TWILIO INC 10-Q

Item 2. 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 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. 23 Table of Contents Overview 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 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. 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 at scale. 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 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. 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; changes in foreign exchange rates; the timing of amortization of capitalized software development costs and acquired intangibles; 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.” 24 Table of Contents 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 March 31, 2025 and 2024, and the number of Active Customer Accounts as of March 31, 2025 and 2024. Three Months Ended March 31, 2025 2024 Active Customer Accounts 335,000 313,000 Total Revenue (in thousands) $ 1,172,463 $ 1,047,050 Total Revenue Growth Rate 12 % 4 % Dollar-Based Net Expansion Rate 107 % 102 % Active Customer Accounts We define an Active Customer Account at the end of any period as an individual account, as identified by a unique account identifier, for which we have recognized at least $5 of revenue in the last month of the period. A single organization may constitute multiple unique Active Customer Accounts if it has multiple account identifiers, each of which is treated as a separate Active Customer Account. Active Customer Accounts excludes customer accounts from Zipwhip, Inc. (“Zipwhip”). Communications Active Customer Accounts and Segment Active Customer Accounts are calculated using the same methodology, but using only revenue recognized from accounts in the respective segment. When presented in this Quarterly Report on Form 10-Q, (i) the number of Active Customer Accounts is rounded down to the nearest thousand, (ii) the number of Communications Active Customer Accounts is rounded down to the nearest thousand, and (iii) the number of Segment Active Customer Accounts is rounded down to the nearest hundred. Our business and customer relationships have grown since we began reporting the number of Active Customer Accounts using the above definition, which is anchored to a minimum $5 monthly revenue figure. We have a large number of Active Customer Accounts with relatively low individual spend that in the aggregate do not drive a significant portion of our revenue. 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 March 31, 2025 and 2024, revenue from Active Customer Accounts represented over 99% of total revenue in each period. Dollar‑Based Net Expansion Rate Our Dollar-Based Net Expansion Rate compares the total revenue from all Active Customer Accounts and customer accounts from Zipwhip in a quarter to the same quarter in the prior year. To calculate the Dollar-Based Net Expansion Rate, we first identify the cohort of Active Customer Accounts and customer accounts from Zipwhip that were Active Customer Accounts or customer accounts from Zipwhip in the same quarter of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. When we calculate Dollar-Based Net Expansion Rate for periods longer than one quarter, we use the average of the applicable quarterly Dollar-Based Net Expansion Rates for each of the quarters in such period. 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. 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. 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. 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. Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing Active Customer Accounts and to increase their use of the platform. 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- 25 Table of Contents 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. As our customers grow their businesses and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of revenue in a quarterly reporting period) that has created a new Active Customer Account, this new Active Customer Account is tied to, and revenue from this new Active Customer Account is included with, the original Active Customer Account for the purposes of calculating this metric. Key Components of Statements of Operations Revenue Revenue. 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. 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 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. Examples of our primarily subscription-based Communications products are Email and Flex. For these products, we recognize revenue evenly over the contract term. Our Segment reportable segment revenue is derived from Segment products that are subscription-based. For these products we recognize revenue evenly over the contract term. 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 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. Many of our larger usage-based customers enter into contractual arrangements with us for a period of at least 12 months. 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 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. For our subscription-based products, customers generally enter into negotiated contracts, which are typically one to three years in duration. Subscription customers are generally invoiced in advance at the start of the contract term. 