What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-01 compared with 2025-10-31 · 150 added, 238 removed, 220 unchanged (64% of the section changed)

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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 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 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.

We envision a world in which every digital interaction is amazing.

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

We offer highly customizable 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 digital engagement centers, marketing campaigns, and user authentication and identity solutions.

This combination of flexible APIs and software solutions, together with our customer data capabilities, 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.

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.

In the third quarter of 2025, we modified the presentation of the financial information that is regularly reviewed by our Chief Executive Officer, who is also our Chief Operating Decision Maker (“CODM”), to reflect this realignment and the change in how management currently views and operates the business.

These changes required us to re-evaluate our operating segment structure and resulted in the conclusion that as of September 30, 2025, we had one operating and reportable segment, which comprised all of the consolidated Company.

On October 30, 2025, we entered into a definitive agreement to acquire Stytch, Inc., an identity platform for AI agents.

We expect the transaction to close in the fourth quarter of 2025, subject to customary closing conditions.

In the three months ended September 30, 2025 and 2024, our revenue was $1.30 billion and $1.13 billion, respectively, and our net income (loss) was $37.2 million and $(9.7) million, respectively.

In the three months ended September 30, 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

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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, and expand internationally.

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.

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

We are focused on driving leverage through these cost savings and efficiency initiatives, as well as efforts to drive growth in higher margin products.

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.

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

In June 2025, a major U.S.

mobile carrier increased network service provider fees for A2P messages delivered to its subscribers.

In recent quarters, major U.S.

mobile carriers have increased network service provider fees for A2P messages delivered to their subscribers, and such fees may increase further over time.

We pass these fees through to our customers at cost.

As a result, we recognize an equal amount of revenue and cost of revenue related to these fees.

The increased fees do not impact our gross profit, but they will create a modest headwind to our gross margins going forward.

mobile carriers may follow suit, and such fees may increase over time.

The increased fees do not impact our gross profit, but they create a headwind to our gross margins.

In March 2026, we paid $141.0 million under our 2025 company-wide bonus program to eligible employees for amounts previously accrued.

As previously disclosed, these payments impacted our cash flows in the first quarter of 2026.

Given our recent history of generating net income in the U.S., we believe that there is a reasonable possibility that during 2026 sufficient positive evidence may become available to allow us to determine that a significant portion of the valuation allowance recorded against our U.S.

deferred tax assets should be released.

This would result in a significant income tax benefit for the period when we release the valuation allowance in the U.S.

However, the exact timing and amount of the valuation allowance release are subject to change based on our actual operating results.

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

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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, 2025 and 2024, and the number of Active Customer Accounts as of September 30, 2025 and 2024.

We review a number of operational and financial metrics, including Dollar-Based Net Expansion Rate (“DBNE”), 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 DBNE for the three months ended March 31, 2026 and 2025.

Three Months Ended

September 30,

Active Customer Accounts

392,000 320,000

Total Revenue (in thousands) $ 1,406,907 $ 1,172,463

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Dollar-Based Net Expansion Rate 114 % 107 %

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.

When presented in this Quarterly Report on Form 10-Q, the number of Active Customer Accounts is rounded down to the nearest thousand.

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 September 30, 2025 and 2024, revenue from Active Customer Accounts represented over 99% of total revenue in each period.

Beginning in the first quarter of 2026, we have discontinued disclosure of Active Customer Accounts as a key metric.

As a result, we are revising the definition of DBNE to remove references to Active Customer Accounts and Zipwhip accounts and instead refer to “customer accounts.” The methodology for identifying these customer accounts is unchanged from the methodology most recently used to identify Active Customer Accounts and this definitional update has no impact on our methodology for calculating DBNE or our historical or future DBNE.

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.

We believe that measuring Dollar-Based Net Expansion Rate 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-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.

Our DBNE compares the total revenue in a quarter from all individual customer accounts, as identified by a unique account identifier, for which we have recognized at least $5 of revenue in the last month of the quarter, to revenue from those same accounts in the same quarter in the prior year.

A single customer organization may constitute multiple unique customer accounts if it has multiple account identifiers.

To calculate DBNE, we first identify the cohort of such customer accounts in the same quarter of the prior year.

DBNE 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 DBNE for periods longer than one quarter, we use the average of the applicable quarterly DBNEs for each of the quarters in such period.

Revenue from acquisitions does not impact the DBNE 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 DBNE calculation beginning in the quarter the divestiture closed, unless the divestiture closing date is the last day of a quarter.

We believe that measuring DBNE 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 customers 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 DBNE for such customer accounts.

