01—Abstract
Summary
Summary of the 10-K filed March 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Twilio Inc. reported revenue of $399,020 thousanda ($399.0 million) for the year ended December 31, 2017, up from $277,335 thousand in 2016 and $166,919 thousand in 2015.
Loss from operations was $66,074 thousandb, and net loss was $63,708 thousand, compared with a net loss of $41,324 thousand in 2016. Base Revenue was $365.5 million, and the Dollar-Based Net Expansion Rate was 128% for 2017, down from 161% in 2016. The company had 48,979 Active Customer Accounts as of December 31, 2017, up from 36,606.
Non-GAAP gross margin was 55%c in 2017 versus 57% in 2016, and management attributed the decline to an increasing mix of international usage and price adjustments made as a result of Uber's high volume growth. The filing discloses a material weakness in internal control over financial reporting related to tracking and categorizing capitalized software development costs. KPMG issued an adverse opinion on internal control as of December 31, 2017, while its opinion on the consolidated financial statements was unqualified.
Management stated that the deficiencies did not result in a material misstatement of research and development expenses or long-lived assets for 2017. Cash and cash equivalents were $115.3 milliond and marketable securities were $175.6 million at year-end, but operating cash flow was negative $3.3 million for 2017. Customer concentration remains significant: Uber, a Base Customer, accounted for 8% of 2017 revenue, down from 14% in 2016, and WhatsApp, a Variable Customer, accounted for 6%.
Key risks include ongoing patent litigation with Telesign, a putative class action under the California Invasion of Privacy Act, the General Data Protection Regulation taking effect May 25, 2018, and state sales and telecommunications tax exposure, for which the company carried a $20.9 million liability. The Chief Financial Officer, Lee Kirkpatrick, announced his departure on February 13, 2018, and will remain until a replacement is hired. Co-founder and CEO Jeff Lawson holds Class B shares with 10 votes per share, and directors, executive officers and affiliates held 54.5% of the voting power as of December 31, 2017.
02—Key points
Key Highlights
- Revenue rose to $399.0 million in 2017 from $277.3 million in 2016, and the net loss narrowed to $63.7 million from $41.3 million in 2016... (note: the net loss widened from $41.3 million to $63.7 million).
- Base Revenue reached $365.5 million in 2017, a 49% increase, while the Dollar-Based Net Expansion Rate declined to 128% from 161%.
- Active Customer Accounts grew to 48,979 at December 31, 2017, from 36,606 a year earlier.
- Non-GAAP gross margin was 55% in 2017 versus 57% in 2016, pressured by international mix and Uber-related price adjustments.
- Management and KPMG identified a material weakness in controls over capitalized software development costs; KPMG issued an adverse opinion on internal control over financial reporting.
- Customer concentration is significant: Uber was 8% of 2017 revenue (14% in 2016) and WhatsApp was 6% (9% in 2016).
- Operating cash flow was negative $3.3 million in 2017, while cash and cash equivalents of $115.3 million and marketable securities of $175.6 million were held at year-end.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, Twilio lost $0.16.
- Revenue$399.0M100.0%
- Cost of revenue−$182.9M45.8%
- Gross profit$216.1M54.2%
- Operating costs−$282.2M70.7%
- Operating income−$66.1M16.6%
- Interest, other & tax$2.4M0.6%
- Net income−$63.7M16.0%
04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 1, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $399.02M$277.33M | +43.9% |
| Cost of Revenue | $182.90M$120.52M | +51.8% |
| Gross Profit | $216.13M$156.81M | +37.8% |
| R&D Expenses | $120.74M$77.93M | +54.9% |
| Operating Expenses | $282.20M$198.13M | +42.4% |
| Operating Income | -$66.07M-$41.31M | −59.9% |
| Net Income | -$63.71M-$41.32M | −54.2% |
| EPS (Basic) | $-0.70$-0.78 | +10.3% |
| Shares Outstanding (Basic) | 91.22M53.12M | +71.7% |
05—Questions
Frequently Asked Questions
How did Twilio's revenue and losses trend in 2017?
Revenue was $399.0 million in 2017, up from $277.3 million in 2016. Loss from operations was $66.1 million in 2017 versus $41.3 million in 2016, and net loss was $63.7 million versus $41.3 million. Net loss per share attributable to common stockholders was $0.70 in 2017 compared with $0.78 in 2016.
What is the material weakness the company disclosed?
Management concluded that internal controls did not effectively track and categorize software development costs between expense and capitalization under GAAP, which was a material weakness. KPMG issued an adverse opinion on internal control over financial reporting as of December 31, 2017, although its opinion on the consolidated financial statements was unqualified. The company stated it had not yet estimated when remediation would occur.
What legal and regulatory risks does the filing highlight?
The filing describes two Telesign patent infringement lawsuits seeking to enjoin the company and recover lost-profit damages, and a Twilio suit against Telesign. It also describes a putative class action under the California Invasion of Privacy Act (Angela Flowers v. Twilio Inc.), in which the court certified two classes on January 2, 2018. The GDPR takes full effect May 25, 2018, with fines of up to the greater of €20 million or 4% of global annual revenue. The company also carried a $20.9 million liability for prior state sales and other taxes.
Why did the company's Dollar-Based Net Expansion Rate decline?
The filing attributes the change in 2017 to a combination of usage and price changes, including pricing decreases implemented over time to increase the reach and scale of the platform, and a decline in Uber's usage and price adjustments tied to Uber's high volume growth. The rate was 128% in 2017 versus 161% in 2016.
Who is leaving the company and how does it affect governance?
Chief Financial Officer Lee Kirkpatrick announced on February 13, 2018 that he will leave the company, and he will remain until a replacement is hired. Co-founder and CEO Jeff Lawson holds Class B common stock with 10 votes per share. As of December 31, 2017, directors, executive officers and their affiliates held 54.5% of the voting power.
06—Continue