Executive Summary

Revenue and EPS beat: Q3 revenue was $1.30B vs S&P Global consensus $1.25B, and non-GAAP diluted EPS was $1.25 vs $1.07, driven by broad-based strength in Messaging (high-teens growth) and accelerating Voice (mid-teens) with strong voice AI cohort growth; FY25 guidance for revenue, profitability and FCF was raised .
Gross margin headwind: Non-GAAP gross margin fell to 50.1% (−280 bps YoY, −60 bps QoQ) primarily due to $20M pass-through Verizon A2P carrier fees; Q4 assumes $22M pass-through fees, with management emphasizing no impact on gross profit dollars/FCF from the gross-up .
KPIs improved: Dollar-Based Net Expansion Rate rose to 109% (from 105% YoY), and Active Customer Accounts reached 392k (from 320k YoY), reflecting healthy expansion across ISV and self-serve channels (both >20% YoY) .
Capital allocation and strategic tuck-in: Q3 share repurchases were $349.8M (YTD $656.7M) and Twilio announced a definitive agreement to acquire Stytch to augment identity/authentication for AI agents; management characterized the acquisition as <$100M and immaterial to the P&L .
Potential stock reaction catalysts: Raised FY25 targets, continued high-teens Messaging and mid-teens Voice growth, AI-related adoption (voice AI, Verify >25% growth), and stepped-up buybacks could support sentiment; carrier fee dynamics and gross margin trajectory remain watch points .

What Went Well and What Went Wrong

What Went Well

Broad-based growth and record profitability: “Twilio had a great Q3, reaching $1.3 billion in revenue and $235 million in non-GAAP income from operations, another record for both… we’ve raised our revenue, profitability, and free cash flow targets for the full year” .
Product momentum: Messaging grew high teens for the second consecutive quarter and Voice accelerated to mid-teens, its fastest in >3 years; Verify grew >25% YoY; voice AI cohort growth was ~60% YoY with top 10 voice AI startups up >10x .
Go-to-market execution and large win: Management highlighted “a nine-figure renewal spanning multiple products with a leading cloud provider, the largest deal in our company's history” and strong traction in ISV and self-serve (both >20% YoY) .

What Went Wrong

Gross margin compression: Non-GAAP gross margin declined to 50.1% (−280 bps YoY; −60 bps QoQ) largely from $20M Verizon A2P pass-through fees; management is taking pricing actions and efficiency initiatives to stabilize margins .
Carrier fee visibility: Q4 guidance embeds $22M carrier fee pass-through revenue; while no additional actions by AT&T/T-Mobile are forecasted, management acknowledged potential for similar increases that would pressure gross margins (gross-up effect) .
Early-stage RCS and voice AI mix: RCS adoption remains “early days” and, while accelerating, voice AI is still a relatively small portion of the business, tempering near-term margin uplift from higher-margin products .

Financial Results

Core financials vs prior periods and estimates

Metric	Q3 2024	Q2 2025	Q3 2025	Notes
Revenue ($USD Billions)	$1.134	$1.228	$1.300	Q3 2025 beat S&P consensus $1.252*
GAAP Diluted EPS ($)	-$0.06	$0.14	$0.23
Non-GAAP Diluted EPS ($)	$1.02	$1.19	$1.25	Q3 2025 beat S&P consensus $1.07*
GAAP Operating Margin (%)	-0.4%	3.0%	3.1%
Non-GAAP Operating Margin (%)	16.1%	18.0%	18.0%
Non-GAAP Gross Margin (%)	52.9%	50.7%	50.1%	Verizon A2P fees drove decline

S&P Global consensus comparison (Q3 2025):

Revenue consensus $1.252B vs actual $1.300B → bold beat (+3.8%)*
Primary EPS consensus mean $1.07 vs actual $1.25 → bold beat (+17%)*
EBITDA consensus mean $236.1M vs actual $89.4M → miss on EBITDA definition vs company’s operating metrics; Twilio emphasizes non-GAAP income from operations (record $235M) rather than EBITDA . Values with asterisk retrieved from S&P Global.*

Free cash flow and cash from operations

Metric	Q3 2024	Q2 2025	Q3 2025
Cash from Operations ($USD Millions)	$204.3	$277.1	$263.6
Free Cash Flow ($USD Millions)	$189.1	$263.5	$247.5
FCF Margin (%)	17%	21%	19%

KPIs

KPI	Q3 2024	Q2 2025	Q3 2025
Active Customer Accounts	>320,000	>349,000	>392,000
Dollar-Based Net Expansion Rate	105%	108%	109%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Reported Revenue Growth (%)	FY25	10% – 11%	12.4% – 12.6%	Raised
Organic Revenue Growth (%)	FY25	9% – 10%	11.3% – 11.5%	Raised
Non-GAAP Income from Operations ($USD Millions)	FY25	$850 – $875	$900 – $910	Raised
Free Cash Flow ($USD Millions)	FY25	$875 – $900	$920 – $930	Raised
Revenue ($USD Billions)	Q4 2025	N/A	$1.310 – $1.320	Initiated
Y/Y Organic Revenue Growth (%)	Q4 2025	N/A	8% – 9%	Initiated
Non-GAAP Income from Operations ($USD Millions)	Q4 2025	N/A	$230 – $240	Initiated
Non-GAAP Diluted EPS ($)	Q4 2025	N/A	$1.17 – $1.22	Initiated

Additional guidance nuances:

