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Twilio Plans Senior Notes Offering Due to Mature in 2023

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Twilio Inc. (TWLO - Free Report) recently announced the pricing of “$475 million aggregate principal amount of Convertible Senior Notes.” The notes are slated to mature in 2023. The notes will be privately offered to institutional buyers qualifying under Rule 144A of the Securities Act of 1933, as amended.

Notably, the size of the offering was extended from the previous offering of $435 million. The company is looking to grant preliminary buyers the privilege of buying another $75 million aggregate principal amount of senior notes within a period of 13 days (from and including) of the date of first issuance of the notes.

Subject to customary closing conditions, the sale of these notes to initial buyers is expected to be completed on May 17, 2018, leaving the company with approximate net proceeds of $463.3 million.

These notes, once placed, will be an unsecured senior liability of Twilio, interest for which will be paid in arrears semi-annually at a rate of 0.25% per year. The notes will be convertible at an initial conversion rate of 14.1040 shares of the company’s Class A common stock per $1,000 principal amount of Notes.

Additionally, the company made capped call transactions with a few of the initial purchasers, which are expected to aid in the reduction of potential dilution of Class A common stock pertaining to conversion of the notes. These are also anticipated to offset the cash payments that the company might have to make in excess of the principal amount of the converted notes, if need be.

We believe these notes will provide financial flexibility to the company and propel long-term growth. Nonetheless, escalating interest expenses due to increased debt burden may dampen the company’s profitability. It should be noted that at the end of first-quarter 2018, Twilio had cash and cash equivalents and short-term marketable securities of $308 million, up from $290.9 million reported at the end of the previous quarter    

Share Price Movement

Twilio stock has gained 116.1% in the past year, substantially outperforming the 25.6% rally of the industry it belongs to.



Zacks Rank and Stocks to Consider

Twilio currently has a Zacks Rank #4 (Sell).

Some top-ranked stocks in the same sector include Twitter, Inc. , Mellanox Technologies, Ltd. and Lam Research Corporation (LRCX - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Twitter, Mellanox and Lam Research is currently pegged at 23.1%, 15% and 17.7%, respectively.

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