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Item 2. Management’s Discussion and Analysis

2025-05-02 compared with 2024-10-31 · 118 added, 275 removed, 291 unchanged (57% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.

In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.

We enable businesses of all sizes to revolutionize how they engage with their customers by delivering seamless, trusted and personalized customer experiences at scale.

Our leading customer engagement platform comprises communications APIs that enable developers to embed numerous forms of messaging, voice, and email interactions into their customer-facing applications, as well as software products that target specific engagement needs, including our customer data platform, digital engagement centers, marketing campaigns and advanced account security solutions.

We envision a world in which every digital interaction between businesses and their customers is amazing.

By combining our leading communications capabilities, plus rich contextual data, plus generative and predictive AI, we enable businesses of all sizes to revolutionize how they engage with their customers by delivering seamless, trusted and personalized customer experiences at scale.

We offer communications APIs that enable developers to embed numerous forms of messaging, voice, email and video interactions into their customer-facing applications, as well as software products that target specific engagement needs, including our customer data platform, digital engagement centers, marketing campaigns, and user authentication and identity solutions.

This combination of flexible APIs and software solutions helps businesses of all sizes and across numerous industries to benefit from smarter and more streamlined engagement at every step of the customer journey, including reduced customer acquisition costs, lasting loyalty and increased customer value.

Our platform, which combines our highly customizable communications APIs with customer data management capabilities, allows businesses to break down data silos and build a comprehensive single source for their customer data that is organized into unique profiles that are easily accessible by all their business teams.

Empowered with this information and the insights it enables, businesses using our platform can provide robust, personalized and effective communications to their customers at every stage of their customer relationships.

The value proposition of our offerings has become stronger and our products have become more strategic to our customers as more and more businesses have prioritized building more personalized and more differentiated customer engagement experiences through digital channels.

We operate our business in two business units:

Communications and Segment.

Our Communications business consists of a variety of APIs and software solutions to optimize communications between our customers and their end users.

Our key Communications offerings include Messaging, Voice, Flex, Email and Marketing Campaigns, and User Identity and Authentication.

Our Segment business consists of software products that enable businesses to leverage their first-party data to create unique customer profiles and achieve more effective customer engagement.

Together, our Communications and Segment products power our customer engagement platform.

Our goal is to create a flywheel for effective customer engagement by combining Segment’s user profiles with our rich Communications data to drive more personalized and intelligent customer interactions.

In 2023, we revealed CustomerAI, our predictive and generative AI layer, which couples the power of large language models with the rich customer data that flows through our Customer Engagement Platform to help brands unlock enhanced consumer experiences.

We believe that our CustomerAI capabilities and initiatives have the potential to increase the power and reach of our platform, make every interaction between our customers and their end users more personalized and intelligent, and accelerate our data and communications flywheel described above, benefiting both our Communications and Segment products.

In the three months ended September 30, 2024 and 2023, our revenue was $1.13 billion and $1.03 billion, respectively, and our net loss was $9.7 million and $141.7 million, respectively.

In both the three months ended September 30, 2024 and 2023, our 10 largest Active Customer Accounts generated an aggregate of 10% of our total quarterly revenue.

Our platform, which combines our highly customizable communications APIs with customer data management capabilities and AI-powered predictions and recommendations, allows businesses to break down data silos and build a comprehensive single source for their customer data that is organized into unique profiles that are easily accessible by all their business teams.

The value proposition of our offerings has become stronger and our products have become more strategic to our customers as businesses are increasingly prioritizing building more personalized and differentiated customer engagement experiences through digital channels.

On January 1, 2025, we realigned our business unit structure into a functional support model under one organization.

We believe that operating as one organization best positions us as we seek to deliver one trusted, smart and integrated platform that enables more personalized communications and engagements for customers.

Despite realigning our organizational structure, we continue to have two reportable segments.

Our Communications reportable segment consists of a variety of APIs and software solutions to optimize communications between our customers and their end users.

Our key offerings in our Communications reportable segment include Messaging, Voice, Email (which includes Marketing Campaigns), Flex, and User Authentication and Identity.

Our Segment reportable segment consists of software products that enable businesses to leverage their contextual data to create unique customer profiles and achieve more effective customer engagement.

Our key offering in our Segment reportable segment is our Segment product.

In the three months ended March 31, 2025 and 2024, our revenue was $1.17 billion and $1.05 billion, respectively, and our net income (loss) was $20.0 million and $(55.3) million, respectively.

In the three months ended March 31, 2025 and 2024, our 10 largest Active Customer Accounts generated an aggregate of 9% and 10% of our total revenue, respectively.

Factors Affecting Our Results of Operations

We are focused on profitable growth.

To increase revenue and grow market share, we intend to drive product innovation, leverage predictive and generative AI, further enhance our ISV, reseller and other partner relationships, improve our self-service capabilities, cross-sell our products, expand internationally, enhance Segment data warehouse interoperability and reduce time to value for Segment.

We also intend to optimize our business and take measures to reduce costs, including simplifying and further automating our business processes, modernizing our infrastructure, focusing on self-service, leveraging AI, and implementing other initiatives targeted at improving efficiencies in our business.

We are focused on innovation, profit, and growth.

To increase revenue and grow market share, we intend to drive product innovation, leverage predictive and generative AI, further enhance our independent software vendor (“ISV”), reseller and other partner relationships, improve our self-service capabilities, cross-sell our products, expand internationally, enhance Segment data warehouse interoperability, and reduce time to value for Segment.

We also intend to optimize our business and take measures to reduce costs, including simplifying and further automating our business processes, modernizing our infrastructure, focusing on self-service, leveraging AI, enacting certain workforce planning initiatives, optimizing utilization of our distributed workforce and implementing other initiatives targeted at improving efficiencies in our business.

Our revenue is primarily derived from usage-based fees, which can lead to variability in our results of operations and at times create differences between our forecasts and actual results.

