TWLOTwilio

In light of the organizational changes described in your Form 8-K filed February 13, 2023 that were effective during the three months ended March 31, 2023, provide us with your updated ASC 280 segment identification analysis.

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In your analysis, please tell us if there have been any changes in your identified operating and reportable segments, and specifically address how you considered the following in determining your identified operating and reportable segments: • the changes in your management structure, including the identity and role of each of your segment managers, how your company is organized, and when such changes were effective; • what the key operating decisions are, who makes them, and how resources are allocated and performance is assessed within your business; • how the CODM and direct reports are compensated; and • how often the CODM meets with his direct reports, the financial information he reviews in conjunction with those meetings, the financial information discussed, and who else attends such meetings.

The Company acknowledges the Staff’s comment and provides the following response:

Overview

In light of the organizational changes announced in the 2023 Form 8-K, the Company reassessed its segment identification analysis under this guidance, with specific focus on what discrete financial information was available within the new Company structure and how this information was presented to and reviewed by the chief operating decision maker (“CODM”).

Based on this assessment, and as described in detail below, the Company concluded that as of March 31,

2023, the Company did not yet have

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sufficiently precise and final discrete financial information available on a Business Unit (“BU”) or product level and, consequently, the CODM did not regularly review such information. Accordingly, the

Company concluded that as of March 31, 2023, it continued to have one operating and reportable segment.

Organizational Changes

On February 13, 2023, the Company filed the 2023 Form 8-K with the Securities and

Exchange Commission announcing that its Board of Directors (the “Board”) approved a reorganization of the Company into two BUs: Twilio Data & Applications and Twilio Communications (the “Reorganization”) to strategically realign its business to promote efficient and accelerated growth. In connection with those changes, the Company is realigning its internal processes and controls to develop a reporting capability within its enterprise resource planning system

(“ERP”). This reporting capability will enable the Company to produce sufficiently precise BU-level discrete financial information to support its budgeting, forecasting and reporting processes. The process realignments currently underway are time-consuming, complex and require significant judgment and assumptions.

currently expects, and is using reasonable best efforts, to substantially complete its internal process realignments in the second quarter of 2023. This is expected to allow the Company to regularly provide the CODM with sufficiently precise and final discrete financial information on a BU level beginning in that quarter. As a result, the Company expects to begin reporting operating results for the second quarter of 2023 through two reportable segments: Twilio Data & Applications and Twilio Communications. The presentation of these two reportable segments would reflect the threeand six-month periods ended June 30, 2023 and 2022.

CODM Reporting Package

On April 20, 2023, the CODM reached a conclusion on the form and content of a draft CODM reporting package that he would like to regularly review going forward in order to assess performance and make resource allocation decisions. In addition to various consolidated results, the BU-level discrete financial information in this reporting package will include revenue (along with year-over-year consolidated revenue growth percentage and year-over-year organic revenue growth percentage), non-GAAP gross profit, and non-GAAP gross margin percentage. In addition, revenue detail will be provided for certain products. No product-level gross profit or gross margin detail will be presented. This new CODM reporting package is expected to be delivered monthly, starting during the second quarter, in place of information previously provided as part of the monthly Executive Team Report that was discontinued in 2023.

Process and Reporting Changes

As noted in the Company’s previous response letters, prior to the Reorganization, the Company was organized by business function, such as go-to-market (“GTM”), research and development (“R&D”), human resources and operations. All of these functional areas operated on a Company-wide basis and supported all products. This structure did not require tracing and allocating all costs to individual products or BUs. As such, the Company did not have a process in place to report these costs by product or BU in a sufficiently precise manner.

Immediately upon the Reorganization, the Company began making significant changes to the processes and controls within its ERP and supporting systems to enable it to produce sufficiently precise BU-level financial information to support its budgeting, forecasting and reporting of discrete financial information for each BU. The following primary workstreams are required to effectuate these changes, with actual or expected completion dates presented in parentheses:

Alignment of product hierarchy to BUs, including both associated revenue and direct costs of sale (Q2);

Re-engineering existing processes or creating new processes to enable allocation of revenue reserves and credits, hosting costs and capitalized software amortization to individual products and BUs (Q2). Establishing governance over subsequent product hierarchy updates (Q2);

Realignment of employee costs to the new BU structure on a go forward basis (Q2);

Realignment of vendor spend to the new BU structure on a go-forward basis

(Q2);

Redesigning sales commission plans including quota achievement targets for each BU (Q2);

Developing new attribution or allocation methodologies for supporting functional costs that are not directly related to the BUs (to be completed over 2023);

Determining the appropriate recast methodology for prior periods to align to the BU structure (to be completed over 2023); and

Remapping periodic expenses from prepaids, fixed assets, intangible assets, deferred commissions, and other assets to new cost centers on a go-forward basis (Q2).

As of the end of the first quarter, while progress had been made, none of the workstreams above were complete. While the consolidated results of operations and other disclosures reported in the Company’s Quarterly Report on Form

10-Q for the three months ended March 31, 2023, (the “Q1 Form 10-Q”) were fairly stated in all material respects, certain internal financial information presented on a BU or product level was not sufficiently precise and was pending completion of the workstreams outlined above and therefore, such internal financial information was not relied upon for assessing BU performance and making resource allocation decisions. For example, gross profit, cost of sales, and gross margin information by product and by BU was not final because certain revenue streams had not been allocated to BUs during the first quarter. Certain cost-of-sales expenditures, such as hosting expenses and capitalized software amortization, required further extensive and detailed analysis to allocate to BUs and products with sufficient precision. The revenue reserves and credit allocations were not final leading to gross margin calculations being preliminary in the Company’s internal BU-specific reporting packages. These allocations, once finalized, may have a material impact on the preliminary calculations of the gross profit and gross margin by product and BU. Similarly, progress made on the workstreams above during March was not recast into

January or February such that the months within the quarter were not comparable in the Company’s internal reporting.

To reiterate, while internal financial reporting on a BU or product level was not yet complete and sufficiently precise to use for performance assessment and to make resource allocation decisions, as of the end of the first quarter, all information presented on a consolidated level and otherwise in the Q1 Form 10-Q was fairly stated in all material respects. Further, while a significant number of the workstreams necessary to produce sufficiently precise BUor product-level discrete financial information remained incomplete as of the end of the first quarter, the Company is using reasonable best efforts to complete these workstreams during the second quarter and currently expects to be able to provide segment disclosures for two reportable segments in the second quarter Form 10-Q.

Further Limitations on Internal Interim Financial Information

The financial information provided to members of management, including the CODM, as further described below, was provided on an ad hoc basis by members of the finance team without the knowledge or involvement of the Company’s accounting team or in some instances its Chief Financial Officer. Furthermore, the information in the various reports, as described below, was known to be preliminary, not yet reviewed by the Company’s accounting team, and lacking adjustments for all of the workstreams cited above, and therefore not sufficiently precise nor final to be used for performance assessment and resource allocations.

