily due to increases in transaction volumes. Operating lease liability decreased $49.0 million due to payments made against our operating lease obligations. Other long-term assets increased $121.2 million primarily due to an increase in the sales commissions balances related to the growth of our business. In 2020, cash provided by operating activities consisted primarily of our net loss of $491.0 million adjusted for non-cash items, including $360.9 million of stock-based compensation expense, $16.5 million of tax benefit related to release of valuation allowance in connection with our acquisitions of other businesses, $149.7 million of depreciation and amortization expense, $23.8 million amortization of the debt discount and issuance costs related to our long-term debt, $38.4 million of non-cash reduction to our 80 operating right-of-use asset, $13.3 million amortization of deferred commissions, a $13.2 million increase in our allowance for credit losses, and $97.4 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $92.9 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 $98.4 million primarily due to increases in transaction volumes. Operating lease liability decreased $33.9 million due to payments made against our operating lease obligations. Other long-term assets increased $81.9 million primarily due to an increase in the sales commissions balances related to the growth of our business. Cash Flows from Investing Activities In 2021, cash used in investing activities was $2.5 billion primarily consisting of $1.9 billion of purchases of marketable securities and other investments, net of maturities and sales, $491.5 million of net cash paid to acquire other businesses as described in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, $44.0 million related to capitalized software development costs and $46.0 million related to purchases of long-lived assets. In 2020, cash used in investing activities was $845.9 million primarily consisting of $453.1 million of purchases of marketable securities and other investments, net of maturities and sales, $333.6 million of net cash paid to acquire other businesses as described in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, $33.3 million related to capitalized software development costs and $25.8 million related to purchases of long-lived assets. Cash Flows from Financing Activities In 2021, cash provided by financing activities was $3.1 billion primarily consisting of $1.8 billion in net proceeds from our public equity offering, as described in Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K; $984.7 million in net proceeds from the issuance of our 2029 Notes and 2031 Notes and $228.4 million in net proceeds from the settlement of the capped call transactions related to our Convertible Notes, which were fully redeemed during 2021, as described in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K; and $136.2 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan. In 2020, cash provided by financing activities was $1.5 billion primarily consisting of $1.4 billion in net proceeds from our public equity offering, as described in Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and $104.8 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan. We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. Off-Balance Sheet Arrangements We have one business activity and operate in one reportable segment. Segment Information Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, 81 F o r m 1 0 - K 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. We believe that the accounting policies, assumptions and estimates associated with revenue recognition and business combinations have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of our accounting policies. Revenue Recognition Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter 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. Our revenue is primarily derived from usage-based fees earned from customers accessing our enterprise cloud computing services. Platform access is considered a monthly series comprising one performance obligation and usage-based fees are recognized as revenue in the period in which the usage occurs. Subscription-based fees are derived from certain non-usage-based contracts, such as with the sales of short codes, customer support, and fees charged to access the cloud-based platform of our Twilio Segment business, which acquisition is further described in Note 7 to our consolidated financial statements included elsewhere in this Annual Report of Form 10-K. Non-usage-based contracts revenue is recognized on a ratable basis over the contractual term which is generally from one to three years. Our arrangements do not contain general rights of return. However, credits may be issued on a case-by-case basis. Credits are accounted for as variable consideration, are estimated based on historical trends and are recorded against revenue. 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. Business Combinations Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to future expected cash flows from acquired developed technologies; existing customer relationships; uncertain tax positions and tax related valuation allowances assumed; and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. 82 Recent Accounting Pronouncements Not Yet Adopted See Note 2(ac) to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements not yet adopted. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to certain market risks in the ordinary course of our business, including sensitivities as follows: Interest Rate Risk We had cash, cash equivalents and restricted cash of $1.5 billion and marketable securities of $3.9 billion as of December 31, 2021. Cash, cash equivalents and restricted cash consist of bank deposits, money market funds and commercial paper. Marketable securities consist primarily of U.S. treasury securities, non-U.S. government securities and high credit quality corporate debt securities. The cash and cash equivalents and marketable securities are held for working capital purposes. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. In May 2018, we issued $550.0 million aggregate principal amount of Convertible Notes, which were fully redeemed as of June 2, 2021. In March 2021, we issued $1.0 billion aggregate principal amount of our 2029 Notes and 2031 Notes carrying fixed interest rates of 3.625% and 3.875%, respectively. Currency Exchange Risks The functional currency of most of our foreign subsidiaries is the U.S. dollar. The local currencies of our foreign subsidiaries are the Australian dollar, the Bermuda dollar, the Brazilian real, the British pound, the Canadian dollar, the Colombian peso, the Czech Republic koruna, the Euro, the Hong Kong dollar, the Indian rupee, the Japanese yen, the Mexican Peso, the Polish Zloty, the Serbian Dinar, the Singapore dollar and the Swedish krona. F o r m 1 0 - K Our 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 month in which a transaction occurs. If there is a change in foreign currency exchange rates, the conversion of our foreign subsidiaries’ financial statements into U.S. dollars would result in a realized gain or loss which is recorded in our consolidated statements of operations. We enter into foreign currency derivative hedging transactions to mitigate our exposure to market risks that may result from changes in foreign currency exchange rates. For further information, see Note 2(x) and Note 5 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements. 83 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm (PCAOB ID: 185) . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 85 88 89 90 91 93 94 84 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Twilio Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Twilio Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company acquired Zipwhip, Inc. during fiscal 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Zipwhip, Inc.’s internal control over financial reporting associated with total assets of $51.9 million and total revenues of $55.4 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Zipwhip, Inc. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal 85 F o r m 1 0 - K control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of the sufficiency of audit evidence over revenue recognition As discussed in Note 2(e) to the consolidated financial statements, the Company’s revenue is derived from usage and non-usage based fees earned from customers accessing the Company’s enterprise cloud computing services. As of December 31, 2021, the Company recorded $2.8 billion in revenues, a portion of which related to Programmable Messaging and Programmable Voice APIs. The Company’s revenue recognition process is highly automated and revenue is recorded within the Company’s general ledger through reliance on customized and proprietary information technology (IT) systems. We identified the evaluation of the sufficiency of audit evidence over revenue recognition related to the Company’s Programmable Messaging and Programmable Voice APIs as a critical audit matter. This matter required especially subjective auditor judgment because of the large number of information technology (IT) applications involved in the revenue recognition process. Auditor judgment was required in determining the nature and extent of audit evidence obtained over these information systems that process revenue transactions. Involvement of IT professionals with specialized skills and knowledge was required to assist with the performance and evaluation of certain procedures and determination of IT applications subject to testing. The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue 86 recognition. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s Programmable Messaging and Programmable Voice revenue recognition process. We involved IT professionals with specialized skills and knowledge, who assisted in testing controls related to the Company’s general information technology and application controls related to the systems utilized within the Company’s Programmable Messaging and Programmable Voice revenue recognition process. For a sample of customer agreements, we tested the Company’s identification and treatment of significant contract terms, including comparing the pricing reflected in the Company’s revenue IT system to the contractually agreed upon pricing with the customer. For a sample of revenue transactions, we compared the amounts recognized for consistency with underlying documentation, including contracts with customers. We assessed the recorded revenue by comparing revenue to underlying cash receipts. We evaluated credits issued after year end to assess the revenue recorded within the period. In addition, we evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed, including appropriateness of the nature and extent of such evidence. Valuation of the acquisition date intangible assets related to a business combination As discussed in Note 7 to the consolidated financial statements, on July 14, 2021, the Company acquired Zipwhip, Inc. (Zipwhip) by issuing shares of its Class A common stock worth approximately $419.2 million and paying approximately $418.1 million of cash. As part of the acquisition, the Company acquired $244.5 million of intangible assets, including customer relationships. We identified the assessment of the valuation of the acquisition date customer relationship intangible asset acquired as a critical audit matter. There was a high degree of subjective auditor judgment in assessing the discount rate and forecasted revenue growth rates used to derive the fair value of the customer relationship acquired intangible asset. In addition, this fair value was challenging to test due to the sensitivity of the fair value determination to changes in these assumptions. The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to value acquired intangible assets, including the Company’s controls over the discount rate and forecasted revenue growth rate. We compared prior period forecasted revenue to prior period actual revenue to evaluate the Company’s ability to forecast. We evaluated the Company’s forecasted revenue growth rates used to value the customer relationship intangible asset by (1) comparing the growth forecast assumptions to historical growth rates of peer companies, and (2) comparing forecasted growth rates to historical growth rates. We involved a valuation professional with specialized skills and knowledge, who assisted in testing by: • evaluating the discount rate used by the Company to value the customer relationship intangible asset by assessing the relevant inputs used by the Company in their calculation of their discount rate • recalculating the estimate of the fair value of the customer relationship intangible asset acquired using the Company’s cash flow forecast and discount rate independently corroborated by our valuation specialists and comparing the result to the Company’s fair value estimate. F o r m 1 0 - K /s/ KPMG LLP We have served as the Company’s auditor since 2013. Santa Clara, California February 22, 2022 87 TWILIO INC. Consolidated Balance Sheets As of December 31, 2021 2020 (In thousands, except share and per share amounts) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term marketable securities . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets . . . . . . . . . . . . . . $ Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . Operating right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,479,452 3,878,430 388,215 186,131 5,932,228 255,316 234,584 1,050,012 5,263,166 263,292 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,998,598 $ LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other current liabilities . . . . . . . . . . . Deferred revenue and customer deposits . . . . . . . . . . . . . . . Operating lease liability, current . . . . . . . . . . . . . . . . . . . . . . . $ Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liability, noncurrent . . . . . . . . . . . . . . . . . . . Finance lease liability, noncurrent . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,333 417,503 140,389 52,325 703,550 211,253 25,132 985,907 41,290 933,885 2,105,906 251,167 81,377 3,372,335 183,239 258,610 966,573 4,595,394 111,282 9,487,433 60,042 252,895 87,031 48,338 448,306 229,905 17,856 302,068 36,633 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,967,132 1,034,768 Commitments and contingencies (Note 13) Stockholders’ equity: Preferred stock, $0.001 par value, 100,000,000 shares authorized, none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . Class A and Class B common stock, $0.001 par value per share Authorized shares 1,100,000,000 as of December 31, 2021 and 2020; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued and outstanding shares 180,468,099 and 164,047,524 as of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive (loss) income . . . . . . . . Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . — — 180 13,169,118 (18,141) (2,119,691) 11,031,466 164 9,613,246 9,046 (1,169,791) 8,452,665 9,487,433 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . $ 12,998,598 $ See accompanying notes to consolidated financial statements. 88 TWILIO INC. Consolidated Statements of Operations Year Ended December 31, 2021 2020 2019 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (In thousands, except share and per share amounts) 2,841,839 1,451,126 1,761,776 846,115 1,134,468 525,551 $ $ Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,390,713 915,661 608,917 Operating expenses: Research and development . . . . . . . . . . . . . . . . . . . . . Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (expenses) income, net Loss before benefit for income taxes . . . . . . . . . . . . . . Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 789,219 1,044,618 472,460 2,306,297 (915,584) (45,345) (960,929) 11,029 530,548 567,407 310,607 1,408,562 (492,901) (11,525) (504,426) 13,447 391,355 369,079 218,268 978,702 (369,785) 7,569 (362,216) 55,153 Net loss attributable to common stockholders . . . . . . $ (949,900) $ (490,979) $ (307,063) Net loss per share attributable to common stockholders, basic and diluted . . . . . . . . . . . . . . . . . $ (5.45) $ (3.35) $ (2.36) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted . . . . . . . . . . . 174,180,465 146,708,663 130,083,046 F o r m 1 0 - K See accompanying notes to consolidated financial statements. 89 TWILIO INC. Consolidated Statements of Comprehensive Loss Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive (loss) income: Unrealized (loss) gain on marketable securities . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in market value of effective foreign currency forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 — Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . (27,187) 3,960 Year Ended December 31, 2021 2020 2019 (In thousands) $(949,900) $(490,979) $(307,063) (27,215) (266) 3,674 286 3,804 — — 3,804 Comprehensive loss attributable to common stockholders . . . . . $(977,087) $(487,019) $(303,259) See accompanying notes to consolidated financial statements. 90 TWILIO, INC. Consolidated Statements of Stockholder’s Equity Common Stock Class A Common Stock Class B Shares Amount Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity Balance as of December 31, 2018 . . . . . . . . 80,769,763 $ 80 19,310,465 (In thousands, except share amounts) $ 1,282 808,527 $20 $ Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercises of stock options . . . . . . . . . . . . . . Recapitalization of a subsidiary . . . . . . . . . . Vesting of restricted stock units . . . . . . . . . Value of equity awards withheld for tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 — — 2 1,466,813 2,775,788 — — 2 — — 1 2,154,053 117,331 — 37,760 75 — (23,543) — (22,095) — (5,412) Conversion of shares of Class B common stock into shares of Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,029,127 Shares of Class A common stock issued 9 (10,029,127) (9) — under ESPP . . . . . . . . . . . . . . . . . . . . . . . . 244,628 — — — 19,738 Shares of Class A common stock issued in connection with a follow-on public offering, net of underwriters’ discounts and issuance costs . . . . . . . . . . . . . . . . . . . Shares of Class A common stock issued in 8,064,515 acquisition . . . . . . . . . . . . . . . . . . . . . . . . . 23,555,081 Value of equity awards assumed in 8 24 — — 979,039 — — 2,658,874 acquisition . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 182,554 — — — — — — — — — Unrealized gain on marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . — — — — — — — — — 271,844 3,804 — $ (371,674) $ 438,235 (307,063) — (75) — — — — (307,063) 37,763 — 3 (5,412) — 19,738 979,047 — 2,658,898 — — — 182,554 3,804 271,844 Balance as of December 31, 2019 . . . . . . . . 126,882,172 $124 11,530,627 $14 $ 4,952,999 $ 5,086 $ (678,812) $ 4,279,411 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercises of stock options . . . . . . . . . . . . . . Vesting of restricted stock units . . . . . . . . . Value of equity awards withheld for tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of shares of Class B common stock into shares of Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity component from partial settlement of convertible senior notes due 2023 . . . . Shares of Class A common stock issued under ESPP . . . . . . . . . . . . . . . . . . . . . . . . Shares of Class A common stock donated to charity . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of shares of Class A common stock in connection with a follow-on public offering, net of underwriters’ discounts and issuance costs . . . . . . . . . . Shares of Class A common stock issued in — — 2 4 2,263,629 3,525,401 1,232,099 — — 1 29,007 — — 72,514 — (34,893) — (4,692) — (8,778) 2,235,739 2,902,434 291,800 2 3 1 88,408 — (2,235,739) (2) — — — 190,757 — — — — 32,242 18,993 5,819,838 6 9 — — 1,408,163 — — 2,532,347 acquisition . . . . . . . . . . . . . . . . . . . . . . . . . 9,263,140 Value of equity awards assumed in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . Shares of Class A common stock issued in — — — — 38,972 acquisition subject to future vesting . . . . 258,554 — Unrealized gain on marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . — — — — — — — — — — — — — — — — — 375,037 — — — — — — — — — — — — 3,674 286 — (490,979) — — (490,979) 72,517 4 — — — — — (8,778) — 190,760 32,243 18,993 — 1,408,169 — 2,532,356 — — — — — 38,972 — 3,674 286 375,037 F o r m 1 0 - K Balance as of December 31, 2020 . . . . . . . . 153,496,222 $151 10,551,302 $13 $ 9,613,246 $ 9,046 $(1,169,791) $ 8,452,665 91 Common Stock Class A Common Stock Class B Shares Amount Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity Balance as of December 31, 2020 . . . . . . . . 153,496,222 $151 10,551,302 (In thousands, except share amounts) $ 9,046 $ 9,613,246 $13 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercises of stock options . . . . . . . . . . . . . . Vesting of restricted stock units . . . . . . . . . Value of equity awards withheld for tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of shares of Class B common stock into shares of Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity component from partial settlement and redemption of convertible senior notes due 2023 . . . . . . . . . . . . . . . . . . . . . . Settlement of capped call, net of related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares of Class A common stock issued under ESPP . . . . . . . . . . . . . . . . . . . . . . . . Shares of Class A common stock donated to charity . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of shares of Class A common stock in connection with a follow-on public offering, net of underwriters’ discounts and issuance costs . . . . . . . . . . Shares of Class A common stock issued in Value of equity awards assumed in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . Shares of Class A common stock subject to future vesting . . . . . . . . . . . . . . . . . . . . . . . Unrealized loss on marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . Net change in market value of effective foreign currency forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . acquisition . . . . . . . . . . . . . . . . . . . . . . . . . 1,116,816 — — 2 4 1,779,320 3,515,913 — — 509,499 — — — — 87,693 (4) (32,002) — — — (10,388) 1,218,696 4,846,965 1 5 (1,218,696) (1) — — — 335,637 — — — — 225,233 198,926 — 88,408 — — — — — 48,465 31,169 4,312,500 4 1 — — 1,765,709 — — 419,169 — — — — 1,511 84,230 — — — — — — — — — — — — — — — — — — — — — — — 651,678 294 — — — — — — — — — — — — — — (27,215) (266) $(1,169,791) $ 8,452,665 (949,900) — — — — — — — — (949,900) 87,695 — (10,388) — 335,642 225,233 48,465 31,169 — 1,765,713 — — — — — — — 419,170 1,511 — (27,215) (266) 294 651,678 Balance as of December 31, 2021 . . . . . . . . 170,625,994 $168 9,842,105 $12 $13,169,118 $(18,141) $(2,119,691) $11,031,466 See accompanying notes to consolidated financial statements. 92 TWILIO INC. Consolidated Statements of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash reduction to the right-of-use asset Net amortization of investment premium and discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of operating right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of debt discount and issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax benefit related to release of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value of shares of Class A common stock donated to charity . . . . . . . . . . . . . . . . . . . . . . . Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred revenue and customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 (In thousands) $ (949,900) $ (490,979) $ (307,063) 258,378 48,786 36,158 8,854 5,827 632,285 31,541 (17,236) 31,169 28,965 12,094 (117,943) (78,012) (121,225) 10,191 127,554 45,634 (49,046) (2,266) (58,192) 149,660 38,395 6,789 — 23,759 360,936 13,322 (16,459) 18,993 12,863 12,762 (81,303) (11,636) (81,908) 10,060 88,340 13,824 (33,938) (826) 32,654 110,430 23,193 (4,501) — 23,696 264,318 4,511 (55,745) — — 3,165 (51,357) (20,316) (18,021) 17,255 46,154 2,968 (21,138) (3,501) 14,048 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired and other related payments . . . . . . . . . . . . . . . . . . . . . . Purchases of marketable securities and other investments . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales and maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . Capitalized software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of long-lived and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (491,522) (3,523,232) 1,614,779 (43,973) (46,048) (2,489,996) (333,591) (1,636,590) 1,183,459 (33,328) (25,805) (845,855) 122,749 (2,038,422) 697,171 (21,922) (45,368) (1,285,792) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from public offerings, net of underwriters’ discount and issuance costs . . . . . . . Proceeds from issuance of senior notes due 2029 and 2031 . . . . . . . . . . . . . . . . . . . . . . . . . Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal payments on debt and finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from exercises of stock options and shares of Class A common stock issued under ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from settlements of capped call, net of settlement costs . . . . . . . . . . . . . . . . . . . . Value of equity awards withheld for tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash, cash equivalents and restricted cash . . . . . . . . . . . NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of year . . . . . . CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of year . . . . . . . . . . . 1,765,713 987,500 (2,777) (8,295) 136,160 228,412 (10,388) 3,096,325 (191) 547,946 933,885 $ 1,481,831 Cash paid for income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchases of property and equipment through finance leases . . . . . . . . . . . . . . . . . . . . . . . Value of common stock issued and equity awards assumed in acquisition . . . . . . . . . . . . . $ $ $ $ 6,147 20,637 22,157 1,408,113 — — (10,784) 104,760 — (8,778) 1,493,311 40 680,150 253,735 933,885 3,092 2,139 20,108 $ $ $ $ $ $ $ $ 979,123 — — (11,046) 57,480 — (5,412) 1,020,145 — (251,599) 505,334 253,735 1,368 2,290 5,848 F o r m 1 0 - K 420,681 $ 2,571,328 $ 2,841,452 Value of common stock issued to settle convertible senior notes due 2023 . . . . . . . . . . . . $ 1,704,969 $ 892,640 $ — RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash in other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash in other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,479,452 1,536 843 $ 1,481,831 $ $ 933,885 — — 933,885 $ $ 253,735 — — 253,735 See accompanying notes to consolidated financial statements. 93 TWILIO INC. Notes to Consolidated Financial Statements 1. Organization and Description of Business Twilio Inc. (the “Company”) was incorporated in the state of Delaware on March 13, 2008. The Company is the leading cloud communications platform and enables developers to build, scale and operate real-time customer engagement 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 across North America, South America, Europe, Asia and Australia. 2. 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, restricted cash, marketable securities and accounts receivable. The Company maintains cash, restricted 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 customer deteriorates 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 94 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) 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, 2021, 2020 and 2019, no customer organization accounted for more than 10% of the Company’s total revenue. As of December 31, 2021 and 2020, 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, 2021, 2020 and 2019, the revenue from usage- based fees represented 72%, 76% and 75% of total revenue, respectively. Subscription-based fees are derived from certain non-usage-based contracts, such as those for the sales of short codes, customer support and fees charged to access the cloud-based platform of Segment io, Inc. (“Segment”), which the Company acquired in 2020 as further described in Note 7. Non-usage-based contracts revenue is recognized on a ratable basis over the contractual term which is generally between one to three years. In the years ended December 31, 2021, 2020 and 2019, the revenue from non-usage-based fees represented 28%, 24%, and 25% of total revenue, respectively. 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. 95 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) Remaining Performance Obligations Revenue allocated to remaining performance obligations represents unearned revenue and amounts that were and will be invoiced and recognized as revenue in future periods for non-cancelable multi-year subscription arrangements. The Company applies 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. Revenue allocated to remaining performance obligations for contracts with durations of more than one year was $154.2 million as of December 31, 2021, of which 62% is expected to be recognized over the next 12 months and 92% is expected to be recognized over the next 24 months. (f) Deferred Revenue and Customer Deposits Deferred revenue is recorded when a non-cancellable contractual right to bill exists or 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, 2021 and 2020, the Company recorded $141.5 million and $87.2 million as its deferred revenue and customer deposits, respectively, that are included in deferred revenue and customer deposits and other long-term liabilities in the accompanying consolidated balance sheets. During the years ended December 31, 2021, 2020 and 2019, the Company recognized $70.1 million, $19.5 million and $18.7 million of revenue, respectively, that was included in the deferred revenue and customer deposits balance as of the end of the previous 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 generally determined to be up to 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. The Company applies the optional exemption of expensing these costs as incurred with amortization periods of one year or less. Total net capitalized costs as of December 31, 2021 and 2020, were $193.4 million and $85.6 million, respectively, and are included in prepaid expenses and other current assets and other long-term assets in the accompanying consolidated balance sheets. Amortization of these assets was $31.5 million, $13.3 million and $4.5 million in the years ended December 31, 2021, 2020 and 2019, 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 96 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) 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 $78.8 million, $47.2 million and $27.0 million in the years ended December 31, 2021, 2020 and 2019, 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. These costs are 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. Forfeitures are recorded in the period in which they occur. 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 options and the purchase rights issued under ESPP. 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. 