Our usage-based revenue is also more immediately impacted by changes in consumer spending and macroeconomic conditions than our subscription-based revenue.

Our gross margin is impacted by a number of factors, including the timing and extent of our investments in our operations;

our product mix;

We also experience seasonal trends due to increased consumer activity in the fourth quarter, which may result in lower sequential revenue in the first quarter.

Our gross profit and gross margin are impacted by a number of factors, including our product mix;

our ability to manage our cloud infrastructure‑related and network service provider fees, including A2P SMS fees;

the mix of U.S.

messaging termination compared to international messaging termination (which has lower gross margins);

changes in foreign exchange rates;

the timing of amortization of capitalized software development costs and acquired intangibles;

and the extent to which we periodically choose to adjust prices of our products.

Our gross profit is impacted by our product mix.

Our cost of revenue and gross profit are also impacted by changes in hosting fees and network service providers’ fees and our ability to pass these costs through to our customers.

We also experience seasonal trends due to increased consumer activity in the fourth quarter, which may result in lower sequential revenue in the first quarter.

We are migrating part of Segment’s architecture to a new infrastructure provider, which we expect will allow us to recognize greater operational efficiency and scale up new AI-driven products and features.

This migration will result in overlapping expenses with our original and new vendors for the fourth quarter of 2024, which we expect to negatively impact Segment gross margins in such quarter.

We expect to complete the migration by the end of 2024.

We also expect that the wind-down of the software component of our Zipwhip business will negatively impact our revenue growth rates in the fourth quarter of 2024.

In 2024, we introduced a company-wide annual cash bonus program to reduce our use of equity compensation.

The bonus payout amount for each eligible participant is determined based on Company and individual full year performance metrics.

In the three and nine months ended September 30, 2024, we recorded $45.8 million and $94.4 million of expense related to the program, respectively.

The third quarter of 2024 included an additional $17.9 million of expense due to a higher anticipated bonus payout as a result of an increased outlook for the Company’s full year performance metrics.

The program also provided for a 25% mid-year bonus cash payment in its initial year only, which resulted in a $24.3 million payment in July 2024.

As of September 30, 2024, the accrued bonus liability was $70.2 million recorded in the accrued expenses and other current liabilities in our condensed consolidated balance sheet included elsewhere in this Quarterly Report on Form 10-Q.

We expect our prior workforce restructurings to reduce our operating expenses in future periods.

We also expect the new cash bonus program as described above to continue to increase our expenses in future periods.

In February 2023, one of our customers, Oi SA, a Brazilian telecom company, initiated reorganization proceedings in a Brazilian bankruptcy court and exposed us to risks on collections of pre-petition receivables and ongoing revenue.

In April 2024, the creditors of Oi SA approved a Judicial Reorganization Plan (the “Oi Reorganization Plan”) that aims to ensure Oi SA’s operational feasibility and continuity of activities and further provides extended and discounted payment terms for pre-petition receivables.

The Oi Reorganization Plan was subsequently ratified by the Brazilian bankruptcy court and contains various contingencies.

As of September 30, 2024, we have $6.4 million in pre-petition receivables recorded in other long-term assets (net of $8.8 million in reserves) and $10.8 million in post-petition accounts receivable due from Oi SA.

The customer has been making regular payments on post-petition receivables.

If Oi SA fails to comply with its obligations under the Oi Reorganization Plan, if the contingencies contained in the Oi Reorganization Plan are not timely resolved, or if the customer ceases to make payment on post-petition receivables, we may incur additional bad debt expense or reductions in revenue in future periods.

the extent to which we periodically choose to adjust prices of our products;

and the timing and extent of our investments in our operations.

Our gross margin is also impacted by the mix of U.S.

messaging termination compared to international messaging termination, as international messaging has lower gross margins.

Our results of operations have in the past been, and could in the future be, impacted by adverse macroeconomic conditions.

We are continuing to monitor actual and potential effects of recent macroeconomic and political conditions and uncertainty on our business.

For additional details, see Part II, Item 1A, “Risk Factors.”

Key Business Metrics

We review a number of operational and financial metrics, including Active Customer Accounts and Dollar-Based Net Expansion Rate, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

The following table summarizes our year-over-year revenue growth and Dollar-Based Net Expansion Rate for the three months ended September 30, 2024 and 2023, and the number of Active Customer Accounts as of September 30, 2024 and 2023.

The following table summarizes our year-over-year revenue growth and Dollar-Based Net Expansion Rate for the three months ended March 31, 2025 and 2024, and the number of Active Customer Accounts as of March 31, 2025 and 2024.

Three Months Ended

September 30,

Active Customer Accounts

Total Revenue (in thousands)

335,000 313,000

Total Revenue (in thousands) $ 1,172,463 $ 1,047,050

Total Revenue Growth Rate

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Due to this dynamic, we believe that the number of Active Customer Accounts, as currently defined, is less informative now as an indicator of the growth of our business and future revenue trends than it has been in prior periods.

In the three months ended September 30, 2024 and 2023, revenue from Active Customer Accounts represented over 99% of total revenue in each period.

In the three months ended March 31, 2025 and 2024, revenue from Active Customer Accounts represented over 99% of total revenue in each period.

Dollar‑Based Net Expansion Rate

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Revenue from acquisitions does not impact the Dollar-Based Net Expansion Rate calculation until the quarter following the one-year anniversary of the applicable acquisition, unless the acquisition closing date is the first day of a quarter.

As a result, for the quarter ended September 30, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any acquisitions made after July 1, 2023.

Revenue from divestitures does not impact the Dollar-Based Net Expansion Rate calculation beginning in the quarter the divestiture closed, unless the divestiture closing date is the last day of a quarter.

As a result, for the quarter ended September 30, 2024, our Dollar-Based Net Expansion Rate excludes the contributions from any divestitures made after September 30, 2023.