Similarly, the information in these reports was not subject to the Company’s internal control over financial reporting as it was derived outside of the Company’s financial statement close process. The reports do not represent the format that was subsequently drafted for the Company’s newly designed CODM reporting package which is expected to commence in the second quarter of 2023, and the Company does not expect to present internal reporting packages in these formats again and therefore such information will not be regularly reviewed. Between the Reorganization announcement date and March 31, 2023, the CODM continued to assess the Company’s performance based on achievement of the consolidated Company revenue and non-GAAP profitability relative to the Company’s consolidated budget, which was then used to set the Company’s consolidated external guidance.

As part of the Reorganization, effective March 1, 2023, the Board appointed Khozema Shipchandler as President, Twilio Communications (“Comms”); Elena Donio as President, Twilio Data & Applications (“TD&A”); and Aidan Viggiano as Chief

Financial Officer (Principal Accounting and Finance Officer) (“CFO”). The Company subsequently announced the resignation of Eyal Manor, the Company’s Chief Product Officer, effective February 28, 2023.

The BU Presidents are responsible for executing the business strategy within their BU and are directly accountable for their respective BU’s performance under the oversight and direction of the CODM. In addition, the President of TD&A oversees the Company’s marketing function, and the President of Comms oversees information technology (“IT”) and security. While marketing, IT, and security support the entire Company, these functions will report to the applicable BU President. The CFO oversees Company-wide functions such as accounting, tax, internal audit, finance, treasury, and investor relations. The responsibilities of the former Chief Product Officer have been absorbed by various functions and respective BUs. Upon the Reorganization, the following leadership structure reported directly to and met regularly with the CODM:

Operating Group (“OG,” including the CEO):

Aidan Viggiano, Chief Financial Officer

Dana Wagner, Chief Legal Officer

Khozema Shipchandler, President, Twilio Communications

Elena Donio, President, Twilio Data & Applications

Christy Lake, Chief People Officer

Other Direct Reports of the CEO:

Mark Simms, Chief Technology Officer

Ian Morich, Vice President, Chief of Staff to the CEO

Although the Company made various changes to its management structure, including the appointment of BU Presidents, it did not alter the fundamental point that the Company, as of the end of the first quarter, did not have sufficiently precise and final discrete financial information available on a BU or product level that was regularly reviewed by the CODM. Any BUor product-level information was preliminary and known internally to be subject to change as a result of the ongoing comprehensive accounting realignment process. The Company believes that this is consistent with its segment conclusions for the first quarter of 2023.

In addition to the examples of key operating decisions highlighted in the

Company’s second SEC Comment Letter response dated March 8, 2023, (the Company strategy, financial plans and resource allocation, business acquisitions, and assessing performance and allocating resources), the following are additional key operating decisions that are made by the CODM:

Reorganization. The CODM, with approval from the Board, made the decision to reorganize the Company into the BU operating model and leadership structure described above. As referenced earlier, during the second quarter of 2023, the Company expects to complete a new CODM reporting package that will provide sufficiently precise and final discrete financial information at a BU level on a regular and consistent basis. Once this new reporting package becomes available, the CODM will rely on this information to assess the performance of each BU and make resource allocation decisions. Prior to having that discrete financial information in place, the Company continued to operate as a single operating and reporting segment. The Company expects that the implementation of discrete financial information in the second quarter of 2023 will change this conclusion.

Reductions in Force. The CODM made the decision, which was approved by the Board, to effectuate the 17% reduction in force announced in the 2023 Form 8-K in support of the Company’s overall consolidated profit objectives. The Company assesses its performance against achievement of its consolidated non-GAAP profitability budget and targets, which formed the basis for its initial external guidance of $250-350 million in non-GAAP income from operations. Performance against this target was accelerated as a result of this reduction in force.

Significant Product Disposal,

End-of-Life, or End-of-Sale. The CODM makes decisions regarding the disposal, end-of-life, or end-of-sale of significant products, subject to Board oversight in accordance with applicable law. Discontinuing a product is often driven by its strategic fit within the Company’s product portfolio, growth opportunities and competition rather than on the basis of the financial information alone. For example, the decision to dispose of the Internet of Things product announced during the first quarter of 2023 was driven by the non-strategic nature of this product and was deprioritized to allow management to shift resource allocation in support of products with more strategic significance.

As noted above, during the first quarter of

2023, the CODM made the key operating decisions for the Company and determined how resources were allocated and performance was assessed. Resources were allocated in a manner that the CODM believed best positioned the Company to achieve its consolidated budgeted results which guided the Company’s publicly stated consolidated earnings guidance. The Company’s performance during the first quarter of 2023 was assessed, including in connection with and following the key operating decisions outlined above, based on its progress toward its consolidated budget which was used to set its consolidated external guidance. The Company believes that this is consistent with its segment conclusions for the first quarter of 2023.

how the CODM and direct reports are compensated;

In the first quarter of 2023, neither the CODM nor his direct reports were compensated on the basis of financial results of any particular geography, segment, BU, product or product grouping. As discussed above, for the first quarter of 2023, the requisite discrete financial information was not yet available for BU results, nor were the budgets or forecasts against which performance would be assessed. Compensation of the CODM and each of his direct reports is comprised of some or all of the following components:

Annual base salary;

Performance-based restricted stock units, issued in the first quarter of 2022. These units vest over a three-year period based on the achievement of combinations of target consolidated organic revenue growth and consolidated non-GAAP income from operations;

Cash-based performance awards with performance targets based on the Company’s consolidated non-GAAP income from operations achievement during 2023; and

Restricted stock units and/or stock options that are subject only to time vesting conditions.

This compensation structure, which does not focus on BU or product-level results, supports the view that the Company continues to operate in a single operating segment as of the end of the first quarter of 2023.

Given the significant change initiated by the Reorganization and simultaneous 17% reduction in force that occurred during the first quarter of 2023, the cadence of meetings and financial information that was customary in 2022 was disrupted and new packages unique to the facts of the first quarter of 2023 were created on an ad hoc basis. For example, the Executive Team Report that was delivered in 2022 was discontinued and not delivered in 2023. Financial information at any level below consolidated results was incomplete and known to be subject to change as described previously due to the incomplete workstreams required to provide BU or product level information. Given the unique circumstances, certain of the CODM’s meetings with his direct reports were more ad hoc as opposed to recurring and, certain of the accompanying financial information provided in the first quarter was generally customized and non-recurring in nature and therefore not regularly reviewed by the CODM. Accordingly, in this response, the Company is providing the Staff with details of all significant meetings between the CODM and his direct reports during the first quarter of 2023.

All explanations provided earlier in this response as to the nature of the financial information presented below the consolidated level not being sufficiently precise or final applies to all such financial information described below. All participants in the meetings outlined below were made aware of such limitations. Given the BU and product-level financial information below was described as draft and known to be preliminary and therefore not sufficiently precise to use for performance assessment and resource allocation (and in many cases not yet reviewed by the Company’s accounting team), the Company concluded that discrete financial information on a BU level did not exist as of March 31, 2023. When the new CODM reporting package is produced in the second quarter of 2023, the Company expects that the BU level discrete financial information will be provided to the CODM on a monthly basis for his review.