Our DBNE increases when these customers increase their usage of a product, extend their usage of a product to new applications or adopt a new product.

Our DBNE decreases when these customers 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.

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 customer account, this new account is tied to, and revenue from this new account is included with, the original customer account for the purposes of calculating this metric.

Key Components of Statements of Operations

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

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

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

For subscription-based revenue derived from these products, we recognize revenue evenly over the contract term.

When our usage-based products are embedded into our subscription-based products, or when multiple products are purchased together as a solution, we charge for each product separately on a usage or subscription basis, as applicable.

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.

Most of our usage-based customers gain access to our platform through a self-service process, 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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Usage-based customers subject to such contracts are typically invoiced monthly in arrears for products used.

In the three months ended September 30, 2025 and 2024, we generated 75% and 72% of our revenue, respectively, from usage-based fees.

In the three months ended March 31, 2026 and 2025, we generated 75% and 73% 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, 2025 and 2024, we generated 25% and 28% of our revenue, respectively, from non-usage‑based fees.

In the three months ended March 31, 2026 and 2025, we generated 25% and 27% 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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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.

Our arrangements with network service providers require us to pay fees, including 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 network service providers require us to pay fees, including 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.

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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.

We are investing strategically in alignment with our focus on bringing communications, data and AI together into a single platform that enables fast, relevant and personalized interactions.

Sales and Marketing.

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Our other (expenses) income, 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.

Benefit from (Provision for) Income Taxes

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.

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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

September 30,

Reconciliation:

(In thousands)

GAAP gross profit $ 632,077 $ 578,629

GAAP gross margin 49 % 51 %

Non-GAAP adjustments:

Stock-based compensation 4,305 5,436

Amortization of acquired intangibles 15,446 15,682

Payroll taxes related to stock-based compensation 269 257

Non-GAAP gross profit $ 652,097 $ 600,004

Non-GAAP gross margin 50 % 53 %

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

September 30,

Reconciliation:

(In thousands)

GAAP operating expenses $ 591,129 $ 583,523

Non-GAAP adjustments:

Stock-based compensation (153,864) (148,395)

Amortization of acquired intangibles (11,412) (11,755)

Payroll taxes related to stock-based compensation (3,160) (792)

Charitable contributions (5,104) (1,301)

Restructuring costs — (3,694)

Non-GAAP operating expenses $ 417,589 $ 417,586

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

September 30,

Reconciliation:

(In thousands)

GAAP income (loss) from operations

$ 40,948 $ (4,894)

GAAP operating margin 3 % — %

Non-GAAP adjustments:

Stock-based compensation 158,169 153,831

Amortization of acquired intangibles 26,858 27,437

Payroll taxes related to stock-based compensation 3,429 1,049

Charitable contributions 5,104 1,301

Restructuring costs — 3,694

Non-GAAP income from operations

$ 234,508 $ 182,418

Non-GAAP operating margin 18 % 16 %

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

September 30,

Reconciliation:

(In thousands)

Net cash provided by operating activities $ 263,563 $ 204,329

Operating cash flow margin 20 % 18 %

Non-GAAP adjustments:

Capitalized software development costs (13,812) (14,424)

Purchases of long-lived and intangible assets (2,235) (792)

Free cash flow $ 247,516 $ 189,113

Free cash flow margin 19 % 17 %

Net cash (used in) provided by investing activities

$ (161,502) $ 267,355

Net cash used in financing activities $ (347,952) $ (642,780)

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 Nine Months Ended

September 30, September 30,

2025 2024 2025 2024

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

Condensed Consolidated Statements of Operations Data:

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Total operating expenses 576,578 558,485

Income (loss) from operations

Income from operations

107,666 23,082

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(5,434) 3,502

Income (loss) before benefit from (provision for) income taxes

Income before provision for income taxes

102,232 26,584

Benefit from (provision for) income taxes

Provision for income taxes

(12,093) (6,567)

Net income (loss) attributable to common stockholders

Net income attributable to common stockholders

$ 90,139 $ 20,017

Net income (loss) per share:

Net income per share:

$ 0.59 $ 0.13

Diluted $ 0.57 $ 0.12

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

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

152,424,306 153,345,192

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

Three Months Ended Nine Months Ended

September 30, September 30,

2025 2024 2025 2024

Three Months Ended

(In thousands)

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(2) Includes amortization of acquired intangibles as follows:

Three Months Ended Nine Months Ended

September 30, September 30,

2025 2024 2025 2024

Three Months Ended

(In thousands)

Cost of revenue $ 9,356 $ 15,682

Research and development — — — 1,867

Sales and marketing 7,261 11,457

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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,

2025 2024 2025 2024

Condensed Consolidated Statements of Operations, as a

percentage of revenue:

Three Months Ended

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

Revenue 100 % 100 %

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Total operating expenses 41 48

Income (loss) from operations

Income from operations

Other (expenses) income, net

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Total other (expenses) income, net * *

Income (loss) before benefit from (provision for) income

Benefit from (provision for) income taxes

Net income (loss) attributable to common stockholders

3 % (1 %) 2 % (3 %)

Income before provision for income taxes

Provision for income taxes

Net income attributable to common stockholders

____________________________________

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** Columns may not sum due to rounding.

