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 unaudited 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, 2025. 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. 21 Table of Contents Overview 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. Factors Affecting Our Results of Operations We are focused on innovation and durable, profitable 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, 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, 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. 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 messaging 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. 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 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. 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.” 22 Table of Contents Key Business Metrics 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 March 31, 2026 2025 Total Revenue (in thousands) $ 1,406,907 $ 1,172,463 Total Revenue Growth Rate 20 % 12 % Dollar-Based Net Expansion Rate 114 % 107 % 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 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 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 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. 23 Table of Contents The majority of our 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 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 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 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. 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, 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. 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, 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. 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. 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. 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. 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. 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 bringing communications, data and AI together into a single platform that enables fast, relevant and personalized interactions. 24 Table of Contents 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. 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. Other (Expenses) Income, Net 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. 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. From time to time, we may recognize tax benefits arising from various matters, including newly enacted legislations. Benefits from income taxes may fully or partially offset the provision for income taxes within a reporting period. 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. 25 Table of Contents Results of Operations The following table sets forth our results of operations for the periods presented. The period-to-period comparison of our historical results are not indicative of the results that may be expected in the future. Three Months Ended March 31, 2026 2025 Condensed Consolidated Statements of Operations Data: (In thousands, except share and per share amounts) Revenue $ 1,406,907 $ 1,172,463 Cost of revenue (1) (2) 722,663 590,896 Gross profit 684,244 581,567 Operating expenses: Research and development (1) 262,166 254,295 Sales and marketing (1) (2) 211,866 212,113 General and administrative (1) 102,546 92,077 Total operating expenses 576,578 558,485 Income from operations 107,666 23,082 Other (expenses) income, net: Share of losses from equity method investment (27,223) (19,471) Other income, net 21,789 22,973 Total other (expenses) income, net (5,434) 3,502 Income before provision for income taxes 102,232 26,584 Provision for income taxes (12,093) (6,567) Net income attributable to common stockholders $ 90,139 $ 20,017 Net income per share: Basic $ 0.59 $ 0.13 Diluted $ 0.57 $ 0.12 Weighted-average shares used to compute net income per share: Basic 152,424,306 153,345,192 Diluted 157,759,141 161,794,287 __________________________________ (1) Includes stock-based compensation expense as follows: Three Months Ended March 31, 2026 2025 (In thousands) Cost of revenue $ 3,374 $ 4,271 Research and development 73,011 78,066 Sales and marketing 31,149 31,359 General and administrative 28,977 25,577 Total $ 136,511 $ 139,273 ____________________________________ (2) Includes amortization of acquired intangibles as follows: Three Months Ended March 31, 2026 2025 (In thousands) Cost of revenue $ 9,356 $ 15,682 Sales and marketing 7,261 11,457 Total $ 16,617 $ 27,139 26 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, 2026 2025 Condensed Consolidated Statements of Operations, as a percentage of revenue: ** Revenue 100 % 100 % Cost of revenue 51 50 Gross profit 49 50 Operating expenses: Research and development 19 22 Sales and marketing 15 18 General and administrative 7 8 Total operating expenses 41 48 Income from operations 8 2 Other (expenses) income, net Share of losses from equity method investment (2) (2) Other income, net 2 2 Total other (expenses) income, net * * Income before provision for income taxes 7 2 Provision for income taxes (1) (1) Net income attributable to common stockholders 6 % 2 % ____________________________________ * Less than 0.5% of revenue. ** Columns may not sum due to rounding. Comparison of the Three Months Ended March 31, 2026 and 2025 Revenue Three Months Ended March 31, 2026 2025 Change (Dollars in thousands) Revenue $ 1,406,907 $ 1,172,463 $ 234,444 20 % 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. carriers. 27 Table of Contents Cost of Revenue and Gross Profit Three Months Ended March 31, 2026 2025 Change (Dollars in thousands) Cost of revenue $ 722,663 $ 590,896 $ 131,767 22 % Gross profit $ 684,244 $ 581,567 $ 102,677 18 % 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. carriers. 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. Operating Expenses Three Months Ended March 31, 2026 2025 Change (Dollars in thousands) Research and development $ 262,166 $ 254,295 $ 7,871 3 % Sales and marketing 211,866 212,113 (247) — % General and administrative 102,546 92,077 10,469 11 % Total operating expenses $ 576,578 $ 558,485 $ 18,093 3 % 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 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 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. Other (Expenses) Income, net Three Months Ended March 31, 2026 2025 Change (Dollars in thousands) Share of losses from equity method investment $ (27,223) $ (19,471) $ (7,752) 40 % Other income, net 21,789 22,973 (1,184) (5) % Total other (expenses) income, net $ (5,434) $ 3,502 $ (8,936) (255) % 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. 28 Table of Contents 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, 2026 2025 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 % 29 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, 2026 2025 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 March 31, 2026 2025 Reconciliation: (In thousands) GAAP income from operations $ 107,666 $ 23,082 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 Non-GAAP operating margin 20 % 18 % 30 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 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, 2026 2025 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) Net cash used in financing activities $ (252,574) $ (125,794) Liquidity and Capital Resources 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. treasury bills. Short-term marketable securities consist primarily of U.S. treasury 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, 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. 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.” 31 Table of Contents Share Repurchase Program 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. 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, 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 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 15 to our Annual Report on Form 10-K filed with the SEC on February 24, 2026. Cash Flows The following table summarizes our cash flows: Three Months Ended March 31, 2026 2025 (In thousands) Cash provided by operating activities $ 153,206 $ 191,042 Cash used in investing activities (41,190) (19,140) Cash used in financing activities (252,574) (125,794) Net (decrease) increase in cash, cash equivalents and restricted cash $ (140,558) $ 46,108 Cash Flows from Operating Activities 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 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. 32 Table of Contents Cash Flows from Investing Activities 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 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 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 24, 2026. 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.