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. Our deferred revenue and customer deposits liability balance is not a meaningful indicator of our future revenue at any point in time because the number of contracts with our invoiced customers that contain terms requiring any form of prepayment is not significant. We define U.S. revenue as revenue from customers with IP addresses or mailing addresses at the time of registration in the United States. We define international revenue as revenue from customers with IP addresses or mailing addresses at the time of registration outside of the United States. 26 Table of Contents Cost of Revenue and Gross Profit Cost of Revenue . Cost of revenue consists primarily of fees paid to network service providers. Cost of revenue also includes cloud infrastructure fees, direct costs of personnel, such as salaries and stock‑based compensation for our customer support employees, and other non‑personnel costs, such as depreciation and amortization expense related to data centers and hosting equipment, and amortization of capitalized internal-use software development costs and acquired intangible assets. Costs of revenue are generally directly attributable to each segment. Certain costs of revenue are allocated to segments based on methodologies that best reflect the patterns of consumption of these costs. Our arrangements with network service providers require us to pay fees based on the volume of phone calls initiated or text messages sent, as well as the number of telephone numbers acquired by us to service our customers. Our arrangements with our cloud infrastructure providers require us to pay fees based on our server capacity consumption. Gross Profit . Gross profit represents revenue less cost of revenue. Operating Expenses The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, sales commissions, bonuses and stock‑based compensation. We also incur other non‑personnel costs related to our general overhead expenses. Research and Development. Research and development expenses consist primarily of personnel costs, outsourced engineering services, cloud infrastructure fees for staging and development of our products, depreciation, amortization of capitalized internal-use software development costs and an allocation of our general overhead expenses. We capitalize the portion of our software development costs that meets the criteria for capitalization. Research and development expenses are generally directly attributable to each segment. Certain research and development expenses are allocated to segments based on methodologies that best reflect the patterns of consumption of these costs. A small percentage of research and development costs, such as costs related to digital architecture and information security, are not allocated to segments because they support company-wide processes and are managed on a company-wide level. We are focusing our research and development investment in the highest impact product areas for our future. We are investing strategically in alignment with our focus on building a trusted, leading customer engagement platform. Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, including commissions and bonuses to our sales employees. Sales and marketing expenses also include expenditures related to advertising, marketing, brand awareness activities, costs related to our SIGNAL customer and developer conferences, credit card processing fees, professional services fees, depreciation, amortization of acquired intangible assets and an allocation of our general overhead expenses. Sales and marketing expenses are generally directly attributable to each segment. Certain sales and marketing expenses are allocated to segments based on methodologies that best reflect the patterns of consumption of these costs. A small percentage of sales and marketing costs, such as costs related to corporate communications and global brand awareness, are not allocated to segments because they support company-wide processes and are managed on a company-wide level. We focus our sales and marketing efforts on generating awareness of our company, platform and products, creating sales leads, expanding relationships with existing customers and establishing and promoting our brand, both domestically and internationally. General and Administrative. General and administrative expenses consist primarily of personnel costs for our accounting, finance, legal, human resources and administrative support personnel. General and administrative expenses also include costs related to business acquisitions and dispositions, legal and other professional services fees, certain taxes, depreciation and amortization, charitable contributions and an allocation of our general overhead expenses. 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 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. 27 Table of Contents 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, realized gains and losses from marketable securities, interest income and expense and debt-related costs. Provision for Income Taxes Our provision for income taxes consists primarily of federal, state and foreign income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business. The primary difference between our effective tax rate and the federal statutory rate relates to the valuation allowance the Company established on the federal, state and certain foreign net operating losses and credits. Non-GAAP Financial Measures We use the following non‑GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. 