97 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) • Expected term. The expected term represents the period that the stock option or the purchase right is expected to be outstanding. The Company uses the simplified calculation of expected term, which reflects the weighted-average time-to-vest and the contractual life of the stock option or the purchase right; • Expected volatility. Prior to July 1, 2021, the expected volatility was derived from an average of the historical volatilities of the Class A 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. Beginning with the third quarter 2021, the expected volatility was derived from the average of the historical volatilities of the Class A common stock of the Company. • 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. 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. (m) 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. 98 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) 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 (loss) income in stockholders’ equity. Monetary assets and liabilities denominated in a foreign currency are translated into U.S. 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 (expenses) income, net in the consolidated statements of operations. (n) Comprehensive Loss Comprehensive loss refers to net 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 loss. (o) 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. The Company has 100,000,000 shares of preferred stock that was authorized but never issued or outstanding. 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. The Company also has dilutive securities, such as potential or restricted common shares or common stock equivalents, that were excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. These securities are presented in Note 16 to these consolidated financial statements. (p) 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 commercial paper. 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. (q) 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 99 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) 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. As of December 31, 2021 and 2020, the allowance for doubtful accounts was not significant to the accompanying consolidated balance sheets. (r) Costs Related to Public Offerings Costs related to 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. (s) 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 . . . . . . . . . . . . . . . Data center equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets under financing lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 years 2—4 years 3 years 5 years 3 years 5 years or remaining lease term 5 years or remaining lease term (t) Leases The Company determines if an arrangement is or contains a lease at contract 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 sheets. 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 lease liabilities are measured and recognized at the lease commencement date based on the present value of the remaining 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. When estimating the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain such options will be exercised. Operating lease costs are recognized in operating expenses in the accompanying consolidated statements of operations 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. 100 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) Within the consolidated statements of cash flows, the Company presents the lease payments made on the operating leases as cash flows from operations and principal payments made on the finance leases as part of financing activities. (u) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplier relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Order backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telecommunication licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domain names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3—7 years 2—10 years 2—5 years 5 years 1 year 20 years Indefinite Indefinite Indefinite (v) 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 impairment test involves comparing the fair value of the reporting unit to its carrying value, including goodwill. A goodwill impairment will 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. 101 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) No goodwill impairment charges have been recorded for any period presented. (w) Derivatives and Hedging The Company is exposed to a wide variety of risks arising from its business operations and overall economic conditions. These risks include exposure to fluctuations in various foreign currencies against its functional currency and can impact the value of cash receipts and payments. The Company minimizes its exposure to these risks through management of its core business activities, specifically, the amounts, sources and duration of its assets and liabilities, and the use of derivative financial instruments. During 2021, the Company started using foreign currency derivative forward contracts and in the future may also use foreign currency option contacts. Foreign currency derivative forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date. These agreements are typically cash settled in U.S. dollars for their fair value at or close to their settlement date. Foreign currency option contracts will require the Company to pay a premium for the right to sell a specified amount of foreign currency prior to the maturity date of the option. The Company does not enter into derivative financial instruments trading for speculative purposes. Derivative instruments are carried at fair value and recorded as either an asset or a liability until they mature. Gains and losses resulting from changes in fair value of these instruments are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. For derivative instruments designated as cash flow hedges, gains or losses are initially recorded in other comprehensive income (“OCI”) in the balance sheet, then reclassified into the statement of operations in the period in which the derivative instruments mature. These realized gains and losses are recorded within the same financial statement line item as the hedged transaction. The Company’s foreign currency derivative contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. (x) Impairment of Long-Lived Assets The Company evaluates its long-lived assets, including property, 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 were no impairments during the years ended December 31, 2021, 2020 and 2019. (y) 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 102 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) 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. (z) 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. (aa) Fair Value of Financial Instruments 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. The Company applies fair value accounting for all financial instruments on a recurring basis. The Company’s financial instruments, which include cash, restricted 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. Marketable securities consist of U.S. treasury securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper. 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 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 senior notes due 2031 and 2029 (“2029 Notes” and “2031 Notes,” respectively) and the fair value of the convertible senior notes due 2023 (the “Convertible Notes” fully redeemed in 103 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) 2021) are determined based on their respective closing prices on the last trading day of the reporting period and are classified as Level 2 in the fair value hierarchy. The carrying value of the strategic investments, which consist of restricted equity securities of a publicly held company and equity securities of privately held companies, is determined under the measurement alternative on a non-recurring basis adjusting for observable changes in fair value. The Company does not have a controlling interest nor can it exercise significant influence over any of these entities. The Company regularly reviews changes to the rating of its debt securities by rating agencies and monitors the surrounding economic conditions to assess the risk of expected credit losses. As of December 31, 2021, the risk of expected credit losses was not significant. 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 (expenses) income, net. (bb) Recently Issued Accounting Guidance, Not yet Adopted In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers”. At the acquisition date, an acquirer should account for the related revenue contracts as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contact assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, assuming the acquirer is able to assess and rely on how the acquiree applied ASC 606. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company expects to adopt ASU 2021-08 in the first quarter of 2022 with no material impact on the Company’s consolidated financial statements. F o r m 1 0 - K 104 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 3. Fair Value Measurements Financial Assets 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 Fair Value Hierarchy as of December 31, 2021 Level 1 Level 2 Level 3 Aggregate Fair Value (In thousands) Financial Assets: Cash and cash equivalents: Money market funds . . . . . . . . . . . . . . . . . $ 786,548 46,076 Commercial paper . . . . . . . . . . . . . . . . . . . $ — $ — — $ 786,548 $ — — — $ — $ 786,548 46,076 46,076 — Total included in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 832,624 Marketable securities: U.S. Treasury securities . . . . . . . . . . . . . . Non-U.S. government securities . . . . . . . Corporate debt securities and 375,305 221,641 commercial paper . . . . . . . . . . . . . . . . . 3,300,326 Total marketable securities . . . . . . . . . 3,897,272 — 6 — 960 966 — 786,548 46,076 — 832,624 (2,561) (1,355) 372,750 220,286 — — — — 372,750 220,286 (15,892) 31,000 3,254,394 — 3,285,394 (19,808) 624,036 3,254,394 — 3,878,430 Total financial assets . . . . . . . . . . . . . $4,729,896 $ 966 $(19,808) $1,410,584 $3,300,470 $ — $4,711,054 Amortized Cost or Carrying Value Gross Unrealized Gains Gross Unrealized Losses Fair Value Hierarchy as of December 31, 2020 Level 1 Level 2 Level 3 Aggregate Fair Value (In thousands) Financial Assets: Cash and cash equivalents: Money market funds . . . . . . . . . . . . . . . . . $ 656,749 Commercial paper . . . . . . . . . . . . . . . . . . . 2,000 $ — $ — — $ 656,749 $ — — — $ — $ 656,749 2,000 2,000 — Total included in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 658,749 Marketable securities: U.S. Treasury securities . . . . . . . . . . . . . . Corporate debt securities and 223,247 commercial paper . . . . . . . . . . . . . . . . . 1,874,257 Total marketable securities . . . . . . . . . 2,097,504 — 389 8,149 8,538 — 656,749 2,000 — 658,749 (1) 223,635 — — 223,635 (135) (136) 50,000 1,832,271 — 1,882,271 273,635 1,832,271 — 2,105,906 Total financial assets . . . . . . . . . . . . . $2,756,253 $8,538 $ (136) $ 930,384 $1,834,271 $ — $2,764,655 The Company’s primary objective when investing excess cash is preservation of capital, hence the Company’s marketable securities primarily consist of U.S. Treasury Securities, non-U.S government securities, high credit quality corporate debt securities and commercial paper. 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, 2021 and 2020, 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, 2021 and 2020, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity. 105 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 3. Fair Value Measurements (Continued) Interest earned on marketable securities was $55.7 million, $32.4 million and $20.8 million in the years ended December 31, 2021, 2020 and 2019, respectively. The interest is recorded as other (expenses) income, net, in the accompanying consolidated statements of operations. The following table summarizes the contractual maturities of marketable securities: As of December 31, 2021 As of December 31, 2020 Amortized Cost Aggregate Fair Value Amortized Cost Aggregate Fair Value (In thousands) Financial Assets: Less than one year . . . . . . . . . . . . . . . . . . . One to three years . . . . . . . . . . . . . . . . . . . $1,084,751 2,812,521 $1,085,006 2,793,424 $1,126,091 971,413 $1,128,927 976,979 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,897,272 $3,878,430 $2,097,504 $2,105,906 Strategic Investments As of December 31, 2021 and 2020, the Company held strategic investments with a carrying value of $68.3 million and $9.3 million, respectively. These securities are recorded as other long-term assets in the accompanying consolidated balance sheets. There were no impairments or other adjustments recorded in the years ended December 31, 2021 and 2020 related to these securities. Financial Liabilities The Company’s financial liabilities that are measured at fair value on a recurring basis consist of foreign currency derivative liabilities and are classified as Level 2 financial instruments in the fair value hierarchy. As of December 31, 2021, the aggregate fair value of these instruments and the associated gross unrealized losses were not significant. The Company’s financial liabilities that are not measured at fair value on a recurring basis consist of its 2029 Notes and 2031 Notes, respectively. The Company’s Convertible Notes were fully redeemed in June 2021 and were no longer outstanding as of December 31, 2021. Refer to Note 10 for further details on these financial liabilities. As of December 31, 2021 the fair values of the 2029 Notes and 2031 Notes were $510.2 million and $512.8 million, respectively. As of December 31, 2020, the fair value of the Convertible Notes was $1.7 billion. F o r m 1 0 - K 106 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 4. Property and Equipment Property and equipment consisted of the following: As of December 31, 2021 2020 (In thousands) Capitalized internal-use software development costs . . . . . . . . Data center equipment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,589 77,946 85,297 58,636 15,360 10,506 $ 142,489 43,477 69,756 35,346 12,312 9,943 Total property and equipment Less: accumulated depreciation and amortization(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446,334 (191,018) 313,323 (130,084) Total property and equipment, net . . . . . . . . . . . . . . . . . . . $ 255,316 $ 183,239 (1) Data center equipment contains $63.0 million and $40.8 million in assets held under finance leases as of December 31, 2021 and 2020, respectively. Accumulated depreciation and amortization contains $26.8 million and $15.0 million in accumulated amortizations for assets held under finance leases as of December 31, 2021 and 2020, respectively. Depreciation and amortization expense was $59.6 million, $51.1 million and $37.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company capitalized $63.1 million, $47.1 million and $29.7 million in internal-use software development costs in the years ended December 31, 2021, 2020 and 2019, respectively. 