TWILIO INC Q1 FY2026 earnings

Twilio's first quarter of fiscal 2026 produced the highest revenue and gross profit growth rates the company has reported in more than three years. Revenue rose 20% to $1.41 billion, and organic revenue growth was 16%. GAAP gross profit reached $684.2 million, up 17.7%, while gross margin slipped to 48.6% from 49.6% a year earlier. GAAP operating income climbed 366% to $107.7 million, and operating margin expanded to 7.7% from 2.0%. GAAP net income rose 350% to $90.1 million, and diluted earnings per share were $0.57, up from $0.12.

Non-GAAP results show a wide gap between reported and adjusted profitability. Non-GAAP gross profit was $697.5 million, non-GAAP income from operations was $278.9 million, up 31%, and non-GAAP net income was $236.5 million. Non-GAAP diluted earnings per share were $1.50, compared with $1.14 in the prior-year quarter. Stock-based compensation totaled $136.5 million, or 10% of revenue, down from 12% a year earlier, which explains a large part of that gap.

Usage drove the top line. Dollar-based net expansion rate reached 114%, up from 107% a year ago, and revenue from accounts outside that calculation, mostly new customers, added $70.9 million. Another $46.1 million of revenue came from incremental A2P fees that major U.S. carriers recently introduced. Those fees pass through at cost, so they lift revenue and cost of revenue by the same amount and act as a headwind to gross margin. Usage-based fees accounted for 75% of revenue, up from 73%, and that mix matters, since usage revenue reacts faster to consumer spending and macroeconomic conditions than subscription revenue does.

Cash generation was softer than the income statement suggests. Net cash provided by operating activities was $153.2 million, down 19.8% from $191.0 million a year earlier, and free cash flow was $132.3 million compared with $178.3 million. Twilio pointed to a March 2026 payment of $141.0 million under its 2025 company-wide bonus program as a drag on the quarter. Capital return continued, with $253.4 million of stock repurchased during the quarter, roughly $1.1 billion completed to date, and $892.0 million still available under the $2.0 billion authorization as of March 31, 2026. That program expires on December 31, 2027.

Guidance points to slower near-term growth. For the second quarter of 2026, Twilio guided to reported revenue growth of 15.5% to 16.5% and organic revenue growth of 10% to 11% year-over-year. Second quarter non-GAAP income from operations is guided to $250 million to $260 million, with non-GAAP diluted earnings per share of $1.27 to $1.32 on 157 million non-GAAP weighted average diluted shares. For the full fiscal year 2026, the company raised its reported revenue growth outlook to 14% to 15% from 11.5% to 12.5% and its organic growth outlook to 9.5% to 10.5% from 8% to 9%. Full-year non-GAAP income from operations is now guided to $1.08 billion to $1.10 billion, up from $1.04 billion to $1.06 billion, and full-year free cash flow guidance moved to a matching $1.08 billion to $1.10 billion range.

Several items temper the headline. Deferred revenue was $159.6 million at March 31, 2026, up 3.6%, but remaining performance obligations fell 6.4% to $158.5 million. A larger share of losses from an equity method investment weighed on other income and expense. Twilio also disclosed that sufficient positive evidence may emerge during 2026 to release a significant portion of the valuation allowance against its U.S. deferred tax assets, which would produce a large income tax benefit in the period of the release. Risks cited in the filing include variability in usage-based revenue, adverse macroeconomic conditions, higher carrier fees that pressure gross margin, cybersecurity and compliance exposure, and intense competition. Headcount was 5,558 as of March 31, 2026. The company stopped reporting active customer accounts as a key metric and now defines dollar-based net expansion rate around customer accounts, though it says the underlying methodology is unchanged.