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. Non‑GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly‑titled non‑GAAP measures used by other companies. Whenever we use a non‑GAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with GAAP. The users of our consolidated financial statements are encouraged to review the related GAAP financial measures and the reconciliation of these non‑GAAP financial measures to their most directly comparable GAAP financial measures. Non‑GAAP Gross Profit and Non‑GAAP Gross Margin For the periods presented, we define non‑GAAP gross profit and non‑GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below: Three Months Ended March 31, 2025 2024 Reconciliation: (In thousands) GAAP gross profit $ 581,567 $ 544,041 GAAP gross margin 50 % 52 % Non-GAAP adjustments: Stock-based compensation 4,271 5,891 Amortization of acquired intangibles 15,682 15,682 Payroll taxes related to stock-based compensation 482 345 Non-GAAP gross profit $ 602,002 $ 565,959 Non-GAAP gross margin 51 % 54 % 28 Table of Contents Non‑GAAP Operating Expenses For the periods presented, we define non‑GAAP operating expenses (including categories of operating expenses) as GAAP operating expenses (and categories of operating expenses) adjusted to exclude, as applicable, certain expenses as presented in the table below: Three Months Ended March 31, 2025 2024 Reconciliation: (In thousands) GAAP operating expenses $ 558,485 $ 587,545 Non-GAAP adjustments: Stock-based compensation (133,249) (150,267) Amortization of acquired intangibles (11,457) (13,257) Payroll taxes related to stock-based compensation (10,718) (6,431) Charitable contributions (2,776) (1,295) Restructuring costs (11,691) (9,946) Non-GAAP operating expenses $ 388,594 $ 406,349 Non‑GAAP Income from Operations and Non‑GAAP Operating Margin For the periods presented, we define non‑GAAP income from operations and non‑GAAP operating margin as GAAP income (loss) from operations and GAAP operating margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below: Three Months Ended March 31, 2025 2024 Reconciliation: (In thousands) GAAP income (loss) from operations $ 23,082 $ (43,504) GAAP operating margin 2 % (4) % Non-GAAP adjustments: Stock-based compensation 137,520 156,158 Amortization of acquired intangibles 27,139 28,939 Payroll taxes related to stock-based compensation 11,200 6,776 Charitable contributions 2,776 1,295 Restructuring costs 11,691 9,946 Non-GAAP income from operations $ 213,408 $ 159,610 Non-GAAP operating margin 18 % 15 % 29 Table of Contents Free Cash Flow and Free Cash Flow Margin 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 March 31, 2025 2024 Reconciliation: (In thousands) Net cash provided by operating activities $ 191,042 $ 190,123 Operating cash flow margin 16 % 18 % Non-GAAP adjustments: Capitalized software development costs (11,564) (11,154) Purchases of long-lived and intangible assets (1,163) (1,671) Free cash flow $ 178,315 $ 177,298 Free cash flow margin 15 % 17 % Net cash (used in) provided by investing activities $ (19,140) $ 189,770 Net cash used in financing activities $ (125,794) $ (363,229) 30 Table of Contents Results of Operations The following table sets forth our results of operations for the periods presented. 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 March 31, 2025 2024 Condensed Consolidated Statements of Operations Data: (In thousands, except share and per share amounts) Revenue $ 1,172,463 $ 1,047,050 Cost of revenue (1) (2) 590,896 503,009 Gross profit 581,567 544,041 Operating expenses: Research and development (1) (2) 254,295 260,457 Sales and marketing (1) (2) 212,113 214,503 General and administrative (1) (2) 92,077 112,585 Total operating expenses 558,485 587,545 Income (loss) from operations 23,082 (43,504) Other income (expenses), net: Share of losses from equity method investment (19,471) (29,575) Other income, net 22,973 27,918 Total other income (expenses), net 3,502 (1,657) Income (loss) before provision for income taxes 26,584 (45,161) Provision for income taxes (6,567) (10,188) Net income (loss) attributable to common stockholders $ 20,017 $ (55,349) Net income (loss) per share: Basic $ 0.13 $ (0.31) Diluted $ 0.12 $ (0.31) Weighted-average shares used to compute net income (loss) per share: Basic 153,345,192 181,017,726 Diluted 161,794,287 181,017,726 __________________________________ (1) Includes stock-based compensation expense as follows: Three Months Ended March 31, 2025 2024 (In thousands) Cost of revenue $ 4,271 $ 5,891 Research and development 78,066 83,560 Sales and marketing 31,359 34,866 General and administrative 25,577 34,289 Total $ 139,273 $ 158,606 ____________________________________ (2) Includes amortization of acquired intangibles as follows: Three Months Ended March 31, 2025 2024 (In thousands) Cost of revenue $ 15,682 $ 15,682 Research and development — 1,120 Sales and marketing 11,457 12,137 Total $ 27,139 $ 28,939 31 Table of Contents 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 March 31, 2025 2024 Condensed Consolidated Statements of Operations, as a percentage of revenue: ** Revenue 100 % 100 % Cost of revenue 50 48 Gross profit 50 52 Operating expenses: Research and development 22 25 Sales and marketing 18 20 General and administrative 8 11 Total operating expenses 48 56 Income (loss) from operations 2 (4) Other income (expenses), net Share of losses from equity method investment (2) (3) Other income, net 2 3 Total other income (expenses), net * * Income (loss) before provision for income taxes 2 (4) Provision for income taxes (1) (1) Net income (loss) attributable to common stockholders 2 % (5 %) ____________________________________ * Less than 0.5% of revenue. ** Columns may not sum due to rounding. Comparison of the Three Months Ended March 31, 2025 and 2024 Revenue Three Months Ended March 31, 2025 2024 Change (Dollars in thousands) Twilio Communications $ 1,096,806 $ 972,005 $ 124,801 13 % Twilio Segment 75,657 75,045 612 1 % Consolidated total revenue $ 1,172,463 $ 1,047,050 $ 125,413 12 % 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%. 