5. Derivatives and Hedging As of December 31, 2021, the Company had outstanding foreign currency forward contracts designated as cash flow hedges with total sell and buy notional values of $276.2 million and $243.1 million, respectively. The notional value represents the amount that will be purchased or sold upon maturity of the forward contract. As of December 31, 2021, these contracts had maturities of less than 12 months. Gains and losses associated with these foreign currency forward contracts were as follows: Consolidated Statement of Operations and Statement of Comprehensive Loss Year Ended December 31, Gains recognized in OCI . . . . . . . . Net change in market value of effective foreign currency forward exchange contracts Losses recognized in income due to instruments maturing . . . . . . . Cost of revenue 2021 (In thousands) $ 294 $7,545 The Company is subject to master netting agreements with certain counterparties of the foreign exchange contracts, under which it is permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is the Company’s policy to present the derivatives at gross 107 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 5. Derivatives and Hedging (Continued) in its consolidated balance sheet. The Company’s foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. The Company manages its exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring its outstanding positions. As of December 31, 2021, the Company did not have any offsetting arrangements. 6. Right-of-Use Assets and Lease Liabilities The Company has entered into various operating lease agreements for office space and data centers and finance lease agreements for data center and office equipment and furniture. As of December 31, 2021, the Company had 31 leased properties with remaining lease terms of 0.1 years to 7.8 years, some of which include options to extend the leases for up to 5.0 years. Operating lease costs recorded in the accompanying consolidated statements of operations were $61.0 million and $49.3 million for the year ended December 31, 2021 and 2020, respectively. Short-term lease, variable lease and finance lease costs were not significant. Supplemental cash flow and other information related to operating leases was as follows: Year Ended December 31, 2021 2020 Operating cash flows paid for amounts included in operating lease liabilities (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average remaining lease term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,085 5.5 4.5% $46,895 6.0 4.8% Maturities of operating lease liabilities were as follows: Year Ended December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: current obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of December 31, 2021 (In thousands) $ 63,086 57,173 50,742 37,621 34,827 54,760 298,209 (34,631) 263,578 (52,325) Long-term operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $211,253 F o r m 1 0 - K 108 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 7. Business Combinations Zipwhip, Inc. In July 2021, the Company acquired all outstanding shares of Zipwhip, Inc. (“Zipwhip”), a leading provider of toll-free messaging in the United States, for a purchase price, as adjusted, of $838.8 million. The purchase price included $418.1 million of cash, $419.2 million fair value of 1.1 million shares of the Company’s Class A common stock and $1.5 million fair value of the pre-combination services of Zipwhip employees reflected in the unvested equity awards assumed by the Company at closing. Additionally, at closing, the Company issued 59,533 shares of its Class A common stock which are subject to vesting over a period of 3 years. Vesting of these shares will be recorded in the stock-based compensation expense as the services are provided.. Part of the cash consideration paid at closing was to settle the vested equity awards of Zipwhip employees. The Company assumed all unvested and outstanding equity awards of Zipwhip continuing employees, as converted into its own equity awards, at the conversion ratio provided in the Agreement and Plan of Merger and Reorganization (the “Zipwhip Merger Agreement”). This transaction also included a $19.1 million of additional cash consideration for certain employees, which will vest as these employees provide services in the post-acquisition period. This amount will be recorded in the operating expenses over a period of 3 years as the services are provided. The acquisition was accounted for as a business combination and the total purchase price of $838.8 million 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. These estimates were derived from information currently available. The determination of the fair values and estimated lives of depreciable tangible and identifiable intangible assets requires significant judgment. As of December 31, 2021, the areas that are not yet finalized include contingencies and income and other taxes. The fair value of the 1.2 million aggregate number of shares of the Company’s Class A common stock issued at closing was determined based on the closing market price of the Company’s Class A common stock on the acquisition date. The fair value of the $30.7 million unvested equity awards assumed on the acquisition closing date was determined (a) for options, by using the Black-Scholes option pricing model with the applicable assumptions as of the acquisition date; (b) for restricted stock units, by using the closing market price of the Company’s Class A common stock on the acquisition date. These awards will continue to vest as Zipwhip employees continue to provide services in the post-acquisition period. The fair value of these awards will be recorded into the stock-based compensation expense over the respective vesting period of each award. The purchase price components, as adjusted, are summarized in the following table: Fair value of Class A common stock transferred . . . . . . . . . . . . . . . . . . . . . Cash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of the pre-combination service through equity awards . . . . . . . Total (In thousands) $419,197 418,073 1,511 Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $838,781 109 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 7. Business Combinations (Continued) The following table presents the purchase price allocation, as adjusted, recorded in the Company’s consolidated balance sheet as of December 31, 2021: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable and other current assets . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liability, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total (In thousands) $ 21,610 11,481 2,950 23,545 244,500 370 600,403 (20,239) (4,526) (23,169) (18,144) Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $838,781 (1) Identifiable intangible assets are comprised of the following: Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplier relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total (In thousands) $ 56,800 147,700 39,600 400 Estimated life (In years) 7 10 5 5 Total intangible assets acquired . . . . . . . . . . . . . . . . . . . . . . $244,500 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. The Company engaged a third-party expert to assist with the valuation analysis. The Company used a relief- from-royalty method to estimate the fair values of the developed technology and trade names, a multi- period excess earnings method to estimate the fair values of customer relationships and a with-and-without method to estimate the fair value of the supplier relationships. 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, except for operating right-of-use assets. The value of the acquired operating right-of-use assets was reduced to its respective fair value on the acquisition date. The acquired entity’s results of operations were included in the Company’s consolidated financial statements from the date of acquisition, July 14, 2021. For the year ended December 31, 2021, Zipwhip contributed net operating revenue of $55.4 million, which is reflected in the accompanying consolidated statement of operations. Due to the integrated nature of the Company’s operations, the Company believes F o r m 1 0 - K 110 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 7. Business Combinations (Continued) that it is not practicable to separately identify earnings of Zipwhip on a stand-alone basis. Pro forma results of operations for this acquisition are not presented as the financial impact to the Company’s consolidated financial statements is not significant. Costs incurred related to the acquisition were not significant. Other Fiscal 2021 Acquisitions During 2021, the Company completed other business combinations for an aggregate purchase price of $105.0 million, of which $13.4 million was allocated to developed technology, $23.6 million was allocated to other intangible assets and $63.2 million was allocated to goodwill. Fiscal 2020 Acquisitions Segment.io, Inc. In November 2020, the Company acquired all outstanding shares of Segment, the market-leading customer data platform, by issuing 9.5 million shares of its Class A common stock with a fair value of $2.6 billion and $415.9 million in cash, as adjusted. Of the total shares of Class A common stock issued at closing, 258,554 shares with the fair value of $70.7 million were subject to future vesting and are recorded in the stock-based compensation expense as the services are provided. The total amortization period was over 2.41 years from the date of acquisition. Part of the cash consideration was paid to settle the vested equity awards of Segment employees. The Company assumed all unvested and outstanding equity awards of Segment continuing employees as converted into its own equity awards at the conversion ratio provided in the Agreement and Plan of Reorganization (the “Merger Agreement”). The acquisition added additional products and services to the Company’s offerings for its customers. With these additional products, the Company can now offer a customer engagement platform. 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 of $3.0 billion, as adjusted, 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. The purchase price, as adjusted, reflected the $2.5 billion fair value of 9.3 million shares of the Company’s Class A common stock transferred as consideration for accredited outstanding shares of Segment, the $415.9 million cash consideration for unaccredited shares and vested equity awards and the $39.0 million fair value of the pre-combination services of Segment employees reflected in the unvested equity awards assumed by the Company on the acquisition date. As of December 31, 2021, 150,824 shares of Class A common stock issued at closing with future vesting was held in escrow. The fair value of the 9.5 million shares of the Company’s Class A common stock issued at closing was determined based on its closing price on the acquisition date. The fair value of the assumed unvested 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 fair value of unvested employee equity awards assumed on the acquisition date was $245.3 million. These awards continue to vest as the Segment employees provide services in the post- acquisition period. The fair value of these awards is recorded in the stock-based compensation expense over the respective vesting period of each award. 111 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 7. Business Combinations (Continued) The purchase price components, as adjusted, are summarized in the following table: Fair value of Class A common stock transferred . . . . . . . . . . . . . . . . . . . . . Cash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of the pre-combination service through equity awards . . . . . . . Total (In thousands) $2,532,329 415,899 38,972 Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,987,200 The following table presents the purchase price allocation, as adjusted: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable and other current assets . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total (In thousands) 93,170 $ 90,635 5,081 53,630 595,000 4,869 2,299,016 (24,263) (50,005) (58,206) (21,728) Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,987,200 (1) Identifiable intangible assets are comprised of the following: Developed technology . . . . . . . . . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . Order backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total (In thousands) $390,000 190,000 10,000 5,000 Estimated life (In years) 7 6 1 5 Total intangible assets acquired . . . . . . . . . . . . . . $595,000 Developed technology consists of software products and domain knowledge around customer data developed by Segment, which will enable Twilio to layer data across its platform to power timely and personalized communications over the right channel, further enhancing the Company’s customer engagement platform. Customer relationships consists of contracts with platform users that purchase Segment’s products and services that carry distinct value. 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. The Company engaged a third-party expert to assist with the valuation analysis. The Company used a relief 112 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 7. Business Combinations (Continued) from royalty method to estimate the fair values of the developed technology and a multi-period excess earnings method to estimate the fair value of the customer relationships and order backlog. 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, except for operating right-of-use assets, which were reduced to 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, November 2, 2020. For the year ended December 31, 2021, Segment contributed net operating revenue of $200.9 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 Segment on a stand-alone basis. During the year ended December 31, 2020, the Company incurred costs related to this acquisition of $20.8 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 Segment as if it was consummated on January 1, 2019 (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, one-time tax benefit and direct and incremental transaction costs reflected in the historical financial statements. Specifically, the following adjustments were made: • For the year ended December 31, 2020, the Company’s and Segment’s direct and incremental transaction costs of $79.3 million are excluded from the pro forma condensed combined net loss. • For the year ended December 31, 2019, the Company’s direct and incremental transaction costs of $20.8 are included in the pro forma condensed combined net loss. • In the year ended December 31, 2020, the pro forma condensed combined net loss includes a reversal of the valuation allowance release of $13.8 million. • In the year ended December 31, 2019, the pro forma condensed combined net loss includes a one-time tax benefit of $38.1 that would have resulted from the acquisition, and an ongoing tax benefit of $7.5 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, 2019. It should not be taken as representative of future results of operations of the combined company. The following table presents the unaudited pro forma condensed combined financial information: Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss attributable to common stockholders . . . . $1,874,720 $ (655,355) $1,217,502 $ (576,962) Year Ended December 31, 2020 2019 (Unaudited, in thousands) 113 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 7. Business Combinations (Continued) Other Fiscal 2020 Acquisitions During 2020, the Company completed other business combinations for an aggregate purchase price of $13.0 million. The total purchase price was allocated to the tangible and intangibles assets acquired and liabilities assumed based on their fair values at the time of the acquisition. The Company does not consider these acquisitions to be material, individually or in aggregate, to its consolidated financial statements. 