Twilio Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Twilio provides a cloud communications and customer engagement platform. Comparisons are with Q1 2021 unless stated otherwise.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $875.4 million | $590.0 million | +48% |
| Gross profit / margin | $425.1 million / 49% | $298.3 million / 51% | Margin down 2 percentage points |
| Operating expenses | $642.9 million | $495.6 million | +30% |
| Operating loss | $217.8 million | $197.3 million | Loss widened |
| Net loss | $221.6 million | $206.5 million | Loss widened |
| Net loss per share, diluted | $1.23 | $1.24 | Loss per share narrowed |
| Operating cash flow | $(17.6) million | $4.5 million | Decreased |
- Growth and margins: Revenue growth reflected greater product usage and customer adoption, carrier A2P fees passed through to customers, and contributions from Zipwhip and other acquisitions. Acquisitions mean the year-over-year comparison is not fully organic. Usage-based fees generated 73% of revenue, versus 71%.
- Customer indicators: Active Customer Accounts increased 14% to 268,000. Dollar-Based Net Expansion Rate was 127%, down from 133%; both expansion-rate figures exclude Zipwhip and certain other recent acquisitions. The 10 largest Active Customer Accounts generated 11% of revenue.
- Cost trends: Cost of revenue rose 54%, faster than revenue, primarily because network provider costs increased $136.6 million, including A2P fees. Management cited international messaging mix, provider fees, and acquired-intangible amortization as pressures on gross margin; operational improvements and other application services partly offset them.
- Operating costs: Research and development rose 38% and sales and marketing 37%, largely reflecting higher personnel costs and expanded headcount. General and administrative expense increased 4%. Stock-based compensation was $155.3 million, up from $137.2 million.
- Non-GAAP measures: Non-GAAP operating income was $5.0 million, or a 1% margin, compared with $17.3 million and 3% a year earlier. Non-GAAP gross margin was 53%, versus 55%. These measures exclude specified costs, including stock compensation and acquired-intangible amortization.
Liquidity, debt, and cash flows
- At March 31, cash and cash equivalents were $1.62 billion and short-term marketable securities were $3.61 billion. Combined, these totaled about $5.22 billion, compared with $5.36 billion at year-end 2021. Current liabilities were $719.8 million.
- Long-term debt, net, was $986.2 million, representing $1.0 billion principal across the 3.625% notes due 2029 and 3.875% notes due 2031. Twilio reported compliance with the notes’ financial covenants.
- Operating cash use was $17.6 million, compared with $4.5 million provided in Q1 2021. Investing activities provided $151.0 million, primarily from net marketable-security sales and maturities; financing activities provided $4.1 million.
- Management said cash, cash equivalents, marketable securities, and operating cash flows were expected to cover anticipated working-capital and capital-expenditure needs for the next 12 months and beyond, while noting that future needs and financing availability remain uncertain.
Outlook, material developments, and risks
- The filing provides no specific revenue, earnings, or margin guidance. Management expects continued investment in engineering, sales and marketing, infrastructure, and international expansion; it also expects operating costs to increase in absolute dollars.
- Twilio and Syniverse continued pursuing an alternative transaction under which Twilio would make a $500 million to $750 million minority investment and enter a wholesale agreement. The proposed SPAC merger was terminated in February 2022; the alternative transaction remained subject to conditions and was expected to close in 2022.
- A San Francisco tax assessment of $38.8 million, including interest and penalties, was paid under protest. Twilio is seeking a refund in litigation, with trial scheduled for March 2023. The company stated that an adverse outcome could result in additional material exposure. It also reported tax liabilities of $26.5 million for domestic jurisdictions and $18.5 million for foreign jurisdictions.
- Other principal risks include macroeconomic and COVID-19 effects on customer spending, inflation and labor constraints, dependence on network providers and AWS, service reliability and cybersecurity, privacy and telecommunications regulation, competition and pricing pressure, international expansion, and continued operating losses. The company had an accumulated deficit of $2.34 billion.
- Unusual or notable items include $66.8 million of other comprehensive loss, mainly unrealized losses on marketable securities, and a Q1 business combination with an accounting purchase price of $32.7 million.
Important facts for investors to verify
- How much reported growth came from underlying customer usage versus acquisitions and A2P carrier-fee pass-throughs.
- Whether customer expansion and usage sustain revenue growth, given the decline in Dollar-Based Net Expansion Rate.
- Whether network-provider costs, international mix, and acquired-intangible amortization continue to pressure gross margin.
- The closing status, final terms, and cash impact of the proposed $500 million to $750 million Syniverse investment.
- The outcome and potential financial effect of the San Francisco tax litigation and other indirect-tax exposures.
- Progress toward positive operating cash flow and profitability, including the effect of stock-based compensation and planned investment.