01—Abstract
Summary
Summary of the 10-K filed February 22, 2017. Cited figures are marked; the original filing is the authoritative source.
Twilio Inc. reported its 10-K for fiscal 2016, describing itself as the leader in the Cloud Communications Platform category, with a usage-based revenue model that lets developers embed voice, messaging, video and authentication into applications.
Revenue grew to $277.3 milliona in 2016 from $166.9 million in 2015 and $88.8 million in 2014, and Base Revenue reached $245.5 million, up 79%. The Dollar-Based Net Expansion Rate was 161% in 2016 versus 155% in 2015, and Active Customer Accounts rose to 36,606 from 25,347. Usage-based fees made up 83% of 2016 revenue.
Profitability remained negative. The net loss was $41.3 millionb in 2016, compared with $35.5 million in 2015 and $26.8 million in 2014, and the accumulated deficit was $186.7 million. Gross margin improved to 57% from 55%, and non-GAAP gross margin was 57% versus 56%.
Non-GAAP operating margin was (4)% in 2016 compared with (14)% in 2015. Operating cash flow turned positive at $10.1 millionc, compared with cash used of $18.8 million in 2015. Cash and cash equivalents were $305.7 million at year-end, after the June 2016 IPO (net proceeds of $155.5 million) and the October 2016 follow-on offering (net proceeds of $64.4 million).
Investors should weigh customer concentration and governance. WhatsApp, a Variable Customer Account, accounted for 9%d of 2016 revenue, and Uber accounted for more than 10%. The 10 largest Active Customer Accounts generated 30% of revenue.
Class B shares carry 10 votes each, and insiders and significant holders held 83.9% of voting power at December 31, 2016. The company also faces Telesign patent litigation and a privacy class action, and it has a large accrued sales and other tax liability of $28.8 million.
02—Key points
Key Highlights
- Revenue rose to $277.3 million in 2016, up from $166.9 million in 2015, with Base Revenue of $245.5 million growing 79%.
- Dollar-Based Net Expansion Rate improved to 161% in 2016 from 155% in 2015, and Active Customer Accounts grew to 36,606 from 25,347.
- Net loss widened to $41.3 million in 2016 from $35.5 million in 2015; the accumulated deficit reached $186.7 million.
- Gross margin increased to 57% from 55%, driven by platform optimization, while non-GAAP operating margin improved to (4)% from (14)%.
- Operating cash flow was positive at $10.1 million in 2016, versus cash used of $18.8 million in 2015; cash and cash equivalents ended the year at $305.7 million after the IPO and follow-on offering.
- Customer concentration is significant: WhatsApp (Variable Customer Account) represented 9% of 2016 revenue, Uber more than 10%, and the 10 largest accounts 30%.
- Dual-class structure gives Class B shares 10 votes each; insiders and significant holders held 83.9% of voting power at December 31, 2016.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2016, Twilio lost $0.15.
- Revenue$277.3M100.0%
- Cost of revenue−$120.5M43.5%
- Gross profit$156.8M56.5%
- Operating costs−$198.1M71.4%
- Operating income−$41.3M14.9%
- Interest, other & tax−$9,0000.0%
- Net income−$41.3M14.9%
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 22, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $277.33M$166.92M | +66.1% |
| Cost of Revenue | $120.52M$74.45M | +61.9% |
| Gross Profit | $156.81M$92.47M | +69.6% |
| R&D Expenses | $77.93M$42.56M | +83.1% |
| Operating Expenses | $198.13M$127.86M | +55.0% |
| Operating Income | -$41.31M-$35.39M | −16.7% |
| Net Income | -$41.32M-$35.50M | −16.4% |
| EPS (Basic) | $-0.78$-2.19 | +64.4% |
| Shares Outstanding (Basic) | 53.12M17.75M | +199.3% |
05—Questions
Frequently Asked Questions
How is Twilio's revenue generated?
Twilio derives revenue primarily from usage-based fees for its Programmable Voice, Programmable Messaging and Programmable Video products, as well as Use Case APIs. Usage-based fees made up 83% of revenue in 2016, 79% in 2015 and 75% in 2014. Customers typically prepay by credit card and draw down balances, while larger customers with minimum revenue commitment contracts are invoiced monthly in arrears.
Is Twilio profitable?
No. The company reported net losses in each year since inception, including $41.3 million in 2016, $35.5 million in 2015 and $26.8 million in 2014. The filing says it expects revenue growth to decline over time and that it may not achieve or sustain profitability, although operating cash flow was positive at $10.1 million in 2016.
How concentrated is Twilio's customer base?
Concentration is notable. The 10 largest Active Customer Accounts generated 30% of 2016 revenue. WhatsApp, a Variable Customer Account, accounted for 9% of revenue in 2016 (17% in 2015), and Uber, a Base Customer Account, accounted for more than 10%. Most customers do not have long-term contracts and can reduce usage at any time without penalty.
What are the main legal and regulatory risks disclosed?
Telesign Corporation has filed two patent infringement lawsuits against Twilio alleging infringement related to its Programmable Authentication products, and Twilio has countersued. A putative class action in California alleges that its products violate the California Invasion of Privacy Act. The company also faces Telephone Consumer Protection Act exposure and recorded a liability of $28.8 million for historical sales and other taxes as of December 31, 2016.
Who controls voting power at Twilio?
Class B common stock carries 10 votes per share and Class A carries one. As of December 31, 2016, directors, executive officers, holders of more than 5% of common stock and their affiliates held in aggregate 83.9% of voting power. Class B holders are expected to control a majority of votes until the earlier of June 22, 2023 or the date two-thirds of Class B holders elect to convert.
06—Continue