8. Goodwill and Intangible Assets Goodwill Goodwill balance as of December 31, 2021 and 2020, was as follows: Balance as of December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total (In thousands) $2,296,784 Goodwill additions related to 2020 acquisitions . . . . . . . . . . . . . . . . . . . Measurement period adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,303,780 (5,170) Balance as of December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,595,394 Goodwill additions related to 2021 acquisitions . . . . . . . . . . . . . . . . . . . Measurement period adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663,599 4,173 Balance as of December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,263,166 Intangible assets Intangible assets consisted of the following: Amortizable intangible assets: Developed technology . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . Supplier relationships . . . . . . . . . . . . . . . . Trade names . . . . . . . . . . . . . . . . . . . . . . . . Order backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Patent As of December 31, 2021 Gross $ 794,831 538,264 51,671 30,669 10,000 4,035 Accumulated Amortization $ (In thousands) (222,765) (128,035) (9,491) (13,874) (10,000) (508) Net $ 572,066 410,229 42,180 16,795 — 3,527 Total amortizable intangible assets . . . 1,429,470 (384,673) 1,044,797 Non-amortizable intangible assets: Telecommunication licenses . . . . . . . . . . . Trademarks and other . . . . . . . . . . . . . . . . 4,920 295 — — 4,920 295 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,434,685 $ (384,673) $1,050,012 F o r m 1 0 - K 114 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 8. Goodwill and Intangible Assets (Continued) Amortizable intangible assets: Developed technology . . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . . . Supplier relationships . . . . . . . . . . . . . . . . . . Trade names . . . . . . . . . . . . . . . . . . . . . . . . . Order backlog . . . . . . . . . . . . . . . . . . . . . . . . Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of December 31, 2020 Gross $ 724,599 379,344 4,356 25,560 10,000 3,360 Accumulated Amortization $ (In thousands) (113,282) (59,574) (3,044) (7,921) (1,667) (373) Net $611,317 319,770 1,312 17,639 8,333 2,987 Total amortizable intangible assets . . . . . 1,147,219 (185,861) 961,358 Non-amortizable intangible assets: Telecommunication licenses . . . . . . . . . . . . Trademarks and other . . . . . . . . . . . . . . . . . 4,920 295 — — 4,920 295 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,152,434 $ (185,861) $966,573 Amortization expense was $198.8 million, $98.6 million and $72.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. Total estimated future amortization expense is as follows: Year Ended December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of December 31, 2021 (In thousands) $ 204,837 201,527 195,953 192,379 119,045 131,056 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,044,797 115 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 9. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: Accrued payroll and related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued bonus and commission . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ESPP contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease liability, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of December 31, 2021 2020 (In thousands) $ 78,780 64,665 118,004 61,975 10,284 12,370 71,425 $ 54,683 25,341 80,620 48,390 6,272 9,062 28,527 Total accrued expenses and other current liabilities . . . . . . . . $417,503 $252,895 10. Notes Payable Long-term debt consisted of the following: As of December 31, 2021 2020 (In thousands) 2029 and 2031 Senior Notes 2029 Senior Notes Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . $ $500,000 (5,701) (1,286) Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493,013 2031 Senior Notes Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 (5,832) (1,274) Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,894 Convertible Senior Notes and Capped Call Transactions Convertible Senior Notes — — — — — — — — Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 343,702 (38,406) (3,228) 302,068 Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $985,907 $302,068 2029 and 2031 Senior Notes In March 2021, the Company issued $1.0 billion aggregate principal amount of senior notes, consisting of $500.0 million principal amount of 3.625% notes due 2029 (the “2029 Notes”) and $500.0 million principal amount of 3.875% notes due 2031 (the “2031 Notes,” and together with the 2029 Notes, the 116 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 10. Notes Payable (Continued) “Notes”). Initially, none of the Company’s subsidiaries guaranteed the Notes. However, under certain circumstances in the future the Notes can be guaranteed by each of the Company’s material domestic subsidiaries. The 2029 Notes and 2031 Notes will mature on March 15, 2029 and March 15, 2031, respectively. Interest payments are payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2021. The aggregate net proceeds from offering of the Notes were approximately $984.7 million after deducting underwriting discounts and issuance costs paid by the Company. The issuance costs of $2.8 million are amortized into interest expense using the effective interest method over the term of the Notes. The Company may voluntarily redeem the 2029 Notes, in whole or in part, under the following circumstances: (1) at any time prior to March 15, 2024 with the net cash proceeds received by the Company from an equity offering at a redemption price equal to 103.625% of the principal amount, provided the aggregate principal amount of all such redemptions does not exceed 40% of the original aggregate principal amount of the 2029 Notes. Such redemption shall occur within 180 days after the closing of an equity offering and at least 50% of the then-outstanding aggregate principal amount of the 2029 Notes shall remain outstanding, unless all 2029 Notes are redeemed concurrently; (2) at any time prior to March 15, 2024 at 100% of the principal amount, plus a “make-whole” premium; (3) at any time on or after March 15, 2024 at a prepayment price equal to 101.813% of the principal amount; (4) at any time on or after March 15, 2025 at a prepayment price equal to 100.906% of the principal amount; and (5) at any time on or after March 15, 2026 at a prepayment price equal to 100.000% of the principal amount; in each case, the redemption will include the accrued and unpaid interest, as applicable. The Company may voluntarily redeem the 2031 Notes, in whole or in part, under the following circumstances: (1) at any time prior to March 15, 2024 with the net cash proceeds received by the Company from an equity offering at a redemption price equal to 103.875% of the principal amount, provided the aggregate principal amount of all such redemptions does not to exceed 40% of the original aggregate principal amount of the 2031 Notes. Such redemption shall occur within 180 days after the closing of an equity offering and at least 50% of the then-outstanding aggregate principal amount of the 2031 Notes shall remain outstanding, unless all 2031 Notes are redeemed concurrently; (2) at any time prior to March 15, 2026 at 100% of the principal amount, plus a “make-whole” premium; (3) at any time on or after March 15, 2026 at a prepayment price equal to 101.938% of the principal amount; 117 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 10. Notes Payable (Continued) (4) at any time on or after March 15, 2027 at a prepayment price equal to 101.292% of the principal amount; (5) at any time on or after March 15, 2028 at a prepayment price equal to 100.646% of the principal amount; and (6) at any time on or after March 15, 2029 at a prepayment price equal to 100.000% of the principal amount; in each case, the redemption will include accrued and unpaid interest, as applicable. The Notes are unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes that the Company may incur in the future and equal in right of payment with the Company’s existing and future liabilities that are not subordinated. In certain circumstances involving a change of control event, the Company will be required to make an offer to repurchase all, or, at the holder’s option, any part, of each holder’s notes of that series at 101% of the aggregate principal amount, plus accrued and unpaid interest, as applicable. The indenture governing the Notes (the “Indenture”) contains covenants limiting the Company’s ability and the ability of its subsidiaries to: (i) create liens on certain assets to secure debt; (ii) grant a subsidiary guarantee of certain debt without also providing a guarantee of the Notes; and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its assets to another person. These covenants are subject to a number of limitations and exceptions. Certain of these covenants will not apply during any period in which the Notes are rated investment grade by either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services. The interest expense recognized during the year ended December 31, 2021 was not significant. As of December 31, 2021, the Company was in compliance with all of its financial covenants under the Indenture. Convertible Senior Notes and Capped Call Transactions In May 2018, the Company issued $550.0 million aggregate principal amount of 0.25% convertible senior notes due 2023 (“Convertible Notes”) in a private placement, including $75.0 million aggregate principal amount of such Convertible Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers. The total net proceeds from this offering, after deducting initial purchaser discounts and debt issuance costs paid by the Company, were approximately $537.0 million. The Convertible Notes had the original maturity date of June 1, 2023, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. On May 18, 2021, the Company issued a notice of redemption for its Convertible Notes and in June 2021, redeemed all of the remaining outstanding principal amount of the Convertible Notes. During 2021 and through the date of the redemption, the Company converted $343.7 million aggregate principal amount of the Convertible Notes by issuing 4,846,965 shares of its Class A common stock. Of the $1.7 billion total value of these transactions, $1.4 billion and $335.7 million were allocated to the equity 118 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 10. Notes Payable (Continued) and liability components, respectively, utilizing the effective interest rate to determine the fair value of the liability component. The selected interest rate reflected the Company’s incremental borrowing rate, adjusted for the Company’s credit standing on nonconvertible debt with similar maturity. The extinguishment of these Convertible Notes resulted in a $29.0 million loss that is included in other (expenses) income, net, in the accompanying consolidated statement of operations. No sinking fund was provided for these Convertible Notes. In the year ended December 31, 2020, the Company converted $206.3 million aggregate principal amount of the Convertible Notes by issuing 2,902,434 shares of its Class A common stock and $2.0 million of cash. Of the $894.6 million total value of these transactions, $701.9 million and $192.7 million were allocated to the equity and liability components, respectively. The extinguishment of these notes resulted in a $12.9 million loss and was included in other (expenses) income, net, in the accompanying consolidated statements of operations. There were no conversions in the year ended December 31, 2019. Prior to their redemption, the Convertible Notes were convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2018, and only during such calendar quarter, if the last reported sale price of the Class A common stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is more than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business days period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Class A common stock and the conversion rate on each such trading day; (3) upon the Company’s notice that it is redeeming any or all of the Convertible Notes; or (4) upon the occurrence of specified corporate events. Each $1,000 principal amount of the Convertible Notes was initially convertible into 14.104 shares of the Company’s Class A common stock par value $0.001, which was equivalent to an initial conversion price of approximately $70.90 per share. The conversion rate was subject to adjustment upon the occurrence of certain specified events but would not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a make-whole fundamental change, as defined in the indenture, the Company would, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period. Further, the Convertible Notes could bear special interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the indenture relating to the issuance of Convertible Notes (the “indenture”) or if the Convertible Notes were not freely tradeable as required by the indenture. None of the above mentioned events occurred during the period the notes were outstanding and prior to the redemption. Upon conversion, the Company had an ability to pay or deliver, as the case may be, cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at the Company’s election. Throughout the period the Convertible Notes were outstanding the conditional redemption feature was triggered several times and the Company settled the notes presented for conversion primarily in shares of its Class A common stock. 119 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 10. Notes Payable (Continued) The foregoing description is qualified in its entirety by reference to the text of the indenture and the form of 0.25% convertible senior notes due 2023, which were filed as exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and are incorporated herein by reference. In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $119.4 million and was determined by deducting the fair value of the liability component from the par value of the Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an annual effective interest rate of 5.7% over the contractual terms of the Convertible Notes. In accounting for the transaction costs related to the Convertible Notes, the Company allocated the total amount incurred to the liability and equity components of the Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $10.2 million, were recorded as an additional debt discount and were amortized to interest expense using the effective interest method over the contractual terms of the Convertible Notes and were written off upon the redemption of the Convertible Notes. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. The net carrying amount of the equity component of the Convertible Notes was as follows: Proceeds allocated to the conversion options (debt discount) . . . . Issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of December 31, 2021 2020 (In thousands) $ — $74,636 (2,819) (2,819) Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,819) $71,817 In connection with the offering of the Convertible Notes in May 2018, the Company entered into privately negotiated capped call transactions with certain counterparties (the “capped calls”). The capped calls each had an initial strike price of approximately $70.90 per share, subject to certain adjustments, which corresponded to the initial conversion price of the Notes. The capped calls had initial cap prices of $105.04 per share, subject to certain adjustments. The capped calls covered, subject to anti-dilution adjustments, approximately 7,757,200 shares of Class A common stock. The capped calls were generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. Concurrently with the redemption of the Convertible Notes, the Company settled its capped call arrangement. The capped call arrangement was settled in June 2021 for gross cash consideration of $229.8 million received by the Company and recorded in additional paid-in-capital, net of $1.4 million in transaction costs and a $3.2 million realized gain. The gain was primarily driven by the change in the fair value of the Company’s Class A common stock on the transaction settlement date. The gain was recorded in other (expenses) income, net, in the accompanying consolidated statement of operations. 120 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 11. Supplemental Balance Sheet Information A roll-forward of the Company’s customer credit reserve is as follows: Year Ended December 31, 2021 2020 2019 Balance, beginning of period . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductions against reserve . . . . . . . . . . . . . . . . . . . . . $ 16,783 55,937 (54,143) (In thousands) $ 6,784 50,817 (40,818) $ 3,015 18,143 (14,374) Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . $ 18,577 $ 16,783 $ 6,784 12. Revenue by Geographic Area Revenue by geographic area is based on the IP address or the mailing address at the time of registration. The following table sets forth revenue by geographic area: Year Ended December 31, 2021 2020 2019 Revenue by geographic area: United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International $1,881,873 959,966 (In thousands) $1,282,213 479,563 $ 808,857 325,611 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,841,839 $1,761,776 $1,134,468 Percentage of revenue by geographic area: United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International 66% 34% 73% 27% 71% 29% Long-lived assets outside of the United States were not significant. 13. Commitments and Contingencies (a) Lease and Other Commitments The Company entered into various non-cancelable operating lease agreements for its facilities. See Note 6 to these consolidated financial statements for additional detail on the Company’s operating lease commitments. 121 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 13. Commitments and Contingencies (Continued) Additionally, the Company has contractual commitments with its cloud infrastructure provider, network service providers and other vendors that are noncancellable and expire within one to four years. Future minimum payments under these noncancellable purchase commitments were as follows. Unrecognized tax benefits are not included in these amounts because any amounts expected to be settled in cash are not material: Year Ending December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of December 31, 2021 (In thousands) $213,106 222,852 35,066 561 Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $471,585 In February 2021, the Company entered into a Framework Agreement, as subsequently amended, with Syniverse Corporation (“Syniverse”) and Carlyle Partners V Holdings, L.P. (“Carlyle”) (the “Framework Agreement”), pursuant to which Syniverse would issue to the Company shares of Syniverse common stock in consideration for an investment by the Company of up to $750.0 million. In August 2021, Syniverse entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Blue Steel Merger Sub Inc. (the “Merger Sub”) and M-3 Brigade Acquisition II Corp. (“MBAC”), which would result in Syniverse being a wholly owned subsidiary of MBAC (the “Merger”). Concurrently, the Company and MBAC entered into the Twilio Subscription Agreement (the “Subscription Agreement”), pursuant to which the Company agreed, subject to the terms and conditions set forth therein, to subscribe for and purchase, and MBAC agreed to issue and sell to the Company, immediately prior to the closing of the Merger, shares of Class A common stock and, if applicable, shares of Class C common stock for an aggregate amount up to $750.0 million, depending on redemptions by MBAC’s shareholders. In connection with the closing of the investment, the Company and Syniverse (or their respective subsidiaries) would enter into a wholesale agreement. See Note 18 for details on developments on this transaction which occurred in the period subsequent to December 31, 2021. (b) Legal Matters The City and County of San Francisco (“San Francisco”) has assessed the Company for additional Telephone Users Tax (“TUT”) and Access Line Tax (“ALT”) on certain of the Company’s services for the years 2009 through 2018. The assessments totaled $38.8 million, including interest and penalties. The Company paid the assessments under protest in the third quarter of 2020. On May 27, 2021, the Company filed a lawsuit against San Francisco in San Francisco Superior Court challenging the assessments. The Company raised numerous defenses to the assessments including that its services are not telecommunications services, application of the taxes to Twilio’s services violates the Internet Tax Freedom Act and San Francisco does not have jurisdiction to impose tax on services provided outside of San Francisco. The Company is seeking refunds of the taxes paid, waivers of interest and penalties, cost of suit and reasonable attorneys’ fees, and other legal and equitable relief as the court deems appropriate. 122 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 13. Commitments and Contingencies (Continued) The Company believes it has strong arguments against the assessments, but litigation is uncertain and there is no assurance that it will prevail in court. Should the Company lose on one or more of its arguments, it could incur additional losses associated with taxes, interest, and penalties that together, in aggregate, could be material. The Company regularly assesses the likelihood of adverse outcomes resulting from tax disputes such as this and examines all open years to determine the necessity and adequacy of any tax reserves. The Company’s tax reserves are further discussed in Note 13(d) of these consolidated financial statements. In addition to the litigation discussed above, from time to time, the Company may be subject to legal actions and claims in the ordinary course of business. The Company has received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend the Company, its partners and its customers by determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. Legal fees and other costs related to litigation and other legal proceedings are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of operations. (c) Indemnification Agreements The Company has signed indemnification agreements with all of its board members and executive officers. The agreements indemnify the board members and executive officers from claims and expenses on actions brought against the individuals separately or jointly with the Company for certain indemnifiable events. Indemnifiable events generally mean any event or occurrence related to the fact that the board member or the executive officer was or is acting in his or her capacity as a board member or an executive officer for the Company or was or is acting or representing the interests of the Company. In the ordinary course of business and in connection with our financing and business combinations transactions, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to business partners, customers and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties and other liabilities relating to or arising from the Company’s various products, or its acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/ or amount, and in some instances, the Company may have recourse against third parties for certain payments. The terms of such obligations may vary. As of December 31, 2021 and 2020, no amounts were accrued related to any outstanding indemnification agreements. (d) Other Taxes The Company conducts operations in many tax jurisdictions within and outside the United States. In many of these jurisdictions, non-income-based taxes, such as sales, use, telecommunications, and other local taxes are assessed on the Company’s operations. In the last several years the Company has expanded 123 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 13. Commitments and Contingencies (Continued) to collect taxes in most jurisdictions where it operates. The Company continues to carry reserves for certain of its prior non-income-based tax exposures in certain jurisdictions when it is both probable that a liability was incurred and the amount of the exposure could be reasonably estimated. These reserves are based on estimates which include several key assumptions including, but not limited to, the taxability of the Company’s services, the jurisdictions in which its management believes it had nexus, and the sourcing of revenues to those jurisdictions. The Company continues to remain in discussions with certain jurisdictions regarding its prior sales and other taxes that it may owe. In the event any of these jurisdictions disagree with management’s assumptions and analysis, the assessment of the Company’s tax exposure could differ materially from management’s current estimates. For example, San Francisco City and County has assessed the Company for $38.8 million in taxes, including interest and penalties, which exceeded the $11.5 million the Company had accrued for the period covered by this assessment. The Company paid the full amount as required by law. The payment made in excess of the accrued amount is reflected as a deposit in the accompanying consolidated balance sheets. The Company believes, however, that this assessment is incorrect and, after failing to reach a settlement, filed a lawsuit on May 27, 2021 contesting the assessment as described above. However, litigation is uncertain and a ruling against the Company, or a dismissal of our complaint, may adversely affect its financial position and results of operations. As of December 31, 2021, the liabilities recorded for these taxes were $25.4 million for domestic jurisdictions and $17.7 million for jurisdictions outside of the United States. As of December 31, 2020, these liabilities were $25.6 million and $9.6 million, respectively. 14. Stockholders’ Equity Preferred Stock As of December 31, 2021 and 2020, the Company had authorized 100,000,000 shares of preferred stock, par value $0.001, of which no shares were issued and outstanding. Common Stock As of December 31, 2021 and 2020, the Company had authorized 1,000,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock, each par value $0.001 per share. As of December 31, 2021, 170,625,994 shares of Class A common stock and 9,842,105 shares of Class B common stock were issued and outstanding. As of December 31, 2020, 153,496,222 shares of Class A common stock and 10,551,302 shares of Class B common stock were issued and outstanding. 124 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 14. Stockholders’ Equity (Continued) The Company had reserved shares of common stock for issuance as follows: Stock options issued and outstanding . . . . . . . . . . . . . . . . . . . Unvested restricted stock units issued and outstanding . . . . Class A common stock reserved for Twilio.org . . . . . . . . . . . Stock-based awards available for grant under 2016 Plan . . . Stock-based awards available for grant under ESPP . . . . . . . Class A common stock reserved for the Convertible As of December 31, 2021 2020 3,351,313 6,475,700 618,857 24,650,104 6,382,830 5,625,735 7,523,882 707,265 18,942,205 4,941,281 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 7,569,731 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,478,804 45,310,099 Public Equity Offerings In February 2021, August 2020 and June 2019, the Company completed public equity offerings in which it sold 4,312,500 shares, 5,819,838 shares and 8,064,515 shares, respectively, of its Class A common stock at a public offering price of $409.60, $247.00 and $124.00 per share, respectively. The Company received total proceeds of $1.8 billion, $1.4 billion and $979.0 million, respectively, net of underwriting discounts and offering expenses paid by the Company. 15. Stock-Based Compensation 2008 Stock Option Plan The Company maintained a stock plan, the 2008 Stock Option Plan, as amended and restated (the “2008 Plan”), which allowed the Company to grant incentive (“ISO”), non-‘statutory (“NSO”) stock options and restricted stock units (“RSU”) to its employees, directors and consultants to participate in the Company’s future performance through stock-‘based awards at the discretion of the board of directors. Under the 2008 Plan, options to purchase the Company’s common stock could not be granted at a price less than fair value in the case of ISOs and NSOs. Fair value was determined by the board of directors, in good faith, with input from valuation consultants. On June 22, 2016, the plan was terminated in connection with the Company’s IPO. Accordingly, no shares are available for future issuance under the 2008 Plan. The 2008 Plan continues to govern outstanding equity awards granted thereunder. The Company’s right of first refusal for outstanding equity awards granted under the 2008 Plan terminated upon completion of the IPO. All remaining outstanding stock options granted under the 2008 Plan are vested and exercisable. F o r m 1 0 - K 2016 Stock Option Plan The Company’s 2016 Stock Option and Incentive Plan (the “2016 Plan”) became effective on June 21, 2016. The 2016 Plan provides for the grant of ISOs, NSOs, restricted stock, RSUs, stock appreciation rights, unrestricted stock awards, performance share awards, dividend equivalent rights and cash-based awards to employees, directors and consultants of the Company. A total of 11,500,000 shares of the Company’s Class A common stock were initially reserved for issuance under the 2016 Plan. These available shares automatically increase each January 1, beginning on January 1, 2017, by 5% of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. 125 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 15. Stock-Based Compensation (Continued) On January 1, 2021 and 2020, the shares available for grant under the 2016 Plan were automatically increased by 8,202,376 shares and 6,920,640 shares, respectively. Under the 2016 Plan, the stock options are granted at a price per share not less than 100% of the fair market value per share of the underlying common stock on the date of grant. Segment 2013 Stock Incentive Plan In connection with its acquisition of Segment, the Company assumed and replaced all stock options and restricted stock units of continuing employees issued under Segment’s 2013 Stock Incentive Plan (“Segment Plan”) that were unvested and outstanding on the acquisition date. The assumed equity awards will continue to be outstanding and will be governed by the provisions of the Segment Plan. SendGrid 2009, 2012 and 2017 Stock Incentive Plans In connection with its acquisition of SendGrid, the Company assumed all stock options and restricted stock units issued under SendGrid’s 2009, 2012 and 2017 Stock Incentive Plans that were outstanding on the date of acquisition. The assumed equity awards will continue to be outstanding and will be governed by the provisions of their respective plans. Additionally, the Company assumed shares of SendGrid common stock that were reserved and available for issuance under SendGrid’s 2017 Equity Incentive Plan, on an as converted basis. These shares can be utilized for future equity grants under the Company’s 2016 Plan, to the extent permitted by New York Stock Exchange rules. Zipwhip 2008 Stock Plan and 2018 Equity Incentive Plan In connection with its acquisition of Zipwhip, the Company assumed and replaced all stock options and restricted stock units of continuing employees issued under Zipwhip Amended and Restated 2008 Stock Plan and 2018 Equity Incentive Plan (“Zipwhip Plans”) that were unvested and outstanding on the acquisition date. The assumed equity awards will continue to be outstanding and will be governed by the provisions of the Zipwhip Plans. Under all plans, stock options generally expire 10 years from the date of grant and vest over periods determined by the board of directors. The vesting period for stock options and restricted stock units is generally four years from the date of grant. For existing employees and, effective February 2021, for new-hires the stock options and restricted stock units vest in equal monthly and quarterly installments, respectively, over the service period. 