Communications Dollar-Based Net Expansion Rate and Segment Dollar-Based Net Expansion Rate are calculated using the same methodology, but using only revenue attributable to the respective segment and Active Customer Accounts and customer accounts from Zipwhip for that respective segment.

We believe that measuring Dollar-Based Net Expansion Rate, on an aggregate basis and at the segment level, provides an important indication of the performance of our efforts to increase revenue from existing customers.

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An important way in which we have historically tracked performance in this area is by measuring the Dollar-Based Net Expansion Rate for Active Customer Accounts.

Our Dollar-Based Net Expansion Rate increases when such Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product.

Based Net Expansion Rate increases when such Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product.

Our Dollar-Based Net Expansion Rate decreases when such Active Customer Accounts cease or reduce their usage of a product or when we lower usage prices on a product.

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We recognize revenue from our products on either a usage basis or a subscription basis, depending on the nature of the product and the type of customer contract.

Our reportable segments contain products that may follow either revenue recognition model.

The majority of our Communications reportable segment revenue is derived from usage-based fees.

The usage-based fees are earned when customers access our cloud-based platform and start using the products.

Some examples of our usage-based products are Messaging and Voice.

The usage-based fees are earned when customers access our cloud-based platform and start using our products.

Examples of our primarily usage-based Communications products are Messaging and Voice.

For Messaging products, we primarily charge fees related to the number of text messages sent or received.

For Voice products, we primarily charge fees for minutes of call duration.

Some examples of the subscription-based Communications products are Email, Marketing Campaigns and Flex.

Examples of our primarily subscription-based Communications products are Email and Flex.

For these products, we recognize revenue evenly over the contract term.

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When our usage-based products are embedded into our subscription-based products, we charge for each product separately on a usage or subscription basis, respectively, and record the revenue in the reportable segment in which each product resides.

Most of our usage-based customers gain access to our products and solutions through our e-commerce self-service sign-up format, which requires an upfront prepayment via credit card that is drawn down as they use our products.

Most of our usage-based customers gain access to our platform through our self-service sign-up format, which requires an upfront prepayment via credit card that is drawn down as they use our products.

Pricing is generally based on a publicly available, self-serve pricing matrix that generally allows customers to receive tiered discounts as their usage of our products increases.

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These contracts may include negotiated terms and typically include minimum revenue commitments of varying durations.

Usage-based customers subject to such contracts are typically invoiced monthly in arrears for the products used.

In the three months ended September 30, 2024 and 2023, we generated 72% and 71% of our revenue, respectively, from usage-based fees.

Usage-based customers subject to such contracts are typically invoiced monthly in arrears for products used.

In the three months ended March 31, 2025 and 2024, we generated 73% and 71% of our revenue, respectively, from usage-based fees.

Subscription-based fees are earned in accordance with subscription pricing terms.

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Subscription customers are generally invoiced in advance at the start of the contract term.

In the three months ended September 30, 2024 and 2023, we generated 28% and 29% of our revenue, respectively, from non-usage‑based fees.

In the three months ended March 31, 2025 and 2024, we generated 27% and 29% of our revenue, respectively, from non-usage‑based fees.

Amounts that have been charged via credit card or invoiced are recorded in revenue, deferred revenue or customer deposits, depending on whether the revenue recognition criteria have been met.

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General and administrative expenses are allocated to each segment when they are directly attributable to each segment or are allocated to segments based on methodologies that best reflect the patterns of consumption of these costs.

A significant portion of general and administrative costs, such as costs related to corporate governance, and certain legal, human resources, finance and accounting functions, support company-wide processes and are managed on a company-wide level and, therefore, are considered corporate costs and are not allocated to segments.

We expect that we will incur costs associated with supporting the growth of our business.

We may also incur higher than usual losses related to deterioration of quality of certain financial assets caused by macroeconomic conditions.

Restructuring Costs.

Restructuring costs consist primarily of personnel costs, such as employee severance payments, benefits and certain facilitation costs, associated with our workforce reductions.

Restructuring costs also include stock-based compensation expense related to vesting of stock-based awards of the impacted employees.

Impairment of Long-Lived Assets.

Impairment of long-lived assets consists of impairment of intangible assets and certain operating right-of-use assets and the associated leasehold improvements and property and equipment when the carrying amounts exceed their respective fair values.

A significant portion of general and administrative costs, such as costs related to corporate governance and certain costs related to legal, human resources, finance and accounting functions, are not allocated to segments because they support company-wide processes and are managed on a company-wide level.

Other Income (Expenses), Net

Our other income (expenses), net consist primarily of our share of losses from our equity method investment, impairment charges and gains and losses related to our strategic investments and marketable securities, including interest income;

and debt-related costs, including interest expense.

Our other income (expenses), net, consist primarily of our share of losses from our equity method investment, impairment charges and gains and losses related to our strategic investments, realized gains and losses from marketable securities, interest income and expense and debt-related costs.

Provision for Income Taxes

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We use the following non‑GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes.

We believe that this non‑GAAP financial information may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period‑to‑period comparisons of results of operations and assists in comparisons with other companies, many of which use similar non‑GAAP financial information to supplement their results of operations reported in accordance with generally accepted accounting principles (“GAAP”).

We believe that non‑GAAP financial information may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period‑to‑period comparisons of results of operations and assists in comparisons with other companies, many of which use similar non‑GAAP financial information to supplement their results of operations reported in accordance with generally accepted accounting principles (“GAAP”).

We believe free cash flow and free cash flow margin provide useful supplemental information to help investors understand underlying trends in our business and our liquidity.

