0001447669-25-000151
SEC filingQ3 revenue grew 15% YoY to $1.30B, driven by usage and customer expansion, though gross margin contracted 200 bps to 49%.
In Q3 2025, Twilio generated revenue of $1.30 billion, a 15% increase year-over-year. Growth was driven by increased usage from existing customers (Dollar-Based Net Expansion Rate of 109%) and $61.0 million from new Active Customer Accounts. Revenue also included $20.2 million from incremental A2P fees passed through from carriers, which had no impact on gross profit. Gross profit rose 9% to $632.1 million, but gross margin contracted from 51% to 49% due to higher network service provider costs (up $101.2 million) and product mix shifts toward lower-margin international messaging. Operating income improved significantly to $40.9 million from a loss of $4.9 million, reflecting operating leverage as total operating expenses grew only 1%. Net income was $37.2 million compared to a net loss of $9.7 million in the prior year, benefiting from the operating improvement and a $4.6 million income tax benefit. Diluted EPS was $0.23 versus ($0.06).
Twilio operates as a single reportable segment following a business realignment in Q1 2025. The company’s revenue mix is 75% usage-based (e.g., Messaging, Voice) and 25% subscription-based (e.g., Segment, Email, Flex). Usage-based revenue is more sensitive to macroeconomic trends and seasonal patterns, with Q4 typically being stronger and Q1 sequentially weaker. International messaging continues to grow but carries lower gross margins, contributing to margin pressure. The company noted that the A2P fee pass-through creates a modest headwind to gross margins going forward, especially if other carriers increase fees. Active Customer Accounts grew 22.5% to 392,000, though management highlighted that many low-spend accounts limit the metric's predictive value. Dollar-Based Net Expansion Rate improved to 109% from 105%, indicating stronger upselling and cross-selling within existing customer base.
Twilio did not provide formal guidance in the MD&A. However, management outlined strategic priorities: driving product innovation with AI, enhancing ISV and partner relationships, improving self-service, cross-selling, and expanding internationally. Cost optimization measures include automation, infrastructure modernization, workforce planning, and leveraging AI. The company expects to continue passing through A2P fees at cost, which will keep those revenues and costs offsetting but pressure margin percentages. The acquisition of Stytch (identity platform for AI agents) is expected to close in Q4 2025. Share repurchases remain active, with $349.7 million spent in Q3 under a $2.0 billion authorization through 2027. Liquidity remains strong with $2.4 billion in cash, equivalents, and short-term securities, supporting organic growth and strategic M&A.
As of September 30, 2025, Twilio held $734.8 million in cash and cash equivalents and $1.72 billion in short-term marketable securities, for a combined liquidity position of approximately $2.46 billion. Total assets stood at $9.71 billion, while total liabilities were $1.82 billion. Stockholders' equity was $7.90 billion, down slightly from $7.95 billion at year-end 2024, primarily due to share repurchases offset by net income and stock-based compensation. The company's debt consisted of $500 million in 3.625% Senior Notes due 2029 and $500 million in 3.875% Senior Notes due 2031, with a net carrying value of $991.9 million. The fair value of these notes was $477.3 million and $471.1 million, respectively. Goodwill remained unchanged at $5.24 billion.
During the nine months ended September 30, 2025, Twilio entered into new non-cancelable contractual commitments with its cloud infrastructure provider, network service providers, and other vendors totaling $80.7 million, with terms up to three years. Of this amount, $40.8 million was committed in the three months ended September 30, 2025. The company also had $168.7 million in remaining performance obligations (RPO) for contracts with durations of more than one year, of which 64% is expected to be recognized over the next 12 months and 95% over the next 24 months. Deferred revenue and customer deposits were $159.2 million. Accrued non-income-based tax liabilities totaled $43.8 million ($20.8 million domestic, $23.0 million foreign).
Twilio's board authorized a new $2.0 billion share repurchase program in January 2025, expiring December 31, 2027. During the nine months ended September 30, 2025, the company repurchased 6.4 million shares for $656.7 million, leaving $1.3 billion remaining under the authorization. In the comparable prior-year period, repurchases totaled $1.9 billion. No dividends were declared or paid. Capital expenditures, including capitalized software development costs and purchases of long-lived and intangible assets, totaled $42.4 million (1.1% of revenue). The company did not issue or repay any long-term debt during the period.
Effective September 30, 2025, Twilio operates as a single reportable segment following a reorganization. Previously, the company had two reportable segments through the second quarter of 2025. Geographic revenue disclosure shows the United States contributed 64% of total revenue ($2.37 billion) and international markets contributed 36% ($1.33 billion) for the nine months ended September 30, 2025. No single customer accounted for more than 10% of revenue or accounts receivable.
Net income improved to $79.7 million from a loss of $96.9 million in the prior-year period, a swing of $176.6 million. Operating cash flow of $731.7 million exceeded net income by $652.0 million, reflecting large non-cash charges: stock-based compensation of $446.7 million, depreciation and amortization of $147.9 million, and equity method losses of $72.2 million. Working capital was a net use of $96.2 million, driven by a $59.8 million decrease in accounts payable and a $64.3 million increase in other long-term assets, partially offset by a $77.6 million decrease in prepaid expenses.
Capital expenditures (capex) totaled $42.4 million, consisting of $38.0 million in capitalized software development costs and $4.4 million in purchases of long-lived and intangible assets. This represents a capex intensity of 5.8% of operating cash flow. Free cash flow (operating cash flow less capex) was $689.3 million, providing ample coverage for the $670.5 million in share repurchases.
Investing activities generated $221.4 million, primarily from net sales and maturities of marketable securities. Financing activities used $649.7 million, driven by share repurchases, partially offset by $26.3 million in proceeds from stock option exercises and ESPP. No dividends were paid. The company ended the period with $734.8 million in cash, cash equivalents, and restricted cash, up $303.4 million from the beginning of the period.