Twilio Inc.
TWLO · NYSE
Next quarter
Reports Oct 29, 2026.
Consensus is $0.72 EPS for Sep 2026 across 9 estimates, ranging $0.64 to $0.77.
TWLO Jun 2026
- 22.03%
- +24.89%
- $0.59
- $0.72
- —
- $1.50B
Reported results
- $1.50B
- 48.42%
- $84.55M
- 5.64%
- $1.07B
- $6.68
Highlights
- Revenue: Q2 revenue was $1.50 billion, up 22% year over year and 6% sequentially; organic growth accelerated to 17%, while $71.1 million came from incremental U.S. carrier A2P fees.
- Earnings beat: Reported EPS was $0.72 versus the $0.59 consensus, a 22.03% surprise.
- Underlying profitability: GAAP operating income rose 129% year over year to $84.5 million, while non-GAAP operating income increased 29% to $284.6 million, lifting the non-GAAP margin to 19% from 18%.
- Customer expansion: Dollar-Based Net Expansion Rate improved to 116% from 108% a year ago, with existing-customer usage and new accounts driving growth.
- Cash generation: Free cash flow reached $352.6 million, up from $263.5 million a year ago, for a 24% margin versus 21%; operating cash flow was $372.4 million.
- Tax distortion: GAAP net income was $1.07 billion and diluted EPS was $6.68, including a $944.1 million tax benefit from releasing a significant portion of the U.S. deferred-tax valuation allowance; the company reported $234.3 million of non-GAAP net income and $1.47 of non-GAAP diluted EPS.
- Outlook raised: FY26 reported revenue growth guidance increased to 18%-18.5% from 14%-15%, organic growth to 13%-13.5% from 9.5%-10.5%, and non-GAAP operating income and free cash flow guidance to $1.135-$1.155 billion from $1.08-$1.10 billion.
- Near-term guide: Q3 revenue is expected at $1.505-$1.515 billion, implying 16%-16.5% reported growth and 11%-12% organic growth; non-GAAP operating income is guided to $285-$295 million and EPS to $1.42-$1.47.
- Capital returns: Twilio repurchased $66.0 million of stock in Q2; approximately $826.0 million remained available under its $2.0 billion authorization at quarter-end.
Analysis
Twilio’s second quarter was a growth reacceleration and guidance-raise quarter, with revenue of $1.50 billion up 22% year over year and 6% from Q1’s $1.41 billion. The company exceeded the supplied EPS consensus of $0.59 with reported EPS of $0.72, a 22.03% surprise. Organic revenue growth was 17%, and Dollar-Based Net Expansion Rate rose to 116% from 108% a year ago, indicating stronger expansion among existing accounts alongside new-customer contribution.
Profitability and cash flow also improved against the year-ago period, although GAAP earnings were heavily affected by a one-time tax benefit. GAAP operating income increased to $84.5 million from $37.0 million, but declined sequentially from Q1’s $107.7 million; non-GAAP operating income reached $284.6 million versus $220.5 million a year ago. Free cash flow rose to $352.6 million from $263.5 million, while GAAP gross margin declined to 48% from 49% as carrier fee pass-through revenue lifted both revenue and cost. The $944.1 million U.S. valuation-allowance release drove GAAP net income to $1.07 billion versus $22.4 million a year ago, making adjusted earnings and cash flow the cleaner read. Twilio raised both its FY26 growth and profitability outlook, while flagging a $32.8 million non-cash impairment on prepaid network services.
Growth and customer expansion
Twilio’s core growth metrics strengthened in Q2. Revenue increased $270.7 million year over year to $1.499 billion, with management attributing the increase primarily to higher usage from existing customers and $75.7 million of revenue from accounts outside the DBNE cohort, primarily new accounts. Organic revenue was $1.426 billion, up 17%; reported growth was higher at 22% because of carrier fee pass-through and acquisition-related revenue.
- Expansion: DBNE rose to 116% from 108% in Q2 2025, while the six-month DBNE was 115%.
- Usage mix: Usage-based fees represented 75% of revenue, versus 74% a year ago, leaving results more exposed to customer activity than a primarily subscription-based model.
- Geography: U.S. revenue was $961.4 million, or 64% of total revenue, and international revenue was $537.7 million, or 36%, unchanged in mix year over year.
- Carrier fees: Incremental U.S. A2P fees contributed $71.1 million of revenue and an equal cost-of-revenue impact, boosting reported revenue without adding gross profit dollars.
Profitability and cash flow
The quarter showed continued operating leverage on an adjusted basis. GAAP operating income more than doubled year over year to $84.5 million, despite a $32.8 million impairment of prepaid network services. Non-GAAP operating income grew 29% to $284.6 million, and the margin expanded to 19% from 18% a year ago. Sequentially, however, GAAP operating income fell from $107.7 million in Q1, while revenue increased from $1.41 billion.
- Gross profit: GAAP gross profit rose 20% to $725.9 million, but gross margin narrowed to 48% from 49%; non-GAAP gross margin fell to 49% from 51%.
- Expense discipline: Sales and marketing expense declined 2% year over year to $216.8 million, while R&D increased 12% to $273.3 million, principally due to hosting and personnel costs.
- Cash conversion: Operating cash flow increased to $372.4 million from $277.1 million, and free cash flow rose to $352.6 million from $263.5 million, lifting FCF margin to 24% from 21%.
- Non-cash impairment: The $32.8 million prepaid-asset charge reflected network services the company expects it cannot consume because of operational and financial challenges at two providers; Twilio said it will not affect future periods or free cash flow.
Tax benefit and earnings quality
GAAP earnings were not representative of recurring operating performance. Twilio released a significant portion of its U.S. deferred-tax valuation allowance after determining that sustained U.S. profitability made most deferred tax assets more likely than not to be realizable. The resulting $944.1 million tax benefit drove net income to $1.067 billion and diluted GAAP EPS to $6.68, compared with $22.4 million and $0.14 in Q2 2025.
- Adjusted earnings: Non-GAAP net income was $234.3 million, up from $189.4 million, and non-GAAP diluted EPS was $1.47 versus $1.19 a year ago.
- Balance-sheet effect: Deferred tax assets increased to $1.029 billion at June 30 from $20.0 million at December 31, 2025.
- Remaining allowance: Twilio retained a $519.3 million valuation allowance against certain investment, state R&D credit and foreign deferred tax assets.
- Recurring read-through: The tax release was non-cash and does not represent a comparable increase in operating earnings; the quarter’s operating income and free cash flow better capture the underlying improvement.
Raised outlook and capital
Management raised the full-year outlook across growth, adjusted operating income and free cash flow, while setting a relatively steady Q3 profitability framework. The guidance reflects confidence in higher customer usage, new-account additions, product expansion and efficiency initiatives, though Q3 organic growth is guided below Q2’s 17% level.
- Q3 revenue: $1.505-$1.515 billion, equivalent to 16%-16.5% reported growth and 11%-12% organic growth.
- Q3 profitability: Non-GAAP operating income of $285-$295 million and non-GAAP diluted EPS of $1.42-$1.47.
- FY26 growth: Reported revenue growth guidance increased to 18%-18.5% from 14%-15%; organic growth increased to 13%-13.5% from 9.5%-10.5%.
- FY26 cash and earnings: Non-GAAP operating income and free cash flow guidance both increased to $1.135-$1.155 billion from $1.08-$1.10 billion.
- Repurchases and liquidity: Twilio repurchased $66.0 million of stock during Q2 and had $826.0 million remaining under its authorization; it ended June with $823.3 million of cash and $1.8 billion of short-term marketable securities against $993.2 million of net long-term debt.