2016 Employee Stock Purchase Plan The Company’s Employee Stock Purchase Plan (“2016 ESPP”), as amended, initially became effective on June 21, 2016. A total of 2,400,000 shares of the Company’s Class A common stock were initially reserved for issuance under the 2016 ESPP. These available shares automatically increase each January 1, beginning on January 1, 2017, by the lesser of 1,800,000 shares of the Company’s Class A common stock, 1% of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee. On January 1, 2021 and 2020, the shares available for grant under the 2016 ESPP were automatically increased by 1,640,475 shares and 1,384,128 shares, respectively. The 2016 ESPP allows eligible employees to purchase shares of the Company’s Class A common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan 126 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 15. Stock-Based Compensation (Continued) limitations. The 2016 ESPP provides for separate six-month offering periods beginning in May and November of each fiscal year. On each purchase date, eligible employees purchase the Company’s stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company’s Class A common stock on the offering date or (ii) the fair market value of the Company’s Class A common stock on the purchase date. As of December 31, 2021, total unrecognized compensation cost related to the 2016 ESPP was not significant. Stock-options and restricted stock units activity under the Company’s 2008 Plan and 2016 Plan as well as respective Stock Incentive Plans of SendGrid and Segment was as follows: Stock Options Outstanding options as of December 31, 2020 . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assumed in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited and canceled . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted- average remaining contractual term (In years) Aggregate intrinsic value (In thousands) 6.85 $1,454,222 Number of options outstanding 5,070,735 350,208 83,539 (1,733,819) (419,350) Weighted- average exercise price (Per share) $ 51.71 343.94 49.26 40.44 131.01 Outstanding options as of December 31, 2021 . . . . . . . . . 3,351,313 $ 78.10 6.09 $ 646,760 Options vested and exercisable as of December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,152,819 $ 37.21 4.92 $ 490,502 Year Ended December 31, 2021 2020 2019 (In thousands, except per share amounts) Aggregate intrinsic value of stock options exercised (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $508,539 $603,597 $394,998 Total estimated grant date fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $138,851 $107,854 $ 81,292 Weighted-average grant date fair value per share of options granted . . . . . . . . . . . . . . . . . . . . . . . . . . $ 216.29 $ 170.70 $ 58.13 (1) Aggregate intrinsic value represents the difference between the fair value of the Company’s Class A common stock as reported on the New York Stock Exchange and the exercise price of outstanding “in-the-money” options. F o r m 1 0 - K As of December 31, 2020, the Company had outstanding 555,000 shares of performance-based stock options with a weighted average exercise price of $31.72 and an aggregate intrinsic value of $170.3 million. All performance conditions had been met. During the year ended December 31, 2021, all of these stock options were exercised. The aggregate intrinsic value of these stock options exercised was $140.2 million. As of December 31, 2021, no performance-based stock options remain outstanding. As of December 31, 2021, total unrecognized compensation cost related to all unvested stock options was $151.5 million, which will be amortized on a ratable basis over a weighted-average period of 2.2 years. 127 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 15. Stock-Based Compensation (Continued) Restricted Stock Units Unvested RSUs as of December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited and canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $131.76 7,523,882 328.38 3,465,980 (3,493,652) 114.70 (1,020,510) $188.76 Number of awards outstanding Weighted- average grant date fair value (Per share) Aggregate intrinsic value (In thousands) $2,542,858 Unvested RSUs as of December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . 6,475,700 $237.22 $1,705,311 As of December 31, 2021, the Company had outstanding 24,697 restricted stock awards (“RSAs”) that were held in escrow with future vesting conditions. The aggregate intrinsic value of these awards was not significant. As of December 31, 2021, total unrecognized compensation cost related to unvested RSUs and RSAs was $1.4 billion, which will be amortized over a weighted-average period of 3.1 years. As of December 31, 2021, the unrecognized compensation cost related to Class A common stock subject to future vesting conditions is $60.1 million, which will be amortized over a term of 2.0 years. Valuation Assumptions The fair value of employee stock options was estimated on the date of grant using the following assumptions in the Black-Scholes option pricing model: Employee Stock Options: 2021 2020 2019 Year Ended December 31, Fair value of common stock . . . . . . . . . . . . . . . . $268.55—$409.21 Expected term (in years) . . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . Dividend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee Stock Purchase Plan: Expected term (in years) . . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . Dividend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50 46.4%—58.7% —%—0.1% —% 0.30—6.39 42.9%—61.5% 0.1%—1.4% —% $108.37—$301.72 0.52—6.08 51.9%—65.1% 0.1%—1.4% —% $103.70—$130.70 0.33—6.08 49.0%—66.5% 1.6%—2.5% —% 0.50 54.4%—72.1% 0.1%—0.2% —% 0.49—0.50 43.1%—50.3% 1.6%—2.4% —% 128 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 15. Stock-Based Compensation (Continued) Stock-Based Compensation Expense The Company recorded total stock-based compensation expense as follows: Year Ended December 31, 2021 2020 2019 (In thousands) Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . $ 14,074 258,672 213,351 146,188 $ 8,857 173,303 103,450 76,301 $ 7,123 126,012 60,886 70,297 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $632,285 $361,911 $264,318 16. Net Loss Per Share Attributable to Common Stockholders The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented: Year Ended December 31, 2021 2020 2019 Net loss attributable to common stockholders (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (949,900) $ (490,979) $ (307,063) Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted . . . Net loss per share attributable to common stockholders, 174,180,465 146,708,663 130,083,046 basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5.45) $ (3.35) $ (2.36) The following outstanding shares of common stock equivalents were excluded from the calculation of the diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive: Stock options issued and outstanding . . . . . . . . . . . . . . . Restricted stock units issued and outstanding . . . . . . . . Class A common stock reserved for Twilio.org . . . . . . . Class A common stock committed under ESPP . . . . . . . Convertible Notes(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Class A common stock in escrow . . . . . . . . . . . . . . . . . . . Class A common stock in escrow and restricted stock As of December 31, 2021 2020 2019 3,351,313 6,475,700 618,857 147,947 — 75,506 5,625,735 7,523,882 707,265 103,703 4,847,578 75,612 7,705,848 8,490,517 795,673 207,792 3,150,647 — awards subject to future vesting . . . . . . . . . . . . . . . . . . 235,054 268,030 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,904,377 19,151,805 20,350,477 (1) The Convertible Notes were fully redeemed in 2021 and were no longer outstanding as of December 31, 2021. As of December 31, 2020, the Company expected to settle the principal amount of the notes in shares of its Class A common stock, and as such used the if-converted method to calculate any potential dilutive effect of the debt settlement on diluted net income per share, if applicable. Prior to the fourth quarter 2020, the Company expected to settle the principal amount of 129 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 16. Net Loss Per Share Attributable to Common Stockholders (Continued) these notes in cash and any excess in shares of the Company’s Class A common stock. Hence, as of December 31, 2019, the Company used the treasury stock method to calculate any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread has a dilutive impact on diluted net income per share of Class A common stock when the average market price of the Company’s Class A common stock for a given period exceeds the conversion price of $70.90 per share for the Convertible Notes. The conversion spread was calculated using the average market price of Class A common stock during the period, consistent with the treasury stock method. 17. Income Taxes The following table presents domestic and foreign components of loss before income taxes for the periods presented: United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(737,360) (223,569) (In thousands) $(403,148) (101,278) $(328,902) (33,314) Loss before provision for income taxes . . . . . . $(960,929) $(504,426) $(362,216) Year Ended December 31, 2021 2020 2019 Benefit for income taxes consists of the following: Current: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 (In thousands) $ — $ 272 5,215 5,487 122 420 8,274 8,816 — 198 2,684 2,882 (13,772) (4,083) (1,990) (12,719) (3,563) (2,652) (49,393) (7,474) (1,168) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,845) (18,934) (58,035) Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . $(11,029) $(13,447) $(55,153) 130 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 17. Income Taxes (Continued) The following table presents a reconciliation of the statutory federal tax rate and the Company’s effective tax rate: Tax benefit at federal statutory rate . . . . . . . . . . . State tax, net of federal benefit . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign rate differential . . . . . . . . . . . . . . . . . . . . . Permanent book vs. tax differences . . . . . . . . . . . . Change in valuation allowance . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 21% 8 16 4 (1) — (46) — 2% 21% 12 24 3 (4) (1) (51) — 4% 21% 8 14 4 (2) — (29) (1) 15% Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets and liabilities: Deferred tax assets: As of December 31, 2021 2020 (In thousands) Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . Accrued and prepaid expenses . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . Research and development credits . . . . . . . . . . . . . . . . . . Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . Capped call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciable property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,054,585 24,831 44,261 148,282 15,219 — — 3,675 135,500 71,651 14,567 $ 656,755 15,408 32,900 92,899 8,229 4,475 230 — 135,500 68,566 — Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,512,571 (1,136,827) 375,744 1,014,962 (677,782) 337,180 Deferred tax liabilities: Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,825) (1,649) (251,034) — — (64,277) (47,897) — (19,174) (450) (231,379) (85) (9,495) (66,243) (21,162) (2,876) Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,938) $ (13,684) 131 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 17. Income Taxes (Continued) The following table summarizes our tax carryforwards, carryovers, and credits: As of December 31, 2021 (In thousands) Expiration Date (If not utilized) Federal net operating loss carryforwards . . . . . . . . . . . . . . Federal tax credits . . . . . . . . . . . . Federal net operating loss carryforwards . . . . . . . . . . . . . . State net operating loss carryforwards . . . . . . . . . . . . . . State tax credits . . . . . . . . . . . . . . Foreign net operating loss carryforwards . . . . . . . . . . . . . . $ $ $ $ $ $ 320,167 132,920 Various dates beginning in 2029 Various dates beginning in 2029 3,906,263 Indefinite 2,737,083 84,858 Various dates beginning in 2025 Indefinite 268,653 Indefinite A limitation may apply to the use of the net operating loss and credit carryforwards, under provisions of the Internal Revenue Code of 1986, as amended, and similar state tax provisions that are applicable if the Company experiences an “ownership change.” An ownership change may occur, for example, as a result of issuance of new equity. Should these limitations apply, the carryforwards would be subject to an annual limitation, resulting in a potential reduction in the gross deferred tax assets before considering the valuation allowance. The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. Additionally, in December 2020, the Company completed an intra-entity asset transfer of certain intellectual property rights to an Irish subsidiary where its international business is headquartered. The transfer resulted in a step-up in the tax basis of the transferred intellectual property rights and a correlated $135.5 million increase in foreign deferred tax assets. At present, the Company does not believe that it is more likely than not that the federal, state and foreign net deferred tax assets will be realized, and accordingly, a full valuation allowance has been established. The valuation allowance increased by approximately $459.0 million and $421.9 million during the years ended December 31, 2021 and 2020, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Unrecognized tax benefit, beginning of year . . . . . . . Gross increases for tax positions of prior years . . . . . Gross decrease for tax positions of prior years . . . . . Gross increases for tax positions of current year . . . . Year Ended December 31, 2021 2020 2019 $191,183 3,496 (10,693) 39,394 (In thousands) $ 49,042 4,259 (931) 138,813 $15,635 12,939 (395) 20,863 Unrecognized tax benefit, end of year . . . . . . . . . . $223,380 $191,183 $49,042 132 TWILIO INC. Notes to Consolidated Financial Statements (Continued) 17. Income Taxes (Continued) As of December 31, 2021, the Company had approximately $223.4 million of unrecognized tax benefits. If the $223.4 million is recognized, $6.6 million would affect the effective tax rate. The remaining amount would be offset by the reversal of related deferred tax assets which are subject to a full valuation allowance. The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2021 and 2020, such amounts are not significant. The Company does not anticipate any significant changes within 12 months of December 31, 2021, in its uncertain tax positions that would be material to the consolidated financial statements taken as a whole because nearly all of the unrecognized tax benefit has been offset by a deferred tax asset, which has been reduced by a valuation allowance. The Company files U.S. federal income tax returns as well as income tax returns in many U.S. states and foreign jurisdictions. As of December 31, 2021, the tax years 2008 through the current period remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. The Company is fully reserved for all open U.S. federal, state and local, or non-U.S. income tax examinations by any tax authorities. On June 7, 2019, a three-judge panel from the U.S. Court of Appeals for the Ninth Circuit overturned the U.S. Tax Court’s decision in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations under Section 482 of the Internal Revenue Code that requires related parties in a cost-sharing arrangement to share expenses related to share-based compensation. As a result of this decision, the Company’s gross unrecognized tax benefits increased to reflect the impact of including share-based compensation in cost-sharing arrangements. On July 22, 2019, Altera filed a petition for a rehearing before the full Ninth Circuit and the request was denied on November 12, 2019. On February 10, 2020, Altera filed a petition to appeal the decision to the Supreme Court and on June 22, 2020 the Supreme Court denied the petition. There is no impact on the Company’s effective tax rate for years ended December 31, 2021 and 2020 due to a full valuation allowance against its deferred tax assets. We will continue to monitor future developments and their potential effects on our consolidated financial statements. In connection with the Zipwhip acquisition, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets and, accordingly, during the year ended December 31, 2021, the Company released a total of $15.9 million of its U.S. valuation allowance. The Company continues to maintain a valuation allowance for its U.S. Federal and State net deferred tax assets. In connection with the Segment acquisition, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets and, accordingly, during the year ended December 31, 2020, the Company released a total of $13.8 million of its U.S. valuation allowance. The Company continues to maintain a valuation allowance for its U.S. Federal and State net deferred tax assets. In connection with the SendGrid acquisition, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets and, accordingly, during the year ended December 31, 2019, the Company released a total of $55.0 million of its U.S. valuation allowance. The Company continues to maintain a valuation allowance for its U.S. Federal and State net deferred tax assets. 