In the first quarter of 2023, the CODM held the following meetings with his direct reports:

February 2, 2023: 0+12 Lavender Financial Update. Participants included the COO and finance team on February 2, then this content was reviewed by the OG at the February 6th meeting. The content related to the expected Company-wide impact of the proposed 17% headcount reduction, internally referred to as “Project

Lavender,” as well as the 2023 budget approval. The information in this report was not yet reviewed by the Company’s accounting team, and lacked adjustments for all of the workstreams cited above, and therefore was not final nor sufficiently precise to be used for performance assessment and resource allocation. The slides that accompanied the meeting presented consolidated financial forecasts of the Company and certain Appendix slides included gross margins by product and by BU, which information was marked as “Draft” or “Preliminary,” and gross profit drivers from select products, and was intended to be illustrative only. The same content is not expected to be presented in the future due to the one-time nature of matters announced in the 2023 Form 8-K. The Company is providing to the Staff supplementally a copy of the slide deck. (“Document 1”).

February 6, 2023: 0+12 Lavender Financial Update (OG). Participants included the

OG and the content related to Project Lavender and therefore is not expected to recur in this form or be presented to the CODM on an ongoing basis. The information in this report was not yet reviewed by the Company’s accounting team, and lacked adjustments for all of the workstreams cited above, and therefore was not final nor sufficiently precise to be used for performance assessment and resource allocation. The content presented was on a consolidated basis and covered the following: the Company’s proposed updated budget for 2023, a 5-year outlook and the Company’s preliminary 2023 guidance. The Company is providing to the Staff supplementally a copy of the slide deck (“Document 2”).

The content further provided interim budget rules (i.e., the requirement to maintain a flat headcount) for the relevant Company leaders to follow until (i) operating expenses were reallocated into the new operating structure and (ii) product revenue and cost of sales reporting was enabled in the Company’s ERP system.

March 22, 2023: Operations Review. Participants included the OG, the direct reports of each BU President, the respective Finance Partners and HR representatives. Each BU President presented an update about their BU business activities including a financial update based on preliminary and not sufficiently precise BU-level financial information, that was derived by the BU financial team without knowledge or involvement of the Company’s accounting team or its CFO. The information in this report lacked adjustments for all of the workstreams cited above, and therefore was not final nor sufficiently precise to be used for performance assessment and resource allocation. The financial update included, for both BUs, revenue and gross profit by product and by BU, and, for the TD&A BU only, direct operating expenses, contribution profit, and margin by major product. The information was presented in comparison to prior periods and the prior period figures presented were subject to all of the accuracy limitations described above for current period amounts. The current period information was also compared to “Plan,” which was an estimated budget arrived at by the BUs prior to the completion of the accounting or budget realignment described elsewhere. The Company is providing to the Staff supplementally copies of the portions of the slide decks for the two BUs relevant to financial reporting and the Company’s segment analysis (“Document 3” for Twilio Communications and

“Document 4” for Twilio Data & Applications).

The Company expects the Operations Review meeting to recur on a quarterly basis. The primary focus of the meeting is to review priorities and Objectives and Key Results. Discrete financial information for the BUs will also be regularly reviewed at this meeting once the Company completes the following workstreams to enable its capability to produce sufficiently precise and final discrete financial information on a BU level on a regular and consistent basis (the actual or expected completion dates presented in parentheses):

allocation of revenue reserves and credits, hosting costs and capitalized software amortization to individual products and BUs (Q2). Establishing governance over subsequent product hierarchy updates (Q2);

assets to new cost centers (Q2).

The Company expects that the BU-level discrete financial information provided to the CODM for review in the Operations Review meetings in the second quarter and all subsequent periods will include revenue and non-GAAP gross profit information, as well as revenue-only information for certain products. Given that sufficiently precise and final discrete financial information on a BU level has not yet been provided for the CODM review, the Company believes its segment conclusions for the first quarter of 2023 remains appropriate. However, as referenced previously, the Company expects this conclusion to change in the second quarter of 2023 when sufficiently precise and final discrete financial information is provided and regularly reviewed by the

CODM.

March 23, 2023: SVP Financial Update. Only one of these meetings has occurred since the

Reorganization and it is not expected to recur in the future. The CFO presented the Company’s performance on a consolidated basis to a group of executives that included senior vice presidents and above, including the CODM. The Company is providing to the Staff supplementally a copy of the slide deck (“Document 5”).

Weekly Strategy OG meetings. The OG meets every Wednesday to discuss topics determined by the CODM. No formal agenda nor minutes are maintained. Topics may include culture, talent management, remote-first strategy, Company-wide AI/ML strategy and other Company-wide topics. Financial information is not presented and is generally not discussed.

Weekly updates with Comms BU President. The Comms BU President provides an update to the CODM on BU-specific matters in a weekly email and in a one-one-meeting. The update includes various business matters, past and upcoming, and financial information is generally not provided.

Weekly updates with TD&A BU President. The TD&A President provides updates to the CODM on BU-specific matters in weekly one-on-one meetings. The updates include business matters of high interest to the CODM, such as software topline revenue forecast, bookings and pipeline, product development and strategy, product roadmap prioritization, marketing messaging, brand recognition, competition, timing for AI/ML delivery, and related topics. Financial information that includes a measure of profitability is not provided.

Bi-weekly one-on-ones with all other direct reports. The CODM holds weekly /bi-weekly one-on-one meetings with other direct reports, as described in the Company’s second SEC Comment Letter response dated March 8, 2023.

Weekly Product Compliance meetings. Periodically the CODM attends the weekly product compliance meetings held by the Comms BU. The content primarily relates to Messaging but also covers Voice and Email. Product compliance is among the high priority topics for the CODM. Participants include the President of the Comms BU and several of his team members.

Financial information generally is not used.

Monthly Messaging Self-Serve meetings. The CODM meets once a month with Comms BU President and his team.

This meeting focuses on making self-serve readily available and easily accessible to the Company’s customers. Financial information is not discussed.

In light of the information described above being preliminary and not sufficiently precise, the Company does not believe the financial information described above was sufficient to be used for performance assessment and resource allocation purposes, nor was there “regular review” of sufficiently precise discrete financial information. This supports the view that the

Company did not, as of March 31, 2023, have consistent, sufficiently precise and final discrete financial information on a BU or product level and, therefore, continued to operate in a single reportable segment. Upon the anticipated second quarter of 2023 completion of the new CODM reporting package, the Company expects this conclusion to change.

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As part of your updated segment identification analysis, describe the financial information reviewed by the CODM for the purpose of allocating resources and assessing performance, and provide us with a sample of the internal financial reporting package that the CODM receives and/or discusses with his direct reports.

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In this regard, we note from your prior response that your CODM previously received the monthly Executive Team Report, which included product-level margin percentage information and commentary explaining variances against the company’s forecast and prior periods. Your response to prior comment 1 from our letter dated February 2, 2023 also stated that product-level gross margin information was used by the CODM to understand and explain trends and variances in the consolidated gross margins. If your CODM continues to receive lower level financial information following the reorganization, such as at the product level, describe this information in detail, how it is used, and tell us why operating segments were not identified at that level. Finally, describe the financial information reviewed by your Board of Directors and how frequently that information is reviewed.