Comparison of the Three Months Ended September 30, 2025 and 2024

Comparison of the Three Months Ended March 31, 2026 and 2025

Three Months Ended

September 30,

2026 2025 Change

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$ 1,406,907 $ 1,172,463 $ 234,444 20 %

In the three months ended September 30, 2025, revenue increased by $166.8 million, or 15%, 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 Dollar‑Based Net Expansion Rate of 109%, as well as an increase of $61.0 million in revenue derived from our new Active Customer Accounts.

The increase also reflects $20.2 million in revenue related to the incremental A2P fees introduced by a major US carrier in the previous quarter.

In the three months ended March 31, 2026, revenue increased by $234.4 million, or 20%, 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 DBNE of 114%, as well as an increase of $70.9 million in revenue derived from customer accounts not captured in our DBNE calculation, which are primarily new customer accounts.

The increase also reflects $46.1 million in revenue related to the incremental A2P fees recently introduced by major U.S.

Cost of Revenue and Gross Profit

Three Months Ended

September 30,

2026 2025 Change

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$ 684,244 $ 581,567 $ 102,677 18 %

In the three months ended September 30, 2025, cost of revenue increased by $113.3 million, or 20%, compared to the same period last year.

The increase was primarily attributable to a $101.2 million increase in network service provider costs, net of the impact of hedging instruments, which includes a $20.2 million increase due to the incremental A2P fees introduced by a major US carrier in the previous quarter.

In the three months ended September 30, 2025, gross profit increased by $53.4 million, or 9%, compared to the same period last year.

In the three months ended March 31, 2026, cost of revenue increased by $131.8 million, or 22%, compared to the same period last year.

The increase was primarily attributable to a $118.1 million increase in network service provider costs, net of the impact of hedging instruments, which includes a $46.1 million increase due to the incremental A2P fees recently introduced by major U.S.

In the three months ended March 31, 2026, gross profit increased by $102.7 million, or 18%, 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,

2026 2025 Change

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Total operating expenses $ 576,578 $ 558,485 $ 18,093 3 %

In the three months ended September 30, 2025, research and development expenses increased by $0.8 million, remaining nearly flat, compared to the same period last year.

In the three months ended March 31, 2026, research and development expenses increased by $7.9 million, or 3%, 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 September 30, 2025, sales and marketing expenses increased by $5.1 million, or 2%, compared to the same period last year.

In the three months ended March 31, 2026, sales and marketing expenses decreased by $0.2 million, or nearly flat, 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 September 30, 2025, general and administrative expenses increased by $1.7 million, or 2%, compared to the same period last year.

In the three months ended March 31, 2026, general and administrative expenses increased by $10.5 million, or 11%, compared to the same period last year.

Fluctuations in the various general and administrative expense categories were not significant either individually or in the aggregate.

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Three Months Ended

September 30,

2026 2025 Change

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$ (5,434) $ 3,502 $ (8,936) (255) %

In the three months ended September 30, 2025, other (expenses) income, net, decreased by $9.5 million, or 765%, compared to the same period last year.

The decrease was primarily attributable to a $7.3 million decrease in other income, net, primarily driven by unrealized gains from fluctuations in foreign currency exchange rates and a $2.2 million increase in our share of losses from our equity method investment.

Comparison of the Nine Months Ended September 30, 2025 and 2024

Nine Months Ended

September 30,

2025 2024 Change

(Dollars in thousands)

$ 3,701,290 $ 3,263,201 $ 438,089 13%

In the nine months ended September 30, 2025, revenue increased by $438.1 million, or 13%, 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 Dollar‑Based Net Expansion Rate of 108%, as well as an increase of $176.2 million in revenue derived from our new Active Customer Accounts.

The increase also reflects $26.4 million in revenue related to the incremental A2P fees introduced by a major US carrier in the previous quarter.