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Three Months Ended

September 30,

Reconciliation:

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Three Months Ended

September 30,

Reconciliation:

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Amortization of acquired intangibles (11,457) (13,257)

Acquisition and divestiture related expenses — (183)

Payroll taxes related to stock-based compensation (10,718) (6,431)

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Restructuring costs (11,691) (9,946)

Impairment of long-lived assets — (3,162)

Non-GAAP operating expenses $ 388,594 $ 406,349

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Three Months Ended

September 30,

Reconciliation:

(In thousands)

GAAP loss from operations $ (4,894) $ (108,903)

GAAP income (loss) from operations

$ 23,082 $ (43,504)

GAAP operating margin 2 % (4) %

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Amortization of acquired intangibles 27,139 28,939

Acquisition and divestiture related expenses — 183

Payroll taxes related to stock-based compensation 11,200 6,776

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Restructuring costs 11,691 9,946

Impairment of long-lived assets — 3,162

Non-GAAP income from operations

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Free Cash Flow and Free Cash Flow Margin

For the periods presented, we define free cash flow and free cash flow margin as net cash provided by operating activities and operating cash flow margin, respectively, less capitalized software development costs and purchases of long-lived and intangible assets, as presented in the table below:

For the periods presented, we define free cash flow as net cash provided by operating activities less capitalized software development costs and purchases of long-lived and intangible assets, and we define free cash flow margin as free cash flow divided by revenue, as presented in the table below:

Three Months Ended

September 30,

Reconciliation:

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Free cash flow margin 15 % 17 %

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

$ (19,140) $ 189,770

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The following table sets forth our results of operations for the periods presented.

The period-to-period comparison of our historical results are not indicative of the results that may be expected in the future.

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

The period-to-period comparisons of our historical results are not indicative of the results that may be expected in the future.

Three Months Ended

Condensed Consolidated Statements of Operations Data:

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92,077 112,585

Restructuring costs (1)

3,694 3,437 13,330 140,281

Impairment of long-lived assets — 3,162 — 34,278

Total operating expenses 558,485 587,545

Loss from operations (4,894) (108,903) (67,435) (514,814)

Income (loss) from operations

23,082 (43,504)

Other income (expenses), net:

Share of losses from equity method investment (19,471) (29,575)

Impairment of strategic investments (803) — (1,470) (46,154)

Other income, net 22,973 27,918

Total other income (expenses), net 3,502 (1,657)

Loss before provision for income taxes

Income (loss) before provision for income taxes

26,584 (45,161)

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(6,567) (10,188)

Net loss attributable to common stockholders $ (9,726) $ (141,707) $ (96,933) $ (650,033)

Net loss per share attributable to common

stockholders, basic and diluted $ (0.06) $ (0.78) $ (0.57) $ (3.54)

Weighted-average shares used in computing net

loss per share attributable to common

stockholders, basic and diluted 159,091,110 181,749,309 170,063,452 183,854,526

Net income (loss) attributable to common stockholders

$ 20,017 $ (55,349)

(1) Includes stock-based compensation expense as follows:

Three Months Ended Nine Months Ended

September 30, September 30,

Net income (loss) per share:

$ 0.13 $ (0.31)

$ 0.12 $ (0.31)

Weighted-average shares used to compute net income (loss) per share:

153,345,192 181,017,726

161,794,287 181,017,726

__________________________________

(1) Includes stock-based compensation expense as follows:

Three Months Ended

(In thousands)

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General and administrative 25,577 34,289

Restructuring costs 730 467 3,178 11,096

Total $ 139,273 $ 158,606

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(2) Includes amortization of acquired intangibles as follows:

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

Three Months Ended

(In thousands)

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The following table sets forth our results of operations for each of the periods presented as a percentage of our total revenue:

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

Three Months Ended

Condensed Consolidated Statements of Operations, as a percentage of revenue:

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General and administrative 8 11

Restructuring costs * * * 5

Impairment of long-lived assets — * — 1

Total operating expenses 48 56

Loss from operations * (11) (2) (17)

Income (loss) from operations

Other income (expenses), net

Share of losses from equity method investment (2) (3)

Impairment of strategic investments * — * (1)

Other income, net 2 3

Total other income (expenses), net * *

Loss before provision for income taxes

* (14) (2) (21)

Income (loss) before provision for income taxes

Provision for income taxes

Net loss attributable to common stockholders

(1 %) (14 %) (3 %) (21 %)

Net income (loss) attributable to common stockholders

____________________________________

* Less than 0.5% of revenue.

** Columns may not add up to 100% due to rounding.

Comparison of Three Months Ended September 30, 2024 and 2023

** Columns may not sum due to rounding.

Comparison of the Three Months Ended March 31, 2025 and 2024

Three Months Ended

September 30,

2025 2024 Change

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Consolidated total revenue $ 1,172,463 $ 1,047,050 $ 125,413 12 %

In the three months ended September 30, 2024, Communications revenue increased by $100.0 million, or 10%, compared to the same period last year.

This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 106%, as well as $51.1 million in revenue derived from our new Communications Active Customer Accounts.

In the three months ended September 30, 2024, Segment revenue remained unchanged compared to the same period last year.

We recognized $6.9 million in revenue derived from our new Segment Active Customer Accounts, offset by the decreased usage of our products due to churn and contraction affecting our existing customers, as reflected in our Segment Dollar‑Based Net Expansion Rate of 91%.

In the three months ended March 31, 2025, Communications revenue increased by $124.8 million, or 13%, compared to the same period last year.

This increase was primarily attributable to the increased usage of our Communications products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 108%, as well as an increase of $50.9 million in revenue derived from our new Communications Active Customer Accounts.

In the three months ended March 31, 2025, Segment revenue increased by $0.6 million, or 1%, compared to the same period last year.

This increase was primarily attributable to an increase of $5.0 million in revenue derived from our new Segment Active Customer Accounts, partially offset by the decreased usage of our Segment products due to churn and contraction affecting our existing customers, as reflected in our Segment Dollar-Based Net Expansion Rate of 94%.

Cost of Revenue and Gross Profit

Three Months Ended

September 30,

2025 2024 Change

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Cost of revenue $ 590,896 $ 503,009 $ 87,887 17 %

Gross profit $ 578,629 $ 516,319 $ 62,310 12 %

In the three months ended September 30, 2024, cost of revenue increased by $37.7 million, or 7%, compared to the same period last year.