133 F o r m 1 0 - K TWILIO INC. Notes to Consolidated Financial Statements (Continued) 17. Income Taxes (Continued) The provision for income taxes recorded in the years ended December 31, 2021 and 2020, consists primarily of income taxes, withholding taxes in foreign jurisdictions in which the Company conducts business and the tax benefit related to the release of valuation allowance from acquisitions. The Company’s U.S. operations have been in a loss position and the Company maintains a full valuation allowance against its U.S. deferred tax assets. 18. Subsequent Events As described in Note 13(a), the Company was a party to a certain Framework Agreement, as amended, and a Subscription Agreement pursuant to which the Company intended to purchase up to $750.0 million in common stock of MBAC, subject to certain terms and conditions. In February 2022, Syniverse, MBAC and the Merger Sub mutually terminated the Merger Agreement and the related proposed Merger. The parties agreed to this termination because the rate of MBAC shareholder redemptions for the proposed transaction would have exceeded the minimum cash condition for closing, which occurred as a result of the recent changes in market conditions. Consequently, the Company will not be purchasing any shares of common stock of, or making any investments in, MBAC. Notwithstanding the above, the Framework Agreement between the Company, Syniverse and Carlyle remains in full force and effect. Pursuant to the terms and subject to the closing conditions set forth in the Framework Agreement, the parties are pursuing the alternative transaction, whereby the Company 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. The transaction is expected to close in 2022. 134 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. (b) Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S generally accepted accounting principles. Under the supervision and with the participation of our Chief Executive Officer and our Principal Financial Officer and oversight of the board of directors, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021. On July 14, 2021 the Company acquired Zipwhip, Inc. (“Zipwhip”). Management excluded Zipwhip from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. Zipwhip’s total assets excluded from this assessment was $51.9 million, representing 0.4% of the Company’s consolidated total assets as of December 31, 2021, and Zipwhip’s total revenue of $55.4 million represented 2% of the Company’s consolidated revenue for the year ended December 31, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K. (c) Changes in Internal Control On July 14, 2021, the Company acquired Zipwhip. As a result of this acquisition, the Company is reviewing the internal controls of Zipwhip and is making appropriate changes as deemed necessary. Except for the changes in internal controls related to Zipwhip, there were no changes in our internal control over 135 F o r m 1 0 - K financial reporting in connection with the evaluation required by Rule 13a-15 (d) and 15d-15 (d) of the Exchange Act that occurred during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. (d) Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and our Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 136 Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this item is incorporated by reference to our Proxy Statement relating to our 2022 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021. Codes of Business Conduct and Ethics Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees, which is available on our website at (investors.twilio.com) under “Governance Documents”. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision of our Code of Business Conduct and Ethics and by posting such information on the website address and location specified above. Item 11. Executive Compensation The information required by this item is incorporated by reference to our Proxy Statement relating to our 2022 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to our Proxy Statement relating to our 2022 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021. Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this item is incorporated by reference to our Proxy Statement relating to our 2022 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference to our Proxy Statement relating to our 2022 Annual Meeting of Stockholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021. F o r m 1 0 - K 137 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: 1. Financial Statements See Index to Financial Statements at Item 8 herein. 2. Financial Statement Schedules Schedules not listed above have been omitted because they are not required, not applicable, or the required information is otherwise included. 3. Exhibits The exhibits listed below are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference, in each case as indicated below. 138 Exhibit Number 2.1 2.2 2.3 3.1 3.2 4.1 4.2 4.3 4.4 4.5 EXHIBIT INDEX Description Form File No. Exhibit Filing Date Incorporated by Reference Agreement and Plan of Merger and Reorganization, dated as of May 16, 2021, by and among Twilio Inc., a Delaware corporation, Zeus Merger Sub I, Inc., a Delaware corporation, Zeus Merger Sub II, LLC, a Delaware limited liability company, Zipwhip, Inc., a Delaware corporation and Fortis Advisors LLC, a Delaware limited liability company Agreement and Plan of Reorganization, dated October 12, 2020, by and among Twilio Inc., a Delaware corporation, Scorpio Merger Sub, Inc., a Delaware corporation, Segment,io, Inc., a Delaware corporation, and Shareholder Representative Services LLC, a Colorado limited liability company Framework Agreement Letter Agreement, dated as of August 16, 2021, by and among Twilio Inc., a Delaware corporation, Carlyle Partners V Holdings, L.P., a Delaware limited partnership, and Syniverse Corporation, a Delaware corporation Amended and Restated Certificate of Incorporation of Twilio Inc. Second Amended and Restated Bylaws of Twilio Inc. Form of Class A Common Stock Certificate of Twilio Inc. Amended and Restated Investors’ Rights Agreement, dated April 24, 2015, between Twilio Inc. and certain of its stockholders Indenture, dated as of May 17, 2018, between Twilio Inc. and Wilmington Trust, National Association, as trustee Form of 0.25% Convertible Senior Notes due 2023 (included in Exhibit 4.3) Indenture, dated as of March 9, 2021 by and between Twilio Inc. and U.S. Bank National Association, as Trustee 139 10-Q 001-37806 2.1 July 30, 2021 S-3 333-249889 2.1 November 5, 2020 8-K 001-37806 2.1 August 17, 2021 S-1A 333-211634 3.1 June 13, 2016 10-Q 001-37806 3.1 August 4, 2020 S-1 333-211634 4.1 May 26, 2016 S-1 333-211634 4.2 May 26, 2016 F o r m 1 0 - K 8-K 001-37806 4.1 May 18, 2018 8-K 001-37806 4.2 May 18, 2018 8-K 001-37806 4.1 March 9, 2021 Description Form File No. Exhibit Filing Date Incorporated by Reference First Supplemental Indenture, dated as of March 9, 2021, between Twilio Inc. and U.S. Bank National Association, as Trustee Form of 3.625% Senior Notes due 2029 Form of 3.875% Senior Notes due 2031 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 8-K 001-37806 4.2 March 9, 2021 8-K 8-K 001-37806 001-37806 10-K 001-37806 4.3 4.4 4.5 March 9, 2021 March 9, 2021 February 26, 2021 Form of Indemnification Agreement 10-K 001-37806 10-K 001-37806 10.1 10.2 February 26, 2021 February 26, 2021 Exhibit Number 4.6 4.7 4.8 4.9 10.1* 10.2* 10.3* 10.4* 10.5* 10.6* 10.7* 10.8* Twilio Inc. Amended and Restated 2008 Stock Option Plan and forms of Stock Option Agreement and form of Stock Option Grant Notice Twilio Inc. Amended and Restated 2016 Stock Option and Incentive Plan, and forms of Agreements thereunder Twilio Inc. 2019 France Sub-Plan to the 2016 Stock Option and Incentive Plan Segment.io, Inc. Fifth Amended and Restated 2013 Stock Option and Grant Plan and related form agreements SendGrid, Inc. Amended and Restated 2012 Equity Incentive Plan SendGrid, Inc. Amended and Restated 2017 Equity Incentive Plan Twilio Inc. Amended and Restated 2016 Employee Stock Purchase Plan 10.9* Zipwhip, Inc. 2018 Equity Incentive Plan 10.10* 10.11 10.12 10.13 Zipwhip, Inc. Amended and Restated 2008 Stock Plan Office Lease, dated January 8, 2016, as amended January 8, 2016, between Twilio Inc. and Bay Area Headquarters Authority Sublease, dated as of August 30, 2018, by and between Salesforce.com, Inc. and Twilio Inc. Consent to Sublease Agreement, dated as of September 25, 2018, by and among Hudson Rincon Center, LLC, Salesforce.com Inc. and Twilio Inc. 140 10-K 001-37806 10.3 February 26, 2021 10-Q 001-37806 10.2 October 31, 2019 10-K 001-37806 10.5 February 26, 2021 10-K 001-37806 10.6 February 26, 2021 10-K 001-37806 10.7 February 26, 2021 10-Q 001-37806 10.1 October 31, 2019 S-8 S-8 333-211634 333-211634 99.1 99.2 August 2, 2021 August 2, 2021 S-1 333-211634 10.6 May 26, 2016 10-Q 001-37806 10.1 November 8, 2018 10-Q 001-37806 10.2 November 8, 2018 Exhibit Number 10.14* 10.15* 10.16* 10.17* 10.18* 10.19* Description Form File No. Exhibit Filing Date Incorporated by Reference Offer Letter with Khozema Shipchandler, dated August 20, 2018 Offer Letter with Marc Boroditsky, dated October 25, 2021 Offer Letter with Eyal Manor, dated October 13, 2021 Offer Letter with Dana Wagner dated October 7, 2021 Chief Executive Officer Severance Plan dated March 28, 2018 and form of participation letter Key Executive Severance Plan, dated March 28, 2018 and Form of Participation Letter 8-K 001-37806 10.1 October 25, 2018 Filed herewith Filed herewith Filed herewith 10-Q 001-37806 10.1 May 10, 2018 10-Q 001-37806 10.2 May 10, 2018 10.1 10.1 May 18, 2018 May 6, 2021 Filed herewith Filed herewith Filed herewith Filed herewith F o r m 1 0 - K Furnished herewith 10.20 Form of Capped Call Confirmation 8-K 001-37806 10-Q 001-37806 10.21+† 21.1 23.1 31.1 31.2 32.1** Framework Agreement by and among Twilio Inc., a Delaware corporation, Carlyle Partners V Holdings, L.P., a Delaware limited partnership, and Syniverse Corporation, a Delaware corporation, dated as of February 26, 2021 List of Subsidiaries of the Registrant Consent of KPMG, LLP, Independent Registered Public Accounting Firm Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 Certification of the Chief Operating Officer (Principal Financial Officer) pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 Certification of the Chief Executive Officer and Chief Operating Officer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 141 Exhibit Number 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 104 Description Form File No. Exhibit Filing Date Incorporated by Reference Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document Inline XBRL Taxonomy Extension Schema Document. Inline XBRL Taxonomy Extension Calculation Linkbase Document. Inline XBRL Taxonomy Extension Definition Linkbase Document. XBRL Taxonomy Extension Label Linkbase Document. Inline XBRL Taxonomy Extension Presentation Linkbase Document. Cover Page with Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101). Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith + Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and other similar attachments upon request by the Securities and Exchange Commission. † * Certain portions of this exhibit have been omitted because they are not material and they are the type of information that the registrant treats as private or confidential. Indicates a management contract or compensatory plan or arrangement. ** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. Item 16. Form 10-K Summary None. 142 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. February 22, 2022 February 22, 2022 February 22, 2022 February 22, 2022 February 22, 2022 February 22, 2022 February 22, 2022 February 22, 2022 February 22, 2022 February 22, 2022 Twilio Inc. /s/ JEFF LAWSON Jeff Lawson Director and Chief Executive Officer (Principal Executive Officer) /s/ KHOZEMA Z. SHIPCHANDLER Khozema Z. Shipchandler Chief Operating Officer (Principal Accounting and Financial Officer) /s/ RICHARD L. DALZELL Richard L. Dalzell Director /s/ BYRON B. DEETER Byron B. Deeter Director /s/ ELENA A. DONIO Elena A. Donio Director /s/ DONNA L. DUBINSKY Donna L. Dubinsky Director /s/ JEFF EPSTEIN Jeff Epstein Director /s/ JEFFREY R. IMMELT Jeffrey R. Immelt Director /s/ DEVAL L. PATRICK Deval L. Patrick Director /s/ ERIKA ROTTENBERG Erika Rottenberg Director 143 F o r m 1 0 - K Leadership Management Jeff Lawson Co-Founder, CEO & Chairperson Michael Buckley VP of Communications Lybra Clemons Chief Diversity Officer Elena Donio President of Revenue Simon Khalaf SVP & GM Communications Platform Christy Lake Chief People Officer Eyal Manor Chief Product Officer Erin Reilly Chief Social Impact Officer Khozema Shipchandler Chief Operating Officer Reeny Sondhi Chief Digital Officer Aidan Viggiano SVP, Finance Dana Wagner Chief Legal Officer Glenn Weinstein Chief Customer Officer Board of Directors Jeff Lawson Co-Founder, CEO & Chairperson Rick Dalzell Former SVP & CIO Amazon Byron Deeter Partner Bessemer Venture Partners Donna Dubinsky CEO and Board Chair Numenta Jeff Epstein Former CFO Oracle Jeff Immelt Venture Partner New Enterprise Associates Deval Patrick Former Governor of Massachusetts Erika Rottenberg Former VP & General Counsel Chan Zuckerberg Initiative Auditors KPMG LLP Transfer agent & registrar Computershare Trust Company, N.A. twilio.com twilio.com 

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