Cost of Revenue and Gross Profit

Nine Months Ended

September 30,

2025 2024 Change

(Dollars in thousands)

Cost of revenue $ 1,884,906 $ 1,584,686 $ 300,220 19 %

In the three months ended March 31, 2026, other (expenses) income, net, decreased by $8.9 million, or 255%, compared to the same period last year.

The decrease was primarily attributable to a $7.8 million increase in our share of losses from our equity method investment.

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

Whenever we use a non‑GAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with GAAP.

Non‑GAAP Gross Profit and Non‑GAAP Gross Margin

Three Months Ended

Reconciliation:

(In thousands)

GAAP gross profit $ 684,244 $ 581,567

GAAP gross margin 49 % 50 %

Non-GAAP adjustments:

Stock-based compensation 3,374 4,271

Amortization of acquired intangibles 9,356 15,682

Payroll taxes related to stock-based compensation 522 482

Non-GAAP gross profit $ 697,496 $ 602,002

Non-GAAP gross margin 50 % 51 %

Non‑GAAP Operating Expenses

Three Months Ended

Reconciliation:

(In thousands)

GAAP operating expenses $ 576,578 $ 558,485

Non-GAAP adjustments:

Stock-based compensation (133,054) (133,249)

Amortization of acquired intangibles (7,261) (11,457)

Acquisition and divestiture related expenses (122) —

Payroll taxes related to stock-based compensation (11,404) (10,718)

Charitable contributions (3,445) (2,776)

Restructuring costs (2,223) (11,691)

Loss on lease termination (500) —

Non-GAAP operating expenses $ 418,569 $ 388,594

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 from operations and GAAP operating margin, respectively, adjusted to exclude, as applicable, certain expenses as presented in the table below:

Three Months Ended

Reconciliation:

(In thousands)

GAAP income from operations

$ 107,666 $ 23,082

In the nine months ended September 30, 2025, cost of revenue increased by $300.2 million, or 19%, compared to the same period last year.

This increase was primarily attributable to a $272.3 million increase in network service providers’ costs, net of the impact of hedging instruments, which includes a $26.4 million increase due to the incremental A2P fees introduced by a major US carrier in the previous quarter.

The increase was also due to a $42.7 million increase in hosting fees, which support the growth in usage of our products by our new and existing customers.

These increases were partially offset by an $11.1 million decrease in customer support costs primarily driven by a decrease in personnel costs.

In the nine months ended September 30, 2025, gross profit increased by $137.9 million, or 8%, compared to the same period last year.

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

Operating Expenses

Nine Months Ended

September 30,

2025 2024 Change

(Dollars in thousands)

Research and development $ 760,101 $ 764,753 $ (4,652) (1) %

Sales and marketing 653,464 647,888 5,576 1 %

General and administrative 301,800 333,309 (31,509) (9) %

Total operating expenses $ 1,715,365 $ 1,745,950 $ (30,585) (2) %

In the nine months ended September 30, 2025, research and development expenses decreased by $4.7 million, or 1%, 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 nine months ended September 30, 2025, sales and marketing expenses increased by $5.6 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 nine months ended September 30, 2025, general and administrative expenses decreased by $31.5 million, or 9%, compared to the same period last year.

The decrease was primarily attributable to a $15.3 million decrease in professional services fees, an $11.8 million decrease in the provision for doubtful accounts and a $7.8 million decrease in charitable contributions that we made through Twilio.org.

Other Expenses, net

Nine Months Ended

September 30,

2025 2024 Change

(Dollars in thousands)

Share of losses from equity method investment $ (72,199) $ (78,794) $ 6,595 (8) %

Other income, net

GAAP operating margin 8 % 2 %

Non-GAAP adjustments:

Stock-based compensation 136,428 137,520

Amortization of acquired intangibles 16,617 27,139

Acquisition and divestiture related expenses 122 —

Payroll taxes related to stock-based compensation 11,926 11,200

Charitable contributions 3,445 2,776

Restructuring costs 2,223 11,691

Loss on lease termination 500 —

Non-GAAP income from operations

$ 278,927 $ 213,408

Total other expenses, net

Non-GAAP operating margin 20 % 18 %

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 assets, and we define free cash flow margin as free cash flow divided by revenue, as presented in the table below:

Three Months Ended

Reconciliation:

(In thousands)

Net cash provided by operating activities $ 153,206 $ 191,042

Operating cash flow margin 11 % 16 %

Non-GAAP adjustments:

Capitalized software development costs (16,708) (11,564)

Purchases of long-lived assets (4,153) (1,163)

Free cash flow $ 132,345 $ 178,315

Free cash flow margin 9 % 15 %

Net cash used in investing activities

$ (41,190) $ (19,140)

In the nine months ended September 30, 2025, other expenses, net increased by $0.5 million, or 7%, compared to the same period last year.