The increase was primarily attributable to a $43.9 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $9.1 million increase in hosting fees.

These increases were partially offset by a $13.4 million decrease in amortization of intangible assets.

In the three months ended September 30, 2024, gross profit increased by $62.3 million, or 12%, compared to the same period last year.

$ 581,567 $ 544,041 $ 37,526 7 %

In the three months ended March 31, 2025, cost of revenue increased by $87.9 million, or 17%, compared to the same period last year.

The increase was primarily attributable to a $76.7 million increase in network service provider costs, net of the impact of hedging instruments.

In the three months ended March 31, 2025, gross profit increased by $37.5 million, or 7%, compared to the same period last year.

This increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

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Three Months Ended

September 30,

2025 2024 Change

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General and administrative 92,077 112,585 (20,508) (18) %

Restructuring costs 3,694 3,437 257 7 %

Impairment of long-lived assets — 3,162 (3,162) (100) %

Total operating expenses $ 558,485 $ 587,545 $ (29,060) (5) %

In the three months ended September 30, 2024, research and development expenses increased by $19.2 million, or 8%, compared to the same period last year.

The increase was primarily attributable to a $14.6 million increase in total personnel costs, net of capitalized costs, despite a 6% decrease in average research and development headcount compared to the same period last year.

The increase in personnel costs was primarily driven by a $27.2 million increase in bonus expenses as a result of the introduction of our new cash bonus program, partially offset by a $5.3 million increase in capitalized costs and an $8.0 million decrease in stock-based compensation expense.

The increase in research and development expenses was also attributable to a $4.6 million increase in hosting fees to support development and staging of our products.

In the three months ended September 30, 2024, sales and marketing expenses decreased by $50.3 million, or 19%, compared to the same period last year.

The decrease was primarily attributable to a $20.6 million decrease in total personnel costs, which was primarily driven by a 16% decrease in average sales and marketing headcount compared to the same period last year.

The decrease in headcount was primarily due to the restructuring of our workforce in December 2023.

Sales and marketing expenses also decreased due to an $8.1 million decrease in advertising expenses, a $7.7 million decrease in amortization of intangible assets and a $6.7 million decrease in expenses related to corporate events.

In the three months ended September 30, 2024, general and administrative expenses decreased by $7.7 million, or 7%, compared to the same period last year.

The decrease was primarily attributable to a $15.8 million decrease in the provision for doubtful accounts, partially offset by a $7.0 million increase in professional services fees.

In the three months ended September 30, 2024, restructuring costs increased by $0.3 million, or 7%, compared to the same period last year.

Restructuring costs and related fluctuations were not significant.

In the three months ended September 30, 2024, impairment of long-lived assets decreased by $3.2 million, or 100%, compared to the same period last year.

The prior year charges were related to the impairment of certain of our operating leases and other long-lived assets as a result of permanent office closures in 2023.

There were no such impairments in the current period.

In the three months ended March 31, 2025, research and development expenses decreased by $6.2 million, or 2%, compared to the same period last year.

Fluctuations in the various research and development expense categories were not significant either individually or in the aggregate.

In the three months ended March 31, 2025, sales and marketing expenses decreased by $2.4 million, or 1%, compared to the same period last year.

Fluctuations in the various sales and marketing expense categories were not significant either individually or in the aggregate.

In the three months ended March 31, 2025, general and administrative expenses decreased by $20.5 million, or 18%, compared to the same period last year.

The decrease was primarily attributable to an $8.7 million decrease in stock-based compensation expense, a $6.3 million decrease in professional services fees and a $3.8 million decrease in the provision for doubtful accounts.

Other Income (Expenses), net

Three Months Ended

September 30,

2025 2024 Change

1 unchanged sentence

Share of losses from equity method investment $ (19,471) $ (29,575) $ 10,104 (34) %

Impairment of strategic investments 803 — 803 100 %

Other income, net

2 unchanged sentences

$ 3,502 $ (1,657) $ 5,159 (311) %

In the three months ended September 30, 2024, other (income) expenses, net, increased by $32.3 million, or 104%, compared to the same period last year.

The decrease was primarily attributable to a $27.3 million increase in other income, net, primarily related to the income earned on our securities in the current period and unrealized gains related to fluctuations in foreign currency exchange rates, and a $5.8 million decrease in our share of losses from our equity method investment.

Results of Operations by Segment

The following table presents the results for non-GAAP income (loss) from operations, as reviewed by our CODM, for each of our Communications and Segment reportable segments for the three months ended September 30, 2024 and 2023:

In the three months ended March 31, 2025, other income (expenses), net, increased by $5.2 million, or 311%, compared to the same period last year.

The increase was primarily attributable to a $10.1 million decrease in our share of losses from our equity method investment, partially offset by a $4.9 million decrease in other income, net, primarily related to the income earned on our debt securities.

Segment Results of Operations

Three Months Ended

September 30,

2025 2024 Change

(Dollars in thousands)

Twilio Communications non-GAAP income from operations

$ 267,773 $ 220,610 $ 47,163 21 %

Twilio Segment non-GAAP loss from operations

$ (15,805) $ (17,740) $ 1,935 (11) %

In the three months ended September 30, 2024, Communications non-GAAP income from operations increased by $47.2 million, or 21%, compared to the same period last year.

The increase was primarily driven by an increase in Communications revenue of $100.0 million, as described in the Revenue section above, and a $15.6 million decrease in the provision for doubtful accounts.

This increase was partially offset by a $43.9 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $22.5 million increase in total Communications personnel costs, despite a 9% decrease in average Communications headcount during the period.

The $22.5 million increase in total Communications personnel costs was primarily driven by a $26.8 million increase in bonus expenses as a result of the introduction of our new cash bonus program.

In the three months ended September 30, 2024, Segment non-GAAP loss from operations decreased by $1.9 million, or 11%, compared to the same period last year.