Company acknowledges the Staff’s comment and provides the following response:

The Executive Team Report that was provided to the CODM in the prior periods and discussed in the Company’s previous response letter was discontinued subsequent to the Reorganization announcement and replaced with the series of specific meetings discussed above, the financial content for which was provided to the Staff supplementally.

The Operations Review update that occurred on March 22, 2023, is expected to continue on a quarterly basis and will also present the BU-level discrete financial information that

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includes revenue, gross margin and gross profit only. This information will be presented once all of the workstreams required to arrive at sufficiently precise BU-level discrete financial information have been completed, which is expected to be in the second quarter of 2023.

In addition to the financial information provided to the CODM in meetings discussed above, the CODM received and reviewed the Financial Update the Company provided to its Board. On March 27, 2023, the Financial Update included financial information on a consolidated basis. The Company is providing to the Staff supplementally a copy of the Financial Update (“Document 6”). The

Company holds regular full Board meetings once a quarter and expects to continue this frequency.

The lower level financial information received by the CODM was provided in the 0+12 Lavender

Update Report and Operations Review Reports, the contents of which are outlined in the response above. This lower level information was provided to the CODM on an ad hoc basis, and, in the case of the Operations Review Reports, by members of the finance team without the knowledge or involvement of the Company’s accounting team or its CFO. Therefore, this information was known to the Company leadership and the CODM to be draft, preliminary or otherwise not sufficiently precise because

(i) it was not yet reviewed by the Company’s accounting team, (ii) it was lacking adjustments that could be material, including among others, revenue reserves, hosting costs and capitalized software amortization allocations,

(iii) it was not subject to the Company’s internal control over financial reporting, and (iv) it was derived outside of the Company’s financial statement close process. Additionally, the budgeting process was not yet modified to forecast for the new BU structure as of March 31, 2023. This process was substantially completed in the second quarter of 2023 and the BU-level budgets were provided to the BU Presidents at the end of

April. The remaining efforts to fully align reporting of actual results to the BU structure will be ongoing through the second quarter of 2023.

Previously, the CODM package included select product-level gross profit and gross margin information that was included by management to explain certain variances impacting trends in consolidated Company gross profit or gross margin levels. Because in the past the Company did not need to have a process in place to regularly and consistently allocate costs to individual products or BUs with sufficient precision, the lower level information was not used by the CODM to assess performance and make resource allocation decisions for the Company. Upon completion of the realignment process, the Company expects to provide the CODM with final, sufficiently precise BU-level discrete financial information through gross profit to be used for performance assessment and resource allocations.

Based on the above, the Company concluded that as of March 31, 2023, BU-level sufficiently precise and final discrete financial information did not exist and, consequently, was not regularly reviewed by the CODM. This is consistent with the Company’s segment conclusions in the first quarter of 2023.

Read in the reply ↗

Explain to us how your 2023 budget was prepared, who approved the budget at each step of the process, the level of detail discussed at each step, the level of detail received by the CODM, and the level at which the CODM makes changes to the budget.

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Additionally, tell us if your 2023 budget information is prepared in the same or a different format as your current internal reporting package, and if it includes product margin or other lower level information.

2023 Budget Preparation and Approval Process

The budgeting process for 2023 started in the third quarter of 2022 and continued into February 2023. The process was managed in three workstreams: revenue, cost of sales (“COGS”) and operating expenses (“Opex”).

Revenue was budgeted based on forecasted sales at a product level which was primarily driven by customer trends, booking trends and macroeconomic outlook assumptions. These assumptions and the outputs were reviewed and validated by the relevant functional and finance teams through each stage of the budgeting process.

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Specifically, for the revenue budget, this included GTM leaders and the GTM Revenue finance teams. The product-level revenue forecasts were then aggregated into a consolidated Company revenue budget. The consolidated revenue budget was further reviewed and approved by the then President of

Revenue (Elena Donio) and then Chief Operating Officer (“COO”) (Khozema Shipchandler), prior to being presented for review and approval on a consolidated level along with the other workstreams by the CODM.

COGS was budgeted at a product level for carrier costs and at a cost line item level for hosting, cap software and support costs. The budget was primarily driven by volume trends (based on the forecasted sales), estimated carrier costs for usage-based products and known carrier fee changes. These budget assumptions and outputs were reviewed and validated by the relevant functional and finance teams through each stage of the budgeting process. Specifically, for the COGS budget, this included functional R&D leaders and the R&D finance teams. The COGS product-level budgets were then aggregated into a consolidated Company COGS budget. The combination of the consolidated revenue and consolidated COGS budgets formed the consolidated gross profit / gross margin budget. This consolidated budget was reviewed and approved by the then COO prior to being presented for review and approval on a consolidated basis along with the other workstreams by the CODM.

Budgeting for Opex was completed at a functional team level, e.g., GTM, R&D, human resources and operations, and was reflective of two principles for 2023: (i) holding opex spend at existing fourth quarter levels, and (ii) new investment being focused on Software GTM and R&D teams. These budget assumptions and outputs were reviewed and validated by the relevant functional and finance teams through each stage of the budget process. Specifically, for the Opex budgets, this included all functional leaders and the GTM, R&D and general and administrative finance teams. The level of the new investment for Software in the 2023 Opex budget was determined by the then President of Revenue (Elena Donio) and then Chief Product Officer (Eyal Manor). The Opex budgets were reviewed in detail and approved by the OG prior to being presented for review and approval on a consolidated basis, along with the other workstreams, to the CODM. Details of the Opex and headcount plans were summarized at a functional team level as part of the data provided to the CODM for review.

Following the Opex budgeting exercise described above, the impacts of the February restructuring action were incorporated into the 2023 Opex budget. These impacts included: (i) headcount reductions by function, (ii) reductions in cost tied to the announcement of additional office closures, and (iii) the reduction of other Companywide costs tied to the February restructuring action. These actions and associated impacts to the Opex budget were reviewed at the OG level (inclusive of the CODM) and finalized prior to the Reorganization announcement. Lastly, the 2023 budget was adjusted at the Company level to reflect planned changes in cost structure, such as changes in the commissions structure and the shift from equity compensation to cash compensation for a portion of the Company’s employee population. Details of the Opex impacts from the February restructuring actions were summarized at a functional level as part of the data provided to the CODM for review.

The consolidation of the above budget elements formed the Company’s 2023 financial budget. This was finalized in early February and discussed with the OG, inclusive of the CODM, at the February 6, 2023, Financial Update meeting. Following that discussion, the budget was approved as the Company’s financial framework for 2023 by the OG, including the CODM. No significant changes were made to this budget as part of the February 6, 2023, discussions. This budget was documented in “Document 1” and “Document 2”, which the Company is providing to the Staff supplementally.

The review of the final 2023 budget with the OG, including the CODM, included the following material:

A summary of the financial impacts associated with the February restructuring actions. The impacts were primarily summarized on a functional team level;

A summary of the 2023 consolidated income statement in both an annual and quarterly format;

A summary of 2023 Opex and headcount by functional team;

A summary of the first quarter of 2023 and the full year 2023 external guidance on a consolidated level;

A summary of the expected timeline for revised internal reporting on a BU level, along with key discussion areas, including product alignment by BU and interim budget guidelines;

A summary of the five-year outlook on a consolidated level; and

An Appendix that included revenue and gross margin information on a product level, none of which was reviewed in the meeting. This product-level gross margin information did not include allocation of a portion of the Company’s costs that were not accounted for on a product level.

A final review of the full year 2023 budget was completed with the Board on February 10, 2023. This Board report included the consolidated

Company forecasts for the first quarter and the full year of 2023.

Budget Format and Lower Level Information

The Company prepared its 2023 Budget using the processes and procedures described above and summarized in “Document 1” and

“Document 2” in a format consistent with the Company’s functional orientation utilized in 2022. Subsequent to the approvals described above, the Company began the process of reallocating the budget to conform to its new BU structure.

This required completing the following realignment workstreams (the actual or expected completion dates presented in parentheses):

allocation of revenue reserves and credits, hosting costs and capitalized software amortization to individual products and BUs (Q2). Establishing governance over subsequent product hierarchy updates (Q2);

Also as described above, on April 20, 2023, the CODM reached a conclusion on the form and content of a CODM reporting package that he would regularly review in future periods to assess BU performance and make resource allocation decisions. Upon completion of the budget realignment process, the Company will be able to present the 2023 budget in a format that is consistent with the new BU structure and the BU-level reporting that will be presented to the CODM in his newly designed reporting package. This will facilitate a budget to actual comparison to use in assessing the Company’s performance and making resource allocation decisions. As described above, the new CODM reporting package is not expected to include product margin or other lower level information but will include certain product-level revenue information. While the budget is designed at a level containing product revenue, COGS, and margins, this detail will not be presented to the CODM in the newly designed CODM reporting package.

As of March 31, 2023, the Company’s budgeting process did not support its new BU structure and the format of the internal reporting package was not yet finalized. This supports the Company’s assertion that its performance was assessed and resource allocation decisions were made on a consolidated level by both the CODM and the Board.

Read in the reply ↗

In light of your organizational changes, tell us if you have re-considered your prior goodwill reporting unit determination. If so, please provide us with your analysis. Refer to ASC 350-20.

The Company acknowledges the Staff’s comment and provides the following response:

As discussed above, as of March 31, 2023, the Company did not have sufficiently precise and final discrete financial information available on a BU or product level since the necessary accounting realignments and reallocations were not yet completed and the BU profitability measures were not yet finalized. Consequently, the Company’s CODM and the BU Presidents did not regularly review sufficiently precise and final discrete financial information at a BU or a product level.

Rest of the answer

Therefore, the Company determined that as of March 31, 2023, there were no components of the single operating segment, and that it continued to have one reporting unit.

In connection with the expected shift from one operating segment to two operating segments in the second quarter of 2023, the Company expects to have multiple reporting units. At that time the Company will allocate goodwill to each reporting unit.

Read in the reply ↗

You state that revenue increased by $1.1 billion or 61% from December 31, 2020 to December 31, 2021 due 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

Rest of the question

Twilio Segment, Zipwhip and other businesses." Please quantify the portion of the increase attributable to each item mentioned in your disclosure and discuss the underlying reason for the change. Provide this quantitative disclosure for all line items that materially changed between periods presented. We refer to guidance in Item 303 of S-K.

The Company’s response:

The Company acknowledges the Staff’s comment and, where disclosure in Management’s Discussion and Analysis of Financial Condition and

Results of Operations identifies factors driving material changes in financial statement line items, the Company will endeavor to quantify in future filings the impact of each factor mentioned in the disclosure and discuss the underlying reason for the change.

Rest of the answer

Presented below for illustrative purposes is the Company’s proposed disclosure of the additional information requested in the comment with respect to the paragraph identified by the Staff on page 66 of the 2021 Form 10-K. Changes are marked for ease of review.

“In 2021, total revenue increased by

$1.1 billion, or 61%, compared to the same period last year. This increase was primarily attributable to increases in the usage of our products by our existing customers as reflected in our Dollar-Based Net Expansion Rate of 131, as well as 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. This growth in usage and customer accounts helped to drive a $403.4 million increase in

Programmable Messaging, a $79.0 million increase in Programmable Voice, a $59.9 million increase in Email, and a $74.7 million increase from the additional A2P fees imposed by certain carriers exclusive of Zipwhip A2P fees. The increase in total revenue was also due to the increases in revenue contributions from our acquisitions, including, $178.0 million from Twilio Segment, $55.4 million from Zipwhip and $63.2 million from other businesses.”

Read in the reply ↗

We note your disclosure that the primary driver for the decline in growth margin was due your "international messaging business, the additional A2P fees imposed by certain carriers and an increase in network service provider fees in certain geographies, which we pass to our customers at cost." Enhance your disclosure to quantify each factor noted.

Rest of the question

Also, it appears that you have both revenue and gross margin information by your different product lines. If so, please include a discussion of gross margin by product lines to help investors understand your business. We refer to guidance in Item 303(b) of S-K. Consolidated Financial Statements 2. Summary of Significant Accounting Policies, page 84

The Company acknowledges the Staff’s comment and, consistent with the Company’s response to Comment #1, the Company will endeavor to quantify in future filings the impact of each factor identified in its disclosure as driving material changes in financial statement line items. Presented below for illustrative purposes is the Company’s proposed disclosure of the additional information requested in the comment.

Rest of the answer

The Company believes that the presentation set forth below is appropriate as it provides information to investors on the material changes to gross margin, and reflects the way that management considers gross margin changes in managing the Company’s business. Changes are marked for ease of review.

“In 2021, the gross margin percentage declined compared to the same period last year.

This decline was primarily driven by a 150 basis point decrease caused by strong growth in our lower margin international messaging business, a 150 basis point decrease caused by the additional A2P fees imposed by certain carriers and a 110 basis point decrease caused primarily by an increase in network service provider fees in certain geographies. We pass both A2P fees and network service provider fees to our messaging customers at cost, resulting in decreases to gross margin. The decline was offset by a 120 basis point increase due to the impact of the acquisition of our Twilio Segment business. The remaining change in gross margin was driven by items with smaller impacts, including a 70 basis point decrease due to amortization expense related to our acquired intangible assets and a 50 basis point increase due to certain operational improvements and the growth of our other application services products.”

Consolidated Financial Statements

2. Summary of Significant Accounting Policies, page 84

Read in the reply ↗

We note from disclosures on pages 90 and 91 that you operate in a single reportable segment and a single reporting unit. Based upon the November 3, 2022 Investor Day presentation you provide on your website, it appears that discrete financial information below the consolidated level is available to and reviewed by management.

Rest of the question

Please tell us how you considered ASC 280-10-50 in determining your operating and reportable segments and ASC 350-20-35-33 through 35-46 in determining your reporting units. To the extent that you have aggregated multiple operating segments into a single reportable segment, please also tell us your basis for doing so. In addition, please revise to provide the entity-wide disclosures discussed in ASC 280-10-50-40.

Company acknowledges the Staff’s comment, and respectfully advises the Staff that it is a single operating and reportable segment under ASC 280 and ASC 350 for the reasons discussed below.