The increase is primarily attributable to a $7.1 million decrease in other income, net, primarily driven by the income earned on our debt securities, partially offset by a $6.6 million decrease in our share of losses from our equity method investment.

Net cash used in financing activities $ (252,574) $ (125,794)

Liquidity and Capital Resources

As of September 30, 2025, we had cash and cash equivalents of $734.8 million and short-term marketable securities of $1.7 billion.

As of March 31, 2026, we had cash and cash equivalents of $542.0 million and short-term marketable securities of $1.8 billion.

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

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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.

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, and contractual commitments to our cloud infrastructure and network service providers.

Refer to Note 8 and Note 10(a) to our unaudited 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.

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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.

In January 2025, our board of directors authorized the repurchase of 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.

1 unchanged sentence

The program expires on December 31, 2027.

In the three and nine months ended September 30, 2025, we repurchased $349.7 million in aggregate value, or 3.4 million shares, and $656.7 million in aggregate value, or 6.4 million shares, respectively, of our Class A common stock.

In the three months ended March 31, 2026, we repurchased $253.4 million in aggregate value, or 2.1 million shares of our Class A common stock.

As of March 31, 2026, approximately $892.0 million of the amount authorized in January 2025 for share repurchases remained available for future repurchases.

2029 Notes and 2031 Notes

2 unchanged sentences

The following table summarizes our cash flows:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

1 unchanged sentence

$ 153,206 $ 191,042

Cash provided by investing activities

Cash used in investing activities

(41,190) (19,140)

1 unchanged sentence

(252,574) (125,794)

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

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

$ (140,558) $ 46,108

Cash Flows from Operating Activities

In the nine months ended September 30, 2025, cash provided by operating activities consisted primarily of our net income of $79.7 million adjusted for non-cash items, including $446.7 million of stock-based compensation expense, $147.9 million of depreciation and amortization expense, $72.2 million of our share of losses from an equity method investment, $56.9 million of amortization of deferred commissions, $16.6 million of non-cash reduction in our operating right-of-use asset, and $97.2 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $46.7 million primarily due to timing of cash receipts and prepayments of certain operating expenses.

Accounts payable and other current liabilities decreased $55.9 million primarily driven by timing of payments to vendors.

Other long-term assets increased $64.3 million primarily due to an increase in long-term prepayments to support our business and an increase in deferred sales commissions related to the growth of our business.

In the three months ended March 31, 2026, cash provided by operating activities consisted primarily of our net income of $90.1 million adjusted for non-cash items, including $136.5 million of stock-based compensation expense, $34.2 million of depreciation and amortization expense, $27.2 million of our share of losses from an equity method investment, $17.1 million of amortization of deferred commissions, $4.7 million of non-cash reduction in our operating right-of-use asset, and $160.2 million of cumulative changes in operating assets and liabilities.

With respect to changes in operating assets and liabilities, accounts payable and other current liabilities decreased $149.3 million primarily driven by the payment of the 2025 company-wide bonus in the three months ended March 31, 2026.

Operating lease liabilities decreased $9.1 million due to payments made against our operating lease obligations.

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.

With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $20.9 million primarily due to timing of cash receipts and pre-payments of certain operating expenses.

Accounts payable and other current liabilities decreased $33.2 million, primarily driven by timing of payments to vendors.

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.

Cash Flows from Investing Activities

In the nine months ended September 30, 2025, cash provided by investing activities was $221.4 million, primarily consisting of $263.7 million of maturities and sales of marketable securities, net of purchases, partially offset by $38.0 million related to capitalized software development costs, and $4.4 million related to purchases of long-lived assets.

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 three months ended March 31, 2026, cash used in investing activities was $41.2 million, primarily consisting of $19.6 million of purchases of marketable securities and other investments, net of proceeds from sales and maturities of marketable securities and other investments, $16.7 million related to capitalized software development costs, and $4.2 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.

Cash Flows from Financing Activities

In the nine months ended September 30, 2025, cash used in financing activities was $649.7 million primarily consisting of $670.5 million of cash paid to repurchase 6.4 million shares of our Class A common stock, including related costs, offset by $26.3 million in proceeds from exercises of stock options and shares of Class A common stock issued under the Company’s ESPP.

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, including related costs.

In the three months ended March 31, 2026, cash used in financing activities was $252.6 million primarily consisting of $253.0 million of cash paid to repurchase 2.1 million shares of our Class A common stock, including related costs.

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, including related costs.

Critical Accounting Policies and Estimates

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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.

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