Q4 assumes $22M pass-through revenue from incremental U.S. carrier fees (vs $20M in Q3), which gross-up revenue and COGS but do not impact gross profit dollars or FCF .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
AI/voice AI adoption	Signal showcased Twilio’s role as infrastructure for CX; focus on combining communications, data, and AI . Double-digit revenue growth momentum .	Voice grew mid-teens, fastest in >3 years; voice AI cohort +~60% YoY; top 10 voice AI startups >10x; Verified adoption >25% YoY .	Accelerating adoption, still early-stage mix
Carrier fees & gross margin	Raised FY targets; noted carrier fees impact and margin actions in prior quarters .	$20M Verizon A2P in Q3; Q4 assumes $22M; non-GAAP gross margin down 280 bps YoY; pricing and efficiency initiatives underway .	Incremental headwind; mitigation in progress
Product performance (Messaging/Voice)	Communications revenue +14% YoY Q2; high-teens Messaging in Q2; Segment flat .	Messaging high teens 2nd straight quarter; Voice mid-teens growth; software add-ons (Verify) >25% YoY .	Improving breadth
RCS rollout	Platform capability expansion and GA for RCS highlighted in July .	RCS GA globally; volume more than doubled QoQ; branded experiences help trust; adoption still early days .	Building, early adoption
Go-to-market & ISV/self-serve	ISVs and self-serve strong in Q1/Q2; cross-sell and upsell focus .	ISV and self-serve both >20% YoY; agent productivity solution launched; large nine-figure renewal with cloud provider .	Strengthening channels
Capital returns	Buybacks authorized up to $2.0B; Q1 repurchases $130.2M; Q2 $176.7M .	Q3 repurchases $349.8M; YTD $656.7M .	Ramping buybacks
Identity & authentication	Emphasis on trusted communications; Verify momentum in Q2 .	Definitive agreement to acquire Stytch; tuck-in < $100M; augments developer-first authentication for AI agents .	Expanding identity stack

Management Commentary

CEO framing: “We’ve raised our revenue, profitability and free cash flow targets for the full year… customers ranging from startups to enterprises to ISVs continue to choose Twilio to power their customer engagement” .
Product/AI narrative: “Our voice business accelerated to mid-teens revenue growth… voice AI customers accelerated to nearly 60% year over year… Verify grew more than 25% year over year” .
Strategic win: “A nine-figure renewal spanning multiple products with a leading cloud provider, the largest deal in our company's history” .
Margin/fees disclosure: “We incurred carrier pass-through fees of $20 million associated with increased Verizon A2P fees, which drove the sequential decline in gross margin” .
Acquisition rationale: “Stytch… will augment Twilio’s platform roadmap… small tech and talent tuck-in… less than $100 million… immaterial to our financials” .

Q&A Highlights

Voice AI adoption and trajectory: Management sees more voice AI agents going into production, with strong growth but still a relatively small contributor; Voice AI accelerating self-serve and enterprise adoption .
Carrier fees and margin implications: Verizon A2P fee impact quantified ($20M Q3; $22M Q4); potential for other carriers to follow; gross-up has no impact on gross profit dollars or FCF .
Net customer additions and pricing: Ending free tiers for email/marketing APIs converted smaller accounts to active; no churn observed from June price increases; strong self-serve adds (voice up ~40%) .
RCS demand: Early-stage adoption with experimentation, especially for branded marketing use cases; expected to build over time .
Sales capacity and efficiency: Heavy internal use of AI assistants in pre- and post-sales to drive productivity, enabling efficient scaling of go-to-market .

Estimates Context

Q3 2025: Revenue consensus $1,252.4M vs actual $1,300.4M → bold beat; Primary EPS consensus $1.07 vs actual $1.25 → bold beat; EBITDA consensus $236.1M vs actual $89.4M (company emphasizes non-GAAP Op Income $234.5M) . Values retrieved from S&P Global.*
Forward estimates: Q4 2025 consensus revenue ~$1,316.7M and Primary EPS ~$1.23; Q1 2026 consensus revenue ~$1,288.9M and Primary EPS ~$1.24*. These levels are broadly consistent with company Q4 guidance ($1.310–$1.320B revenue; non-GAAP EPS $1.17–$1.22), with carrier fee pass-through embedded in revenue guidance . Values retrieved from S&P Global.*

Key Takeaways for Investors

Q3 was clean across the board: revenue and EPS beat, record non-GAAP Op Income and strong FCF, supported by high-teens Messaging, mid-teens Voice, and >25% Verify growth .
FY25 guide raised across revenue (reported and organic), profitability, and FCF; Q4 guide embeds carrier fee pass-through, which is neutral to gross profit dollars and FCF but creates optical margin pressure .
Mix shift toward higher-margin products (Voice, software add-ons) and solution bundling (agent productivity) should support durable gross profit dollar growth despite carrier fee noise .
KPI momentum (DBNR 109%, Active Customer Accounts 392k) and strong ISV/self-serve channels (>20% YoY) indicate healthy underlying expansion and entry points for multi-product adoption .
Buybacks are stepping up ($350M in Q3; $657M YTD), adding per-share support; tuck-in of Stytch strengthens identity/authentication capabilities for AI agents without financial drag .
Watch items: further carrier fee increases by other U.S. carriers (margin optics), holiday season usage variability (usage-based model), and pacing of RCS/voice AI contribution to margins .
Near term, narrative favors momentum (raised guide, product strength, buybacks). Medium term, thesis hinges on continued mix shift, margin stabilization via pricing/efficiencies, and AI-driven multi-product adoption .

S&P Global disclaimer: Asterisked values are from S&P Global consensus/actuals via GetEstimates. Values retrieved from S&P Global.*

TWILIO INC (TWLO)·Q3 2025 Earnings Summary