Twilio Inc (TWLO) Q2 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to Twilio Inc's second quarter 2026 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the call you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rodney Nelson, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us for Twilio's second quarter 2026 earnings conference call.

Joining me today are Kozima Shipchandler, Chief Executive Officer, Aiden Vigiano, Chief Financial Officer, and Thomas Wyatt, Chief Revenue Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-K and our forthcoming Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. With that, I'll hand it over to Kozema and Aiden, who will discuss our Q2 results, and we'll then open the call for Q&A. Thank you, Rodney. Good afternoon, everyone, and thank you for joining us today. