Twilio Inc.

Thank you for joining us today. Top line performance was driven by strong volumes and solid go-to-market execution, resulting in another quarter of organic revenue growth acceleration. We saw strong customer additions in the quarter, aided by the release of our new conversations layer and Twilio console. Our self-serve channel delivered revenue growth of 30% plus, while ISV revenue grew 25% plus. We are also seeing continued strength across the product portfolio. Messaging revenue growth was 28%, driven primarily by strong volumes and aided by growth in WhatsApp and RCS. Incremental carrier fees contributed roughly 10 points to messaging's growth. Voice growth accelerated above 20% year over year, driven by a balance of volume growth and software add-ons, including triple-digit growth in branded calling and conversational intelligence. Finally, total software add-on revenue grew 25% plus, led by Verify, which accelerated to 30% plus growth. Our Q2 dollar-based net expansion rate was 116%, reflecting the improving growth trends we've seen in our business over the last several quarters. Incremental carrier fees contributed roughly five points to BB&E. We delivered record non-GAAP gross profit of $736 million with growth accelerating to 18% year-over-year, our fifth consecutive quarter of accelerating non-GAAP gross profit growth. This was driven by continued momentum in our higher margin products in addition to our proactive efforts to deliver meaningful cost efficiencies. Non-GAAP gross margin was 49.1% down 160 basis points year-over-year and 50 basis points quarter-over-quarter. We incurred incremental US carrier pass-through fees of $71 million, which drove the year-over-year and quarter-over-quarter declines. Without these incremental fees, non-GAAP gross margins would have been up 60 basis points year-over-year and up 30 basis points quarter-over-quarter. Q2 non-GAAP income from operations came in ahead of expectations at $285 million, up 29% year-over-year, Driven by strong gross profit dollar growth and continued cost leverage. Non-GAAP operating margin was 19%, up 100 basis points year over year, and down 80 basis points quarter over quarter. Our Q2 non-GAAP operating margin includes a roughly 90 basis point headwind from incremental U.S. carrier fees. We generated $85 million in GAAP income from operations. This was impacted by a prepaid asset impairment of $33 million. This write-down did not impact our Q2 non-GAAP results or free cash flow and will not impact future results. Additionally, GAAP net income was positively impacted by a one-time non-cash benefit of $944 million due to a valuation allowance release against certain U.S. federal and U.S. state deferred tax assets. The release did not have an impact on our non-GAAP results. Q2 stock-based compensation as a percentage of revenue was 9.5%, down 270 basis points year-over-year and 20 basis points quarter-over-quarter. We generated record free cash flow of $353 million in the quarter. Additionally, we completed $66 million in share repurchases in Q2 and have roughly $800 million remaining on our current authorization. Turning to guidance. For Q3, we're initiating a revenue target of $1.505 to $1.515 billion, representing 16% to 16.5% reported growth and 11% to 12% organic growth. Our Q3 reported revenue guidance assumes $56 million in incremental US carrier fees. As a reminder, our organic revenue excludes the contribution from incremental increases to US carrier fees. Moving to the full year, we're encouraged by the broad-based trends we saw in the first half. For the full year, we're raising our organic revenue growth range to 13% to 13.5%, up from 9.5% to 10.5% previously. We are raising our reported revenue growth range to 18% to 18.5%, up from 14% to 15% previously. In addition, we continue to expect full-year non-GAAP gross profit growth to be similar to our organic revenue growth rate. Our full year revenue guidance assumes approximately $250 million in incremental pass-through revenue from US carrier fees. As a reminder, while the pass-through fees have no impact on our gross profit, income from operations, or free cash flow dollars, they do impact our margin rates. For modeling purposes, we would expect the incremental fees to reduce our full year 2026 non-GAAP gross margin by roughly 210 basis points when compared with our full year 2025 non-GAAP gross margin, all else equal. Turning to our profit outlook. For Q3, we expect non-GAAP income from operations of $285 to $295 million. We are raising our full year 2026 non-GAAP income from operations range to $1.135 to $1.155 billion up from $1.08 to $1.1 billion previously. Similarly, we are raising our full year free cash flow guidance to $1.135 to $1.155 billion. I'm very pleased with the accelerated revenue and gross profit growth we delivered in the second quarter, as well as our ongoing financial discipline that is driving strong profitability and free cash flow. We remain focused on our key go-to-market initiatives and delivering the essential infrastructure that will help our customers win in the AI era. And with that, we'll now open it up for questions.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Alex Zukin of Wolf Research. Your line is now open.

Hey, guys. Truly congrats on the quarter, and thank you for taking the question. I guess if last quarter there was a lot of questions of whether or not AI is creating durable tailwinds for your business, it doesn't feel like that's a question anymore, but I guess If I think about where you're seeing it most pronounced, whether in the messaging and the voice really across the business, what is happening in the messaging business? Because it seems like it's coming in ahead of expectations now, kind of a second straight quarter. So like what's driving that? And longer term, kind of what did you see differently this quarter from voice or the voice AI court specifically versus your expectations?