The decrease was driven by a decrease in Segment operating expenses of $5.8 million, partially offset by an increase in hosting fees of $3.0 million.

Comparison of Nine Months Ended September 30, 2024 and 2023

Nine Months Ended

September 30,

2024 2023 Change

(Dollars in thousands)

Twilio Communications $ 277,462 $ 249,010 $ 28,452 11 %

Twilio Segment

Consolidated total revenue $ 3,263,201 $ 3,077,995 $ 185,206 6 %

In the nine months ended September 30, 2024, Communications revenue increased by $181.8 million, or 6%, compared to the same period last year.

This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our Communications Dollar‑Based Net Expansion Rate of 104%, as well as $148.6 million in revenue derived from our new Communications Active Customer Accounts and new customer accounts from Zipwhip.

These increases were partially offset by a decrease of $52.8 million related to revenue from our Internet of Things and ValueFirst businesses which we divested during the second and third quarters of 2023, respectively.

In the nine months ended September 30, 2024, Segment revenue increased by $3.4 million, or 2%, compared to the same period last year.

This change was primarily attributable to $23.5 million in revenue derived from our new Segment Active Customer Accounts, partially offset by the decreased usage of our products due to churn and contraction affecting our existing customers, as reflected in our Segment Dollar‑Based Net Expansion Rate of 92%.

Cost of Revenue and Gross Profit

Nine Months Ended

September 30,

2024 2023 Change

(Dollars in thousands)

Cost of revenue $ 1,584,686 $ 1,565,231 $ 19,455 1 %

Gross profit $ 1,678,515 $ 1,512,764 $ 165,751 11 %

In the nine months ended September 30, 2024, cost of revenue increased by $19.5 million, or 1%, compared to the same period last year.

The increase was primarily attributable to a $30.2 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $30.0 million increase in hosting fees.

These increases were partially offset by a $41.6 million decrease in amortization of intangible assets.

In the nine months ended September 30, 2024, gross profit increased by $165.8 million, or 11%, compared to the same period last year.

This increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

Operating Expenses

Nine Months Ended

September 30,

2024 2023 Change

(Dollars in thousands)

Research and development $ 756,170 $ 707,145 $ 49,025 7 %

Sales and marketing 644,150 784,383 (140,233) (18) %

General and administrative 332,300 361,491 (29,191) (8) %

Restructuring costs 13,330 140,281 (126,951) (90) %

Impairment of long-lived assets — 34,278 (34,278) (100) %

Total operating expenses $ 1,745,950 $ 2,027,578 $ (281,628) (14) %

In the nine months ended September 30, 2024, research and development expenses increased by $49.0 million, or 7%, compared to the same period last year.

The increase was primarily attributable to a $30.7 million increase in total personnel costs, net of capitalized costs, which was primarily driven by a $55.6 million increase in bonus expenses as a result of our new cash bonus program, partially offset by a $20.3 million decrease in salaries expense due to a 17% decrease in average research and development headcount compared to the same period last year as a result of the restructuring of our workforce in February 2023 and December 2023.

The increase in research and development expenses was also attributable to a $10.7 million increase in hosting fees to support development and staging of our products and an $8.8 million increase in software subscription expenses.

In the nine months ended September 30, 2024, sales and marketing expenses decreased by $140.2 million, or 18%, compared to the same period last year.

The decrease was primarily attributable to a $79.4 million decrease in total personnel costs, which was primarily driven by a 21% decrease in average sales and marketing headcount compared to the same period last year.

The decrease in headcount was primarily driven by the restructuring of our workforce in February 2023 and December 2023.

Sales and marketing expenses also decreased due to a $24.0 million decrease in amortization of intangible assets, a $13.4 million decrease in advertising expenses and an $8.5 million decrease in expenses related to corporate events.

In the nine months ended September 30, 2024, general and administrative expenses decreased by $29.2 million, or 8%, compared to the same period last year.

The decrease was primarily attributable to the $32.3 million loss on divested net assets recorded in the 2023 period related to the sale of our ValueFirst and Internet of Things businesses and a $22.7 million decrease in the provision for doubtful accounts.

The decrease in general and administrative expenses was partially offset by a $14.0 million increase in professional services fees and a $13.9 million increase in charitable contributions that we made through Twilio.org during the first nine months of 2024.

In the nine months ended September 30, 2024, restructuring costs decreased by $127.0 million, or 90%, compared to the same period last year.

The decrease was primarily attributable to the significant restructuring costs incurred in the 2023 period related to our February 2023 restructuring activities.

In the nine months ended September 30, 2024, impairment of long-lived assets decreased by $34.3 million, or 100%, compared to the same period last year.

The prior year charges were related to the impairment of certain of our operating leases and other long-lived assets as a result of permanent office closures in the first half of 2023.

There were no such impairments in the current period.

Other Expenses, net

Nine Months Ended

September 30,

2024 2023 Change

(Dollars in thousands)

Share of losses from equity method investment $ 78,794 $ 93,838 $ (15,044) (16) %

Impairment of strategic investments 1,470 46,154 (44,684) (97) %

Other income, net

$ (1,518) $ (20,994) 19,476 (93) %

Total other expenses, net

$ 7,620 $ 122,261 $ (114,641) (94) %

In the nine months ended September 30, 2024, other expenses, net, decreased by $114.6 million, or 94%, compared to the same period last year.

The decrease was primarily attributable to a $46.2 million impairment of a strategic investment that occurred during the nine months ended September 30, 2023, a $54.9 million increase in other income, net, primarily related to an increase in income earned on our debt securities, and a $15.0 million decrease in our share of losses from our equity method investment.

Results of Operations by Segment

Nine Months Ended

September 30,

2024 2023 Change

(Dollars in thousands)

Twilio Communications non-GAAP income from operations

$ 766,713 $ 593,599 $ 173,114 29 %

Twilio Segment non-GAAP loss from operations

$ (52,613) $ (53,937) $ 1,324 (2) %

In the nine months ended September 30, 2024, Communications non-GAAP income from operations increased by $173.1 million, or 29%, compared to the same period last year.

