Summary
Twilio reported revenue of $1.50 billion for its fiscal 2026 second quarter, up 22% from $1.23 billion in the prior-year quarter. Organic revenue growth, which strips out acquisitions and the incremental A2P carrier fees, was 17%. GAAP gross profit rose 20% to $725.9 million, and GAAP income from operations climbed 129% to $84.5 million. The bottom line drew the most attention. GAAP net income was $1.07 billion, or $6.68 per diluted share, compared with $22.4 million, or $0.14 per diluted share, in the second quarter of 2025. Almost all of that swing came from a $944.1 million income tax benefit tied to the release of a significant portion of the valuation allowance against U.S. deferred tax assets, which added a non-cash benefit of $5.91 per share to GAAP diluted earnings.
Underlying profitability improved, though less dramatically. Non-GAAP gross profit was $735.7 million, up 18%, and non-GAAP income from operations was $284.6 million, up 29%. Non-GAAP diluted earnings per share were $1.47, against $1.19 in the prior-year quarter. GAAP gross margin slipped to 48.4% from 49.1%, down 0.6 percentage points, while GAAP operating margin rose to 5.6% from 3.0%, up 2.6 percentage points. Two items explain much of the margin pattern. The A2P fees that major U.S. carriers charge are passed through to customers at cost, so they lift revenue and cost of revenue equally and pressure gross margin without changing gross profit. A $32.8 million impairment loss on prepaid network services, driven by operational and financial challenges at two network service providers, weighed on operating expenses in the quarter. Twilio said the impairment has no impact on free cash flow and will not affect future results of operations.
Customer metrics and cash generation were the stronger parts of the release. The dollar-based net expansion rate was 116%, up from 108% a year earlier, and reached 115% for the six months ended June 30, 2026. Existing customer usage, new accounts not captured in that metric ($75.7 million of revenue), and the incremental A2P fees ($71.1 million) all contributed to top-line growth. Operating cash flow was $372.4 million for the quarter, up 34.4%, and free cash flow was $352.6 million, compared with $263.5 million in the second quarter of 2025. Year to date, operating cash flow was $525.6 million, up 12.3%. Deferred revenue of $153.0 million rose 3.4%, while remaining performance obligations of $138.2 million fell 13.0%. The company repurchased $66.0 million of stock in the quarter and had $826.0 million remaining under its authorization as of June 30, 2026. Headcount stood at 5,492 employees.
Guidance points to slower reported growth ahead. For the third quarter, Twilio guided to reported revenue growth of 16% to 16.5% and organic revenue growth of 11% to 12%. Third-quarter non-GAAP income from operations is guided to $285 million to $295 million, and non-GAAP diluted earnings per share to $1.42 to $1.47 on 160 million non-GAAP weighted average diluted shares. For the full fiscal year 2026, the company raised its reported revenue growth outlook to 18% to 18.5% from 14% to 15% and its organic revenue growth outlook to 13% to 13.5%. Full-year non-GAAP income from operations is now expected at $1.135 billion to $1.155 billion, up from $1.08 billion to $1.10 billion, with free cash flow guided to the same range. Full-year non-GAAP gross profit growth is expected to be similar to the organic revenue growth range.
Several risks sit behind those numbers. Usage-based fees produced 75% of second-quarter revenue, so results remain sensitive to consumer spending and broader macroeconomic conditions. The A2P fee increases are a structural headwind to gross margin, and management said such fees may rise further over time. Product and geographic mix matter as well, since international messaging carries lower gross margins than U.S. messaging. The prepaid asset impairment highlights concentration among network service providers. Twilio also flagged intense competition, cybersecurity breaches, foreign exchange, and the difficulty of managing carrier and cloud infrastructure costs. Its balance sheet held $823.3 million of cash and cash equivalents and $1.8 billion of short-term marketable securities as of June 30, 2026, and the share repurchase program runs through December 31, 2027.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.50B | $1.41B | +6.6% | $1.23B | +22.0% |
| Gross profit | $725.9M | $684.2M | +6.1% | $602.7M | +20.4% |
| Gross margin | 48.4% | 48.6% | -0.2 pp | 49.1% | -0.6 pp |
| Research & development | $273.3M | $262.2M | +4.3% | $243.5M | +12.2% |
| Sales & marketing | $216.8M | $211.9M | +2.3% | $220.7M | -1.8% |
| General & administrative | $118.4M | $102.5M | +15.5% | $101.5M | +16.6% |
| Total operating expenses | $641.3M | $576.6M | +11.2% | $565.8M | +13.4% |
| Operating income (loss) | $84.5M | $107.7M | -21.5% | $37.0M | +128.6% |
| Operating margin | 5.6% | 7.7% | -2.0 pp | 3.0% | +2.6 pp |
| Net income (loss) | $1.07B | $90.1M | +1084.0% | $22.4M | +4659.4% |
| Net margin | 71.2% | 6.4% | +64.8 pp | 1.8% | +69.4 pp |
| Diluted EPS | $6.68 | $0.57 | +$6.11 | $0.14 | +$6.54 |
Risks
Major U.S. mobile carriers increased A2P messaging fees, and MD&A states these incremental fees added $71.1 million to Q2 2026 revenue and cost of revenue. Because Twilio passes the fees through at cost, they do not change gross profit dollars but create a headwind to gross margin, which declined 0.6 percentage points in the quarter.
Twilio recorded a $32.8 million impairment loss on prepaid assets in Q2 2026 because it determined it could not consume certain prepaid network services due to operational and financial challenges at two network service providers. The charge increased operating expenses and reduced income from operations.
A majority of revenue is usage-based, which the filing says makes Twilio more immediately and severely exposed to adverse macroeconomic conditions, tariffs, inflation, and reduced consumer activity than subscription-revenue companies. These conditions could reduce customer usage, delay sales cycles, and lower renewal rates.
Twilio is positioning itself as a foundational infrastructure layer for the AI era and is investing in combining communications with contextual data and AI. The filing warns that failure to develop compelling AI-enabled products, or competition from fast-evolving AI offerings, could adversely affect growth.
Enterprise sales require multiple technical and business approvals, extensive customer education, and can involve protracted pricing negotiations, leading to longer and costlier sales cycles. Twilio's increasing focus on solution selling and self-service may not generate expected adoption or efficiency gains.
Twilio derived 36% of revenue from customer accounts outside the United States in the six months ended June 30, 2026. International message termination carries lower gross margin than domestic termination, and cross-border regulatory, data localization, and currency risks could pressure margins and operations.
Q2 2026 net income included a $944.1 million income tax benefit from releasing a significant portion of the U.S. valuation allowance. Future changes in tax laws, the OBBB Act, OECD Pillar Two, or IRS examinations could increase Twilio's effective tax rate and cause tax provision volatility.
The filing highlights GDPR fines potentially up to 4% of worldwide revenue, the EU AI Act, and expanding data residency and localization requirements. Compliance could require costly product changes, limit the use of personal data for AI features, and reduce demand in affected regions.
Risk factors state Twilio has been targeted by threat actors, including a 2022 incident where attackers obtained employee credentials and accessed customer data. The filing warns that AI-enabled attacks and supply-chain incidents could cause customer loss, regulatory investigations, fines, and reputational harm.
SaaS KPIs
All quarters →Dollar-Based Net Expansion Rate
Non-GAAP Gross Margin
Non-GAAP Operating Margin
Free Cash Flow Margin
Free Cash Flow
Summary, forecast, risks and KPIs are extracted from TWILIO INC's SEC filings for Q2 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.