As a preliminary matter, the Company believes it is appropriate to provide the Staff with context about the Investor Day it held on

November 3, 2022. For that Investor Day, the Company prepared and published a presentation that was intended to address common investor questions, some of which were detailed and product focused in nature.

Rest of the answer

To be responsive, the Company’s

Investor Day presentation disclosed certain information, including revenue mix, gross profit, and gross margin percentage, both on a consolidated basis and based on the components of two product portfolios: communications and software. The product aggregations were meant to facilitate a more specific discussion of levels of revenue and gross profit of the Company’s products. However, management does not aggregate and report the products in this manner, the Company is not organized by business units or in any other manner supporting such an aggregation, nor did the Chief Operating Decision Maker (“CODM”) utilize such aggregations during the period ended December 31, 2021, to assess performance or make resource allocation decisions. Accordingly, these product aggregations did not, as of

December 31, 2021, or at any time during 2022, represent operating segments under the “management approach” required in ASC 280. The remainder of this response focuses on the Company’s application of ASC 280 and ASC 350 as of

December 31, 2021.

Overview of ASC 280

While the Company prepared the Investor Day presentation for the reasons explained above, it has also undertaken a detailed analysis under ASC

280 to determine the appropriate segment reporting. ASC 280-50-1 states that “an operating segment is a component of a public entity that has all of the following characteristics:

•

It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity).

Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

Its discrete financial information is available.”

The Company analyzed its operating structure using the guidance provided in ASC

280-10-50 and, for the reasons described below, determined that it had one operating segment and one reportable segment: the provision of a customer engagement platform.

The Company’s CODM and Organizational Structure

The Company’s CODM is Jeff Lawson, who is the Company’s Chief Executive Officer, co-founder, and chairperson of the board of directors. Mr. Lawson is responsible for assessing the Company’s performance and making resource allocation decisions.

In 2021, the Company was organized by business function, such as go-to-market, product / engineering, human resources, and operations. Operations included key functions such as finance and accounting, legal, IT, and security. All of these functional areas operate on a company-wide basis and support all products.

There were no CODM direct reports nor segment managers who were directly accountable to and maintained regular contact with the CODM to discuss segment-specific operating activities, financial results, or forecasts for products or product groupings. These direct reports had company-wide responsibilities. None of the CODM’s direct reports had any accountability or responsibility for financial results of individual products, product groupings, or regions. As of the end of 2021, no members of management were compensated on the basis of financial results of any geography, segment, product, or product groupings. In the first quarter of 2022, the Company issued performance-based restricted stock units (“PSUs”) to the executive team. These PSUs vest if consolidated organic revenue growth exceeds certain targets in 2022, and if both consolidated organic revenue and consolidated profitability targets are met in 2023 and 2024.

Information Provided to and Reviewed by the CODM and the Board of Directors

The Company prepares (i) a weekly “Pace Report” provided to the CODM, (ii) a monthly “Executive Team Report” provided to the CODM, and (iii) a quarterly “Board Financial Update” provided to the CODM and the full board of directors. The purpose and contents of these reports are further described below.

(i) The purpose of the weekly Pace Report is to closely monitor usage revenue growth and the financial content includes:

Consolidated revenue, gross profit, and a brief summary of reasons for changes from the prior week.

Usage revenue disaggregated by product and/or geography and a detailed description of factors, such as new deals, outages, and related matters leading to changes to forecast from the prior week.

No product or geographical level gross margin percentage or gross profit is disclosed.

(ii) The purpose of the monthly Executive Team Report is to update the CODM on all operational matters of significance and the financial content includes:

Consolidated revenue, revenue by region and product and revenue trends.

Quarterly and annualized consolidated financial information, including revenue, gross margin percentage

(including product-level margin percentage), operating expenses and operating income with commentary explaining variances against the Company’s forecast and prior periods.

Headcount analysis including hiring forecasts and capacity, by executive team member.

(iii) The purpose of the quarterly Board Financial Update is to provide the Board of Directors with a financial update and financial content includes:

Quarterly and annualized consolidated financial information, including revenue, gross margin percentage, operating expenses and operating income with commentary explaining variances against the Company’s forecast and prior periods.

Recent revenue trends, including revenue by product and region.

During the 4th quarter of 2021 only, a board deck was prepared to discuss management’s “in and up” strategy (described in more detail below) which explicitly called out the importance of running the Company as a single unit. To facilitate that discussion, management presented an allocated P&L which reflected hypothetical income statements down to operating profit by three product groupings: messaging, software, and other communications. The Board agreed with management’s view that the business should be run as a single operating unit. No resource allocation or performance decisions were made on the basis of this information.

During his meetings with the executives, the CODM did not regularly receive or review financial information such as balance sheets, complete operating results or cash flows on a disaggregated basis at a product level.

While certain disaggregated gross margin percentage information was available (excluding allocated hosting and support costs), such information was not utilized by the CODM in resource allocation decisions and assessment of the Company’s performance during 2021. The CODM viewed all of the Company’s products as parts of one integrated customer engagement platform and parts of one integrated plan to implement the Company’s “in and up” strategy in achievement of our externally stated 30% organic revenue growth metric. As described in Item 1 of the Company’s 2021 Form 10-K, the approach is an integrated strategy to the Company’s sales motion whereby the Company gets

“in” to new customers through sales of messaging and email products and builds on those relationships to move “up” the customers’ software stack to sell the Company’s other products. To achieve its externally stated revenue growth targets, for example, a resource allocation decision was made that resulted in the Company increasing its sales and marketing headcount by over 74% during the year ended December 31, 2021, which negatively impacted certain profitability metrics in favor of continued strong revenue growth. In his review and assessment of the Company’s operations, the CODM primarily focused on total revenue growth, which, in his view, was the indicator of the Company’s implementation of this business strategy.

As a result of the above, the Company determined that no component of the business had discrete financial results that were regularly reviewed by the CODM in assessing performance and making resource allocation decisions, and, accordingly, the Company had a single operating segment.

Determining Reporting Units Under ASC

350-20-35-33 through 35-46

The Company analyzed its reporting units under the criteria of ASC 350-20-35-33 through 35-46. ASC

350-20-35-34 states that “a component of an operating segment is a reporting unit if the component constitutes a business… for which discrete financial information is available and segment management, as that term is defined in paragraph

280-10-50-7, regularly reviews the operating results of that component.” ASC 280-10-50-7 states that “generally, an operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment. The term segment manager identifies a function, not necessarily a manager with a specific title.”