The increase was primarily driven by an increase in Communications revenue of $181.8 million, as described in the Revenue section above, a $24.8 million decrease in the provision for doubtful accounts and a $10.9 million decrease in total Communications personnel costs, which was mainly due to the restructuring of our workforce in February 2023 and December 2023.

These restructurings contributed to a 21% decrease in average Communications headcount compared to the same period last year.

These drivers were partially offset by a $30.2 million increase in network service providers’ costs, net of the impact of hedging instruments, and a $23.1 million increase in hosting fees.

In the nine months ended September 30, 2024, Segment non-GAAP loss from operations decreased by $1.3 million, or 2%, compared to the same period last year.

The decrease was driven by a decrease in Segment operating expenses of $7.6 million and an increase in Segment revenue of $3.4 million, as described in the Revenue section above, partially offset by a $9.7 million increase in cost of revenue.

In the three months ended March 31, 2025, Communications non-GAAP income from operations increased by $28.5 million, or 11%, compared to the same period last year.

The increase was driven by an increase in Communications revenue of $124.8 million, as described in the Revenue section above, and was partially offset by a $76.7 million increase in network service provider costs, net of the impact of hedging instruments, a $13.4 million increase in hosting fees, and an $8.1 million increase in total personnel costs.

In the three months ended March 31, 2025, Segment non-GAAP loss from operations decreased by $19.5 million, or 93%, compared to the same period last year.

The decrease was driven by a decrease in Segment operating expenses of $21.8 million primarily attributable to a decrease in total personnel costs and an increase in Segment revenue of $0.6 million, as described in the Revenue section above, partially offset by a $3.0 million increase in hosting fees.

Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $584.0 million and short-term marketable securities of $2.1 billion.

Cash equivalents consist of money market funds and commercial paper.

As of March 31, 2025, we had cash and cash equivalents of $467.1 million and short-term marketable securities of $2.0 billion.

Cash equivalents consist of money market funds, commercial paper and U.S.

treasury bills.

Short-term marketable securities consist primarily of U.S.

2 unchanged sentences

The cash and cash equivalents and short-term marketable securities are held for working capital purposes.

Our principal sources of liquidity have been (i) the net proceeds of $979.0 million, $1.4 billion and $1.8 billion, net of underwriting discounts and offering expenses paid by us, from our public equity offerings in June 2019, August 2020 and February 2021, respectively;

(ii) the aggregate net proceeds of approximately $984.7 million, after deducting purchaser discounts and debt issuance costs paid by us, from the issuance of our 2029 Notes and 2031 Notes in March 2021 (each, as defined below);

(iii) the net proceeds of $228.4 million, after deducting transaction costs paid by us, from settlement of our capped call arrangements in June 2021;

and (iv) the payments received from customers using our products.

Our primary uses of cash include operating costs, such as personnel-related costs, network service provider costs, cloud infrastructure costs, facility-related spending, as well as, from time to time, acquisitions, investments and share repurchases.

Our principal sources of liquidity have been (i) the payments received from customers using our products;

(ii) public equity offerings, most recently in February 2021;

and (iii) debt financings, most recently the issuance of our 2029 Notes and 2031 Notes (each, as defined below) in March 2021.

Our primary uses of cash include operating costs, such as personnel-related costs, network service provider costs, cloud infrastructure costs, facility-related spending, acquisitions and investments we may make from time to time, and repurchases of common stock under our share repurchase program.

Our principal contractual and other commitments consist of obligations under our 2029 Notes and 2031 Notes, our operating leases for office space that we occupy, sublease or hold to sublease, and contractual commitments to our cloud infrastructure and network service providers.

8 unchanged sentences

Our future capital requirements, the adequacy of our available funds and our cash from operations depend on many factors and are affected by various risks and uncertainties, including those set forth in Part II, Item 1A, “Risk Factors.”

Share Repurchase Programs

In February 2023, our board of directors authorized a share repurchase program pursuant to which we may repurchase up to $1.0 billion in aggregate value of our common stock.

In March 2024, our board of directors authorized a second share repurchase program for an additional $2.0 billion in aggregate value of our common stock.

As of September 30, 2024, we have repurchased approximately $2.6 billion of our common stock in the open market under these programs, and approximately $412.0 million of the aggregate authorized amount remained available for future repurchases.

Repurchases under these programs will be made through open market, private transactions or other means in compliance with applicable federal securities laws, and could include repurchases pursuant to Rule 10b5-1 trading plans.

Share Repurchase Program

In January 2025, our board of directors authorized a share repurchase program to repurchase up to $2.0 billion in aggregate value of our Class A common stock.

Repurchases under this program can be made through open market, private transactions or other means, in compliance with applicable federal securities laws, and can include repurchases pursuant to Rule 10b5-1 trading plans.

We have discretion in determining the conditions under which shares may be repurchased from time to time.

The programs expire on December 31, 2024.

In the three and nine months ended September 30, 2024, we repurchased $633.0 million in aggregate value, or 10.6 million shares, and $1.9 billion in aggregate value, or 32.0 million shares, respectively, of our common stock on the open market under these programs.

The program expires on December 31, 2027.

In the three months ended March 31, 2025, we purchased $130.2 million in aggregate value, or 1.2 million shares, of our Class A common stock on the open market.

2029 Notes and 2031 Notes

In March 2021, we issued and sold $1.0 billion aggregate principal amount of senior notes, consisting of $500.0 million principal amount of 3.625% notes due 2029 (the “2029 Notes”) and $500.0 million principal amount of 3.875% notes due 2031 (the “2031 Notes,” and together with the 2029 Notes, the “Notes”).

These Notes are described in detail in Note 14 to our Annual Report on Form 10-K filed with the SEC on February 27, 2024.

