Twilio allows developers to incorporate communication capabilities, including voice, messaging, video and authentication, into software applications, via Application Programming Interfaces (APIs). Twilio sells it products primarily by focusing on and servicing software developers. Stock-based compensation (e.g., stock options, restricted stock, etc.) are common forms of compensation for young tech companies. Most companies set the stock option exercise price at the stocks current market value or slightly out-of-money. Consequently, the options grant value is usually less than the current value of the underlying shares. The accounting for stock options is based on the value of the options at the time of grant. Typically, over the options service (or vesting) period, the firm recognizes the options grant value as compensation expense with a corresponding credit to shareholders equity. For 2018, Twilio recognized $93.3 million in stock-based compensation expense (footnote disclosure not provided). Refer to your ACC 502 notes regarding accounting for equity-based compensation for additional information. On its IPO in June 2016, the Twilios shares were priced at $15 but ended the first day of trading at $28.53, a 90+% increase. Since then, the share price has continued to climb. As of December 31, 2018, the date of latest year-end, Twilios share price was $80 yielding a $10.6 billion market capitalization. Today (June 6, 2019), the shares were trading around $140. In less than two years, the share price is nearly 10x greater than its IPO price.

a. In Twilios footnote for stock-based compensation (see below, next page), the intrinsic value of the outstanding options as of December 31, 2018 was $543.6 million. Explain whether the $543.6 million in intrinsic value for outstanding stock option is recognized in Twilios financial statements?

b. During 2018 Twilios footnote for stock-based compensation (see below, next page) reported that Twilios stock option holders exercised over 3.6 million options with an aggregate intrinsic value of $178.5 million. Explain whether the intrinsic value of the options exercised in 2018 is recognized in the Twilios financial statements?

c. For 3b, if the intrinsic value for the stock option exercised is not captured in the financial statements, how should the analyst adjust the reformulated financial statements for the intrinsic value of the options exercised during 2018?

TWILIO INC Notes to Consolidated Financial Statements (Continued) 13. Stock-Based Compensation (Continued) Stock options activity under the 2008 Plan and 2016 Plan was as follows: Stock Options Weighted- Weighted- average remaining Aggregate average tual act Number of exercise intrinsic ce (in thousands) 145,763 outstanding (per share) (in years) Outstanding options as of December 31, 2017 Granted 7.12 $ 10,155,427 S 1,330,118 (3,628,032) (434,144) 10.31 39.77 Exercised 8.20 Forfeited and cancelled Outstanding options as of December 31, 2018 19.70 7,423,369 $ 16.07 6.80 $ 543,640 Options vested and exercisable as of December 31, 2018 4.529.504 9.38 5.96 S 362,017 Aggregate intrinsic value represents the difference between the Company's estimated fair value of its common stock and the exercise price of outstanding "in- the-money" options. Prior to the IPO, the fair value of the Company's common stock was estimated by the Company's board of directors. After the IPO, the fair value of the Company's common stock is the Company's Class A common stock price as reported on the New York Stock Exchange. The aggregate intrinsic value of stock options exercised was $178.5 million, $132.0 million and $54.4 million during the years ended December 31, 2018, 2017 and 2016, respectively The total estimated grant date fair value of options vested was $21.8 million, $15.8 million and $15.3 million during the years ended December 31, 2018, 2017 and 2016, respectively. The weighted-average grant-date fair value of options granted was $18.40, $13.33 and $5.52 during the years ended December 31, 2018, 2017 and 2016, respectively. On February 28, 2017, the Company granted a total of 555,000 shares of performance-based stock options in three distinct awards to an employee with grant date fair values of $13.48, $10.26 and $8.41 per share for a total grant value of $5.9 million. The first half of each award vests upon satisfaction of a performance condition and the remainder vests thereafter in equal monthly installments over a 24-month period. The achievement window expires after 4.3 years from the date of grant and the stock options expire seven years after the date of grant. The stock options are amortized over a derived service period, as adjusted, of 3.1 years, 3.9 years and 4.6 years, respectively. The stock options value P deu TWILIO INC Notes to Consolidated Financial Statements (Continued) 13. Stock-Based Compensation (Continued) Stock options activity under the 2008 Plan and 2016 Plan was as follows: Stock Options Weighted- Weighted- average remaining Aggregate average tual act Number of exercise intrinsic ce (in thousands) 145,763 outstanding (per share) (in years) Outstanding options as of December 31, 2017 Granted 7.12 $ 10,155,427 S 1,330,118 (3,628,032) (434,144) 10.31 39.77 Exercised 8.20 Forfeited and cancelled Outstanding options as of December 31, 2018 19.70 7,423,369 $ 16.07 6.80 $ 543,640 Options vested and exercisable as of December 31, 2018 4.529.504 9.38 5.96 S 362,017 Aggregate intrinsic value represents the difference between the Company's estimated fair value of its common stock and the exercise price of outstanding "in- the-money" options. Prior to the IPO, the fair value of the Company's common stock was estimated by the Company's board of directors. After the IPO, the fair value of the Company's common stock is the Company's Class A common stock price as reported on the New York Stock Exchange. The aggregate intrinsic value of stock options exercised was $178.5 million, $132.0 million and $54.4 million during the years ended December 31, 2018, 2017 and 2016, respectively The total estimated grant date fair value of options vested was $21.8 million, $15.8 million and $15.3 million during the years ended December 31, 2018, 2017 and 2016, respectively. The weighted-average grant-date fair value of options granted was $18.40, $13.33 and $5.52 during the years ended December 31, 2018, 2017 and 2016, respectively. On February 28, 2017, the Company granted a total of 555,000 shares of performance-based stock options in three distinct awards to an employee with grant date fair values of $13.48, $10.26 and $8.41 per share for a total grant value of $5.9 million. The first half of each award vests upon satisfaction of a performance condition and the remainder vests thereafter in equal monthly installments over a 24-month period. The achievement window expires after 4.3 years from the date of grant and the stock options expire seven years after the date of grant. The stock options are amortized over a derived service period, as adjusted, of 3.1 years, 3.9 years and 4.6 years, respectively. The stock options value P deu