As noted above, discrete financial information for any component of an operating segment was not regularly reviewed by segment managers. There were no CODM direct reports nor segment managers who were directly accountable to and maintained regular contact with the CODM to discuss operating activities, financial results, or forecasts for products or product groupings. None of the CODM’s direct reports had any accountability or responsibility for financial results of individual products, product grouping, or regions and full income statement data for such groupings was not regularly maintained or reviewed. While there were a number of changes in management throughout 2021, the titles and primary roles of each individual who directly reported to the CODM as of December 31, 2021 are as follows:

Christy Lake - Chief People Officer - management of Company’s global talent acquisition and human resources functions

Eyal Manor - Chief Product Officer - management of the Company’s product roadmap and engineering for all products

Khozema Shipchandler - Chief Operating Officer - company-wide financial management and oversight, and oversight of the legal, IT, and security functions

Marc Boroditsky - Chief Revenue Officer - management of the go-to-market function, responsible for overseeing the revenue channels for all products

George Hu - Former Chief Operating Officer and Strategic Advisor (through December 31, 2021) - available in an advisory capacity for a transition period following his resignation as Chief Operating Officer on October 27, 2021

Karyn Smith - Outgoing General Counsel (resignation effective January 7, 2022) - oversight of company-wide legal matters

Erin Reilly - Chief Social Impact Officer - management of the Company’s social impact initiatives

As discrete financial information for any component of an operating segment was not regularly reviewed by segment managers, the Company concluded that no component meets the definition of a reporting unit in ASC 350-20-35-34.

As such, the Company concluded that it had one reporting unit as of December 31, 2021. The Company will continue to evaluate the evolution of its reporting structure for any changes to this conclusion.

ASC

280-10-50-40 Disclosures

ASC 280-10-50-40 states

“a public entity shall report the revenues from external customers for each product and service or each group of similar products and services unless it is impracticable to do so.” The Company evaluated its portfolio of products to determine whether certain products exhibit similar characteristics, such that they should be grouped together in the Company’s disclosure. Through the evaluation, the Company determined that there are similarities in the nature of the products used that fit into three distinct categories: 1) products that transmit communications from our customers to end users, 2) software products that enhance the effectiveness of the communications transmitted by our customers, and 3) other miscellaneous products and services. Based on this conclusion, the Company will provide Communications, Software and Other revenue in its future filings, when applicable, and presented below is a table containing the Company’s Communications,

Software and Other revenue for the twelve months ended December 31, 2021, 2020 and 2019. The Company will provide a similar level of disaggregation in its future filings.

Year Ended December 31,

2021

2020

2019

(in thousands)

Revenue by groups of similar products:

Communications

$

2,379,032

1,586,308

1,042,478

Software

322,800

97,349

44,084

Other

140,007

78,119

47,906

Total

2,841,839

1,761,776

1,134,468

The Company will also continue to evaluate its segment analysis, and, if it determines that it is appropriate under ASC 280 to report more than one segment in its consolidated financial statements, it will provide the appropriate segment disclosure in its future filings.

Read in the reply ↗

Summary of Significant Accounting Policies, page 84 1. We note your response to prior comment three. So that we may better understand how you determined your operating and reportable segments, please address the following: • Describe in greater detail the roles and responsibilities of the CODM and his direct reports.

Rest of the question

In addition, tell us how often the CODM meets with each of his direct reports, the nature of any financial information the CODM receives or discusses with his direct reports when they meet, and the other participants at those meetings; • Describe the key operating decisions, who makes those decisions, how performance is assessed and how resources are allocated within your business; • Explain in detail how budgets are prepared, who approves the budget at each step of the process, the level of detail discussed at each step, the level of detail reviewed by the CODM as part of the budgeting process, and the level at which the CODM makes changes to the budget; and • Explain in further detail how the CODM uses the financial information in the monthly Executive Team Report, and in particular, the monthly product-level margin information. In this regard, we note your response indicates this report includes commentary explaining variances against forecast and prior periods. Summary of Significant Accounting Policies, page 84 2. We note your response to prior comment three. In the response you state you will present revenue into three distinct categories: 1) communications, 2) software, and 3) other. However, when discussing fluctuation in revenue in response to our prior comment one, you separately quantify changes due to Programmable Messaging, Programmable Voice, and Email. To give investors insight into your revenue by product, please further disaggregate revenue in accordance with ASC 280-10-50-40.

The Company’s response:

The Company acknowledges the Staff’s comment, and provides the following response.

Describe in greater detail the roles and responsibilities of the CODM and his direct reports.

As of December 31, 2021, the CODM was Jeff Lawson, the Company’s Chief Executive Officer, co-founder, and chairperson of the board of directors (the “Board”). Mr.

Rest of the answer

Lawson remains the CODM and his primary responsibilities have included and continue to include:

Setting the Company vision, values, and corporate culture

Setting and executing the organizational strategy

Assessing the Company’s performance against the vision and strategy and directing timely adjustments

Holding leaders accountable to deliver on their strategic priorities

Building a competent senior leadership team

Making resource allocation decisions for the Company

While there were a number of changes in management throughout 2021, the titles and primary roles of each individual who directly reported to the CODM as of December 31, 2021, were as follows:

Christy Lake—Chief People Officer. Ms. Lake helped to lead management of the Company’s global talent acquisition and human resources functions. Ms. Lake was focused on optimizing people-centered activities such as hiring, training, professional development and performance management to support the Company’s growth objectives and results of operations. Ms. Lake also supported the CEO and the senior leadership team in developing a well-defined corporate culture of accountability, diversity and inclusion.

Eyal Manor—Chief Product Officer. Mr. Manor helped to lead the Company’s strategic product direction, including product vision, roadmap, design and development for all products, as well as platform reliability.

Khozema Shipchandler—Chief Operating Officer. Mr. Shipchandler supported the CEO in driving the organizational vision, operating strategy and corporate culture through all levels of the organization. Mr. Shipchandler helped to direct the Company-wide activities by translating the corporate strategy into actionable steps, driving tactical goal-setting and providing Company-wide oversight of financial management, as well as oversight of the legal, IT and security functions. Additionally, Mr. Shipchandler served as the Principal Accounting and Financial Officer (“PAFO”) for all of 2021.

Marc Boroditsky—Chief Revenue Officer. Mr. Boroditsky helped to manage the Company’s go-to-market (“GTM”) function, which encompassed all revenue generating channels and activities, including sales, marketing, customer support and business development for all products.

George Hu—Former Chief Operating Officer and Strategic Advisor (through December 31,

2021)—available in an advisory capacity for matters pertaining to his prior role overseeing GTM for a transition period following his resignation as Chief Operating Officer on October 27, 2021.

Karyn Smith—Outgoing General Counsel (resignation effective January 7, 2022). Ms. Smith helped to lead the corporate legal strategy, as well as providing oversight of Company-wide legal and regulatory services and resources to accomplish corporate goals.

Erin Reilly—Chief Social Impact Officer. Ms. Reilly was responsible for management of the

Company’s social impact initiatives.

In addition, tell us how often the CODM meets with each of his direct reports, the nature of any financial information the CODM receives or discusses with his direct reports when they meet, and the other participants at those meetings;

During 2021, the CODM held the following regular meetings with his leadership team:

Weekly Executive Team Meetings: On a weekly basis the CODM met his direct reports as a team to address day-to-day operational topics and issues. No financial information was received by or discussed with the CODM during the Weekly Executive Team Meetings except for the weekly

Pace Report, as described in the Company’s Initial Response Letter dated January 9, 2023 (“Initial Response Letter”). Weekly Pace Reports did not include product-level or geographical gross margin or gross profit information. On an as needed basis, business presenters or functional leadership were invited to provide additional detail on a specific operational topic relevant to the meeting.