In March 2021, we issued and sold $1.0 billion in aggregate principal amount of senior notes, consisting of $500.0 million principal amount of 3.625% notes due 2029 (the “2029 Notes”) and $500.0 million principal amount of 3.875% notes due 2031 (the “2031 Notes,” and together with the 2029 Notes, the “Notes”).

The Notes are described in detail in Note 14 to our Annual Report on Form 10-K filed with the SEC on February 26, 2025.

The following table summarizes our cash flows:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

1 unchanged sentence

$ 191,042 $ 190,123

Cash provided by investing activities 1,241,739 365,745

Cash (used in) provided by investing activities

(19,140) 189,770

Cash used in financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash — 108

Net (decrease) increase in cash, cash equivalents and restricted cash

(125,794) (363,229)

Net increase in cash, cash equivalents and restricted cash

$ 46,108 $ 16,664

Cash Flows from Operating Activities

In the nine months ended September 30, 2024, cash provided by operating activities consisted primarily of our net loss of $96.9 million adjusted for non-cash items, including $460.8 million of stock-based compensation expense, $156.2 million of depreciation and amortization expense, $57.0 million amortization of deferred commissions, $78.8 million of share of losses from equity method investments and $74.0 million of cumulative changes in operating assets and liabilities.

In the three months ended March 31, 2025, cash provided by operating activities consisted primarily of our net income of $20.0 million adjusted for non-cash items, including $139.3 million of stock-based compensation expense, $49.6 million of depreciation and amortization expense, $19.5 million of our share of losses from an equity method investment, $19.3 million of amortization of deferred commissions, $5.2 million of non-cash reduction in our operating right-of-use asset, and $65.7 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $42.0 million primarily due to timing of cash receipts and prepayments of certain operating expenses.

Accounts payable and other current liabilities decreased $86.4 million primarily driven by the payment of the 2024 company-wide bonus in the three months ended March 31, 2025.

Operating lease liabilities decreased $10.3 million due to payments made against our operating lease obligations.

In the three months ended March 31, 2024, cash provided by operating activities consisted primarily of our net loss of $55.3 million adjusted for non-cash items, including $158.6 million of stock-based compensation expense, $53.3 million of depreciation and amortization expense, $18.8 million of amortization of deferred commissions, $29.6 million of share of losses from equity method investments and $25.1 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $32.5 million primarily due to timing of cash receipts and pre-payments of certain operating expenses.

Accounts payable and other current liabilities decreased $50.2 million primarily driven by timing of payments to vendors.

Operating lease liabilities decreased $35.4 million due to payments made against our operating lease obligations.

In the nine months ended September 30, 2023, cash provided by operating activities consisted primarily of our net loss of $650.0 million adjusted for non-cash items, including $509.4 million of stock-based compensation expense which included the impact of our February 2023 restructuring activities, $219.0 million of depreciation and amortization expense, $93.8 million of our share of losses from an equity method investment, $54.4 million of amortization of deferred commissions, $46.2 million of impairment of an investment that we acquired in 2021, $34.3 million of impairment of operating lease assets and other long-lived assets, $32.3 million loss on net assets divested, $21.8 million of non-cash reduction in our operating right-of-use asset, and $240.3 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses increased $125.6 million primarily due to revenue growth, timing of cash receipts and prepayments and certain operating expenses.

Accounts payable and other current liabilities decreased $62.3 million, primarily driven by a $22.3 million decrease in the sabbatical benefit accrual as a result of lower headcount and sunsetting of the program and a decrease in personnel-related accruals due to lower headcount.

Operating lease liabilities decreased $41.4 million due to payments made against our operating lease obligations.

Other long-term assets increased $15.4 million primarily due to an increase in the sales commissions balances related to the growth of our business.

Cash Flows from Investing Activities

In the nine months ended September 30, 2024, cash provided by investing activities was $1.2 billion, primarily consisting of $1.3 billion of maturities and sales of marketable securities, net of purchases, partially offset by $40.3 million related to capitalized software development costs and $3.5 million related to purchases of long-lived assets.

In the nine months ended September 30, 2023, cash provided by investing activities was $365.7 million primarily consisting of $372.9 million of proceeds from sales and maturities of marketable securities, net of purchases of marketable securities and other investments, and $38.2 million of proceeds from divestitures, net of cash divested, partially offset by $30.5 million related to capitalized software development costs and $9.0 million related to purchases of long-lived assets.

In the three months ended March 31, 2025, cash used in investing activities was $19.1 million consisting of $11.6 million related to capitalized software development costs, $6.4 million of purchases of marketable securities and other investments, net of proceeds from sales and maturities of marketable securities, and $1.2 million related to purchases of long-lived assets.

In the three months ended March 31, 2024, cash provided by investing activities was $189.8 million, primarily consisting of $202.6 million of maturities and sales of marketable securities, net of purchases, partially offset by $11.2 million related to capitalized software development costs and $1.7 million related to purchases of long-lived assets.

Cash Flows from Financing Activities

In the nine months ended September 30, 2024, cash used in financing activities was $1.9 billion, primarily consisting of $1.9 billion of cash paid to repurchase 10.6 million shares of our common stock in the open market, including related costs.

In the nine months ended September 30, 2023, cash used in financing activities was $536.2 million primarily consisting of $548.9 million of cash paid to repurchase 9.2 million shares of our Class A common stock in the open market, including related costs, and $13.8 million in principal payments on debt and finance leases, offset by $28.9 million in proceeds from stock options exercised by our employees and shares issued under our employee stock purchase plan.

In the three months ended March 31, 2025, cash used in financing activities was $125.8 million primarily consisting of $126.3 million of cash paid to repurchase 1.2 million shares of our Class A common stock in the open market, including related costs.

In the three months ended March 31, 2024, cash used in financing activities was $363.2 million, primarily consisting of $356.9 million of cash paid to repurchase 6.1 million shares of our Class A common stock in the open market, including related costs.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis