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    TWLO
    Earnings call· Jun 2025(Q2 FY25)

    TWILIO Q2 FY25 earnings call TWLO

    Aug 7, 2025 Source

    Executive summary

    Twilio Q2 FY25 — Strong Revenue Growth and Record Profitability

    Twilio delivered a robust quarter, marked by accelerating revenue growth and significant profitability improvements, driven by strong execution across its communications business and initial monetization of AI offerings. The company is strategically investing in R&D to capitalize on AI opportunities while navigating gross margin pressures from messaging mix and carrier fees. Management is focused on durable growth and cash generation, with a strong emphasis on cross-selling and platform efficiency.

    Highlights

    5

    • Total revenue reached $1.228 billion, up 13% year-over-year on both a reported and organic basis.

    • Non-GAAP income from operations hit a record $221 million, up 26% year-over-year, with a non-GAAP operating margin of 18%.

    • Free cash flow reached a record $263 million, leading to a raised full-year guidance of $875 million to $900 million.

    • Dollar-based net expansion rate (DBNE) improved to 108%, its best rate in over 2 years, with Communications DBNE at 109%.

    • Segment business achieved non-GAAP income from operations of $6 million for the first time, surpassing its breakeven target.

    Concerns

    3

    • Non-GAAP gross margin declined by 260 basis points year-over-year to 50.7%, primarily due to an increased messaging revenue mix and carrier fees.

    • Segment revenue remained flat year-over-year at $75 million.

    • Sequential decline in non-GAAP operating margin by 20 basis points due to anticipated costs from annual merit increases and the Signal conference.

    Guidance & targets

    8
    CategoryTargetConfidence
    Q3 FY25 Revenue
    $1.245 billion to $1.255 billion
    high materiality
    High
    Q3 FY25 Organic Revenue Growth
    8% to 9%
    high materiality
    High
    Q3 FY25 Reported Revenue Growth
    10% to 11%
    high materiality
    High
    Full-year FY25 Organic Revenue Growth
    9% to 10%
    high materiality
    High
    Full-year FY25 Reported Revenue Growth
    10% to 11%
    high materiality
    High
    Q3 FY25 Non-GAAP Income from Operations
    $205 million to $215 million
    high materiality
    High
    Full-year FY25 Non-GAAP Income from Operations
    $850 million to $875 million
    high materiality
    High
    Full-year FY25 Free Cash Flow
    $875 million to $900 million
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Communications
    Continued accelerated growth, driven by focused go-to-market initiatives across ISVs, self-serve, cross-sell, and international expansion. Messaging growth accelerated for the fourth consecutive quarter, and voice revenue grew double-digits for the first time in 2 years. Non-GAAP gross margin was 49.2%.
    Dollar-based net expansion rate: 109%Large deals ($500k+) increased 57% YoY
    		$1.153 billion14%—49.2%
    Segment
    Achieved non-GAAP income from operations of $6 million for the first time, exceeding the breakeven target. Non-GAAP gross margin was 74.3%. The business unit structure has been realigned into a functional support model, and results will no longer be disclosed by business unit starting Q3 FY25.
    Dollar-based net expansion rate: 95%Non-GAAP gross margin: 74.3%
    		$75 millionflat—$6 million

    Operational metrics

    14
    Total Revenue
    $1.228 billionup 13% YoY
    Q2 FY25

    Record revenue, with both reported and organic growth at 13% year-over-year. Includes $6 million in incremental pass-through revenue from Verizon A2P messaging fees.

    Non-GAAP Income from Operations
    $221 millionup 26% YoY
    Q2 FY25

    Record non-GAAP income from operations, ahead of expectations, driven by strong revenue growth and ongoing cost discipline.

    Non-GAAP Gross Profit
    $623 millionup 8% YoY
    Q2 FY25

    Non-GAAP gross profit increased year-over-year.

    Non-GAAP Gross Margin
    50.7%down 260 bps YoY
    Q2 FY25

    Decline primarily driven by increased messaging revenue mix, increased carrier fees, and FX impacts. Roughly flat QoQ when adjusting for fees and FX.

    Non-GAAP Operating Margin
    18%up 180 bps YoY
    Q2 FY25

    Sequential decline due to anticipated costs from annual merit increases and Signal conference expenses.

    GAAP Income from Operations
    $37 million
    Q2 FY25

    Third consecutive quarter of GAAP operating profitability.

    Stock-based compensation as % of revenue
    12.1%down 150 bps YoY
    Q2 FY25

    Modest sequential increase due to timing of annual refresh grants during the second quarter.

    Share Repurchases
    $177 million
    Q2 FY25

    Amount of shares purchased in Q2, bringing year-to-date repurchases to $307 million.

    Dollar-based Net Expansion Rate
    108%best rate in over 2 years
    Q2 FY25

    Reflects improving growth trends in the communications business. Includes a 60 basis point contribution from pass-through revenue from incremental carrier fees.

    ConversationRelay Calls
    nearly 1 millionfirst quarter of general availability
    Q2 FY25

    Number of calls completed by ConversationRelay in its first quarter of general availability, demonstrating customer interest.

    Conversational Intelligence Account Usage
    86%increase YoY
    Q2 FY25

    Increase in account usage for conversational intelligence, which unifies conversational data across voice and messaging.

    Messaging Revenue Mix
    260 bpsincreased YoY
    Q2 FY25

    Increase in messaging revenue mix as a percentage of total revenue, which was the primary driver of non-GAAP gross margin decline.

    Carrier Fees Pass-Through Revenue
    $6 millionincremental
    Q2 FY25

    Incremental pass-through revenue from Verizon's raised A2P messaging fee rate, passed through at 0% gross margin. Excluded from organic revenue growth calculation until the comparative period is lapped.

    Email Platform Migration
    —
    ongoing

    Migrating the email platform off legacy data centers to cloud, which creates a short-term cost and margin headwind but is a long-term strategic play.

    Industry KPIs

    3
    MetricValueDetails
    Customer logo metricsdouble digits%
    Net revenue dollar retention108%%
    Ai agentic channel product adoptionnearly 1 millioncalls

    Product announcements

    5
    ProductTypeDetails
    ConversationRelaylaunch
    Conversational Intelligenceupdate
    WhatsApp Business Calling via Programmable Voicelaunch
    RCS (Rich Communication Services)update
    Event Triggered Journeys (Twilio Segment)launch

    Deals & partnerships

    1
    MicrosoftMultiyear strategic partnership to build the future of conversational AI.multiyear

    Announced at SIGNAL, with Microsoft's CEO Satya Nadella participating in the keynote.

    Risks & headwinds

    4
    Non-GAAP gross margin declineQ2 FY25

    down 260 bps YoY to 50.7%

    Mitigation: Implementing price increases in messaging and voice (especially self-serve), investing in platform optimization (e.g., email platform migration to cloud), and growth in higher-margin products.

    Sequential non-GAAP operating margin declineQ2 FY25

    down 20 bps QoQ

    Mitigation: Anticipated costs incurred from annual merit increases and expenses for the Signal conference are temporary factors.

    Tougher revenue growth comparisonsH2 FY25

    Implied Q4 FY25 organic growth around 7% vs. 8-9% in Q3 FY25

    Mitigation: Management acknowledges tougher comparisons due to messaging headwinds (political traffic) and improving go-to-market performance in the prior year, but expects durable profitable growth from current momentum.

    Short-term cost and margin headwind from platform migrationseveral quarters

    double bubble of costs

    Mitigation: Migrating the email platform off legacy data centers to cloud is a strategic long-term play for efficiency, despite short-term cost implications.

    What to watch in Q3 FY25

    5

    Messaging Price Increase Impact

    next quarter and beyond
    CurrentNot material in Q2 FY25
    TargetModest increase over time, faster in self-serve

    Why it matters

    To assess the effectiveness of pricing actions in improving gross margins, especially as enterprise renewals occur.

    Not material. No. It will take some time to work its way through kind of the renewal cycles with some of our bigger customers.

    Q&A highlights

    6

    Where is Twilio seeing the most traction with ISVs?

    Traction is broad across verticals (financial services, healthcare, professional services), often starting with messaging and expanding to voice and other channels like RCS, with orchestration capabilities from products like conversational insights. ISV growth continues to exceed company averages.

    “We're seeing it across verticals, financial services, the health care professional services. And what we're seeing is the use cases often start with messaging and from there, adding second and third channels, whether it be voice or now more importantly with RCS and by the combination of that, the Twilio platform, providing orchestration capabilities across that with some of our newer products like conversational insights allows our ISV customers to get a true representation of the level of engagement consumer has with its brand.”

    asked by Jamie on for Meta Marshall · answered by Thomas Wyatt

    2 min read6 chapters

    Detailed Narrative

    01

    AI-Driven Innovation and Customer Adoption

    Twilio showcased new products at SIGNAL, including ConversationRelay, which enables natural voice AI agents and completed nearly 1 million calls in its first quarter of general availability. Conversational intelligence, now supporting messaging in private beta, saw an 86% increase in account usage, unifying cross-channel data for sales and CX teams. These innovations are driving meaningful value for brands seeking to personalize customer experiences at scale, with a leading fintech company leveraging ConversationRelay to automate three common customer care requests.

    02

    Strategic Partnerships and Market Leadership

    A multiyear strategic partnership with Microsoft was announced at SIGNAL, aiming to unlock conversational AI capabilities for millions of developers and customers. Twilio was also recognized as a leader in Gartner's CPaaS Magic Quadrant for the third consecutive year and a CPaaS universe leader by Omdia, reinforcing its market position and platform strength. These recognitions underscore the power of the Twilio platform and its leadership in the market.

    03

    Go-to-Market Momentum

    The company reported broad-based strength across go-to-market levers, with self-serve, ISVs, international, and communication software add-ons all delivering double-digit revenue growth. The number of large deals ($500,000 or more) in communications increased 57% year-over-year, reflecting successful cross-selling and multi-product adoption strategies. This momentum is also reflected in the dollar-based net expansion rate of 108%, the best rate in over two years.

    04

    Gross Margin Dynamics and Mitigation Efforts

    Non-GAAP gross margin declined due to an increased messaging revenue mix, higher carrier fees (Verizon A2P), and FX impact🌐s. Management is implementing price increases in messaging and voice, particularly for self-serve customers, and investing in platform optimization (e.g., migrating the email platform to cloud) to stabilize and improve gross margins over time⏳. These actions, combined with growth in higher-margin products, are expected to help inflect gross margins upwards.

    05

    Voice Business Renaissance

    Voice revenue returned to double-digit growth for the first time in two years, significantly driven by strong uptake from AI start-ups in the self-serve business. This resurgence is attributed to the growing demand for voice AI use cases and Twilio's infrastructure and product offerings like ConversationRelay and conversational intelligence. Voice is gross margin accretive for the company, and its return to double-digit growth is considered important for overall performance.

    06

    Discontinuation of Segment Reporting

    Beginning in Q3 FY25, Twilio will no longer disclose results by business unit, following the realignment of its business unit structure into a functional support model and continued integration of Segment with communications capabilities. This change reflects the company's strategy to deliver one trusted, smart, and integrated platform.

    AI-generated summary of the company’s earnings call. Not investment advice.