One-on-One Meetings: On a bi-weekly basis, the CODM met with each of his direct reports individually. No financial information was regularly received by or discussed with the CODM during these individual meetings. The purpose of the One-on-One Meetings was to discuss general business, functional, and leadership topics.

Monthly Operating Review Meetings: On a monthly basis, the CODM and his direct reports met to review the

Company’s performance. The Operating Reviews included sections on GTM, research and development (“R&D”), and financial performance. Depending on the topic, additional presenters attended. For example, the financial performance section included the Company’s Finance leader and the GTM section included Sales leaders.

The financial performance section of the Monthly Operating Review Meetings focused on actual performance and forecasts. It included both quarterly and annual information. The financial information discussed during these meetings was summarized in the Executive

Team Report. The Executive Team Report included, as outlined in the Initial Response Letter:

Consolidated revenue, revenue by region and product and revenue trends.

Quarterly and annualized consolidated financial information, including revenue, gross margin percentage

(including product-level margin percentage), operating expenses and operating income with commentary explaining variances against the Company’s forecast and prior periods.

No other financial information was regularly received by or discussed with the CODM during the Monthly Operating Review Meetings. The extent to which the CODM used any product-level margin information is described in detail below.

During 2021, the Company’s functional leaders reported directly to the CODM. Each of these leaders helped to lead a key business function of the Company under the oversight of the CODM and the Board. Each leader was responsible for setting goals and making the day-to-day decisions within their organization. Key operating decisions having Company-wide or strategic impact were made by the CODM under the oversight of the Board, as required by the corporate governance protocols. Such decisions included but were not limited to:

Company Strategy: The CODM was and continues to be responsible for establishing

Company-wide strategy in collaboration with the Board. For example, as referenced in the Initial Response Letter, during 2021 the CODM implemented the Company’s “in and up” strategy that was formulated with the Board to provide an effective execution model for the Company’s entire GTM function.

Company Financial Plans and Resource Allocation: The Company’s Financial Plan was developed as part of the Company’s annual budgeting process described below. The CODM, in consultation with the Board, had the ultimate authority to change, re-allocate and approve the final

Company-wide financial and hiring budget.

Business Acquisitions: From time to time, the Company identified and evaluated business acquisitions in support of the Company’s strategy. For example, in 2021, based on an analysis performed by management, the CODM made the decision to acquire Zipwhip, Inc. for $850 million, which was approved by the Company’s

Board.

Assessing performance and allocating resources: During 2021, resources were allocated based on the approved functional budgets. Each business function’s financial performance was evaluated against their respective budget, as established in the Company’s annual Financial Plan. Each business function was also evaluated based on their operational performance against their stated priorities and their ability to support the Company’s overall operating strategy.

of detail discussed at each step, the level of detail reviewed by the CODM as part of the budgeting process, and the level at which the CODM makes changes to the budget

During 2021, the Company was organized by business function and its budgeting process followed the same structure. The budgeting process started with the annual planning process and the key steps of the process were as follows:

Functional executive leaders met with their dedicated Finance partners to prepare budgets by function (for example, GTM or R&D) that supported the Company’s strategic and operational objectives along with the goals of each function. The functional budgets reviewed during these meetings included account level information and detailed hiring plans.

The Finance team then consolidated the functional budget information into a Company-wide preliminary Financial

Plan that was reviewed with the PAFO. This review was primarily focused on the alignment of the functional budgets and hiring plans with the CODM’s overall operating strategy. Significant trends and transactions were discussed with the functional leaders and adjustments were made, as needed.

Upon completion of the PAFO review, a series of reviews were held with the CODM and his direct reports. The CODM reviewed the operating expenditures and hiring plans at a functional level and adjustments were made, as needed. Upon completion of his review, the CODM approved a preliminary Financial Plan for the subsequent year, subject to the Company’s

Board feedback and approval.

That Financial Plan was then reviewed and approved by the Company’s Board.

Monthly thereafter, the Finance team reviewed the actual performance versus the Financial Plan and, as needed, made revisions to the forecast for the remainder of the year. This review process included reviews of the functional expenditures as well as the hiring plans. Any major deviations from the anticipated performance were raised to the PAFO and/or the CODM.

and in particular, the monthly product-level margin information. In this regard, we note your response indicates this report includes commentary explaining variances against forecast and prior periods.

The CODM used the financial information in the monthly Executive Team Reports primarily to assess the consolidated operating performance of the Company. That included financial performance, GTM performance, and R&D performance. Financial performance was largely measured based on the Company’s target of 30%+ consolidated year-over-year organic revenue growth for the year, as well as measures of profitability on a consolidated basis. GTM performance was measured based on the achievement of closing and converting consolidated revenue pipeline targets. R&D performance was measured based on progress against product roadmaps and operational resiliency metrics. Performance was assessed at a functional distinction and not by product.

As outlined in the

Company’s Initial Response Letter, the monthly Executive Team Report also included certain product-level gross margin information. Over the past several years, the Company’s consolidated gross margins have declined. For example, the newly implemented Application to Person (“A2P”) carrier fees by certain US carriers created downward pressures on the Company’s consolidated gross margins with no effect on unit economics. As such, although certain product-level gross margin information was used by the CODM to understand and explain trends and variances in the consolidated gross margins, the CODM continued to make resource allocation decisions and assess the Company’s overall performance on the basis of the

Company’s consolidated operating performance in furtherance of the Company’s then-primary strategic priority of driving revenue growth.

2. Summary of Significant Accounting Policies, page 84

2. We note your response to prior comment three. In the response you state you will present revenue into three distinct categories: 1) communications, 2) software, and 3) other. However, when discussing fluctuation in revenue in response to our prior comment one, you separately quantify changes due to Programmable Messaging, Programmable Voice, and

Email. To give investors insight into your revenue by product, please further disaggregate revenue in accordance with ASC

280-10-50-40.

The

Company acknowledges the Staff’s comment, and the Company will endeavor to disaggregate revenue in accordance with ASC

280-10-50-40 in future filings. For example, in Note 15 to the Consolidated Financial Statements set forth in the

Company’s Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 27, 2023, the Company disaggregated revenue by groups of similar products, including revenue from Programmable Messaging, Programmable Voice, and Email.

Read in the reply ↗

You appear to present Non-GAAP gross profit as the measure of profit or loss for each reportable segment in the proposed disclosures in your letter dated July 25, 2023. Please tell us what measures of profit or loss at the segment level are provided to the CODM, the frequency such measures are provided to the CODM, and how they are used by the CODM.

Rest of the question

Please address all measures of segment profit or loss provided to the CODM, including those provided outside of the standard reporting package, such as during the budgeting process, meetings, or other means. If the CODM receives but does not use a measure of segment profit or loss, please tell us why.

No reply letter found.

If the CODM uses more than one measure of segment profit or loss in assessing segment performance and deciding how to allocate resources, please tell us how you determined which measure was required to be disclosed. See ASC 280-10-50-28.

No reply letter found.

In the proposed disclosures in your letter dated July 25, 2023, you reconcile your segment measure of profit to gross profit. Please revise to reconcile your segment measure of profit to consolidated income before taxes and discontinued operations in accordance with ASC 280-10-50-32(f).

No reply letter found.