32 Table of Contents Cost of Revenue and Gross Profit Three Months Ended March 31, 2025 2024 Change (Dollars in thousands) Cost of revenue $ 590,896 $ 503,009 $ 87,887 17 % Gross profit $ 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. Operating Expenses Three Months Ended March 31, 2025 2024 Change (Dollars in thousands) Research and development $ 254,295 $ 260,457 $ (6,162) (2) % Sales and marketing 212,113 214,503 (2,390) (1) % General and administrative 92,077 112,585 (20,508) (18) % Total operating expenses $ 558,485 $ 587,545 $ (29,060) (5) % 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 March 31, 2025 2024 Change (Dollars in thousands) Share of losses from equity method investment $ (19,471) $ (29,575) $ 10,104 (34) % Other income, net 22,973 27,918 (4,945) (18) % Total other income (expenses), net $ 3,502 $ (1,657) $ 5,159 (311) % 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. 33 Table of Contents Segment Results of Operations 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 March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 Change (Dollars in thousands) Twilio Communications $ 277,462 $ 249,010 $ 28,452 11 % Twilio Segment $ (1,518) $ (20,994) 19,476 (93) % 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 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. treasury securities, non-U.S. government securities, high credit quality corporate debt securities and commercial paper. 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 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. Refer to Note 9 and Note 11(a) to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for discussions of our obligations and commitments related to leases, debt and other purchase obligations. We may, from time to time, consider acquisitions of, or investments in, complementary businesses, products, services, capital infrastructure or technologies which might affect our liquidity requirements or cause us to secure additional financing or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all. We believe that our cash, cash equivalents and marketable securities balances, as well as the cash flows generated by our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditure needs, including authorized share repurchases, for the next 12 months and beyond. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. We may be required to seek additional equity or debt financing in order to meet our future capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected. 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.” 34 Table of Contents 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 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 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. Cash Flows The following table summarizes our cash flows: Three Months Ended March 31, 2025 2024 (In thousands) Cash provided by operating activities $ 191,042 $ 190,123 Cash (used in) provided by investing activities (19,140) 189,770 Cash used in financing activities (125,794) (363,229) Net increase in cash, cash equivalents and restricted cash $ 46,108 $ 16,664 Cash Flows from Operating Activities 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. Cash Flows from Investing Activities 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. 35 Table of Contents 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 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 Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. There have been no changes to our critical accounting policies as described in our Annual Report on Form 10-K filed with the SEC on February 26, 2025. Recent Accounting Pronouncements Not Yet Adopted Refer to Note 2 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements not yet adopted. Available Information Our filings are available to be viewed and downloaded free of charge through our investor relations website after we file them with the SEC. Our filings include our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, our Proxy Statement for our annual meeting of stockholders, Current Reports on Form 8-K and other filings with the SEC. Our investor relations website is located at http://investors.twilio.com. The SEC also maintains a website that contains periodic and current reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. Further corporate governance information, including our corporate governance guidelines and code of business conduct and ethics, is also available on our investor relations website under the heading “Governance.” The contents of our websites are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 36 Table of Contents