Twilio Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports fourth-quarter results; it is an annual report, not a standalone Q4 filing. Twilio operates a usage-based cloud communications platform for developers, including voice, messaging, video and authentication APIs.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $277.3 million | $166.9 million |
| Gross profit / margin | $156.8 million / 57% | $92.5 million / 55% |
| Operating loss | $41.3 million | $35.4 million |
| Net loss | $41.3 million | $35.5 million |
| Cash from operating activities | $10.1 million | $(18.8) million |
| Cash and cash equivalents at year-end | $305.7 million | $108.8 million |
| Working capital at year-end | $279.7 million | $96.0 million |
- Revenue increased 66%; Base Revenue rose 79% to $245.5 million. Active Customer Accounts increased 44% to 36,606. Dollar-Based Net Expansion Rate was 161%, up from 155%.
- Fourth-quarter revenue was $82.0 million, gross margin 58%, operating loss $12.8 million and net loss $12.6 million. Revenue rose from $51.3 million in Q4 2015.
- Operating expenses increased 55% to $198.1 million, including R&D of $77.9 million, sales and marketing of $65.3 million, G&A of $51.1 million and a $3.9 million charitable contribution.
- FY2016 operating cash flow turned positive, while investing activities used $42.4 million, primarily for property and equipment, software development, the Kurento acquisition and restricted cash. Financing provided $229.2 million, largely from the IPO and follow-on offering.
- No borrowings were outstanding on the $15 million revolving credit facility at year-end; it was due to expire in March 2017. The filing reports $113.8 million of operating lease and purchase obligations.
Changes, outlook and material risks
- Gross margin improved by two percentage points, attributed to platform optimization and product/geographic mix. Operating losses nevertheless widened as the company expanded investment and headcount.
- Management intends to prioritize platform reach, revenue growth, product development, international expansion and enterprise sales rather than maximizing near-term gross margin. It expects operating costs to rise and warns revenue growth may decline over time; it does not provide numerical financial guidance in the supplied filing text.
- Twilio reported continuing net losses since inception and an accumulated deficit of $186.7 million. Management said cash, the credit facility and operating cash flows should meet anticipated needs for at least 12 months, while cautioning that this assessment could prove incorrect.
- Customer concentration is significant: the ten largest Active Customer Accounts generated 30% of 2016 revenue. Uber accounted for more than 10%; WhatsApp represented 9% and is a variable customer that may reduce usage without penalty.
- Key business risks include reliance on AWS and third-party network providers, service outages and cybersecurity, competitive pricing and network costs, lower international margins, customer usage variability, and the execution risks of scaling enterprise sales and international operations.
- Contingencies include Telesign patent litigation and a California privacy class action; the company said outcomes could not yet be reasonably predicted or losses estimated. Accrued sales and other tax liabilities were $28.8 million, up from $17.6 million; actual exposure could differ from estimates.
- Other notable items: Twilio completed its IPO and follow-on offering in 2016, acquired Kurento-related technology for $8.5 million, and early adopted a stock-compensation accounting update. Stock-based compensation was $24.2 million for the year.
Important facts for investors to verify
- Track revenue growth, Base Revenue, expansion rate and the contribution and retention of major customers, especially Uber and WhatsApp.
- Assess whether gross-margin gains persist as international revenue grows and the company passes network-cost savings to customers.
- Review operating cash flow against ongoing losses, capitalized software spending, lease and vendor commitments, and the status of the credit facility after its March 2017 expiry.
- Monitor outcomes and potential financial effects of the patent and privacy litigation, and changes in sales, telecommunications and other tax exposures.
- Consider dilution and governance: Class B shares carry ten votes each, and pre-IPO holders and affiliates held 83.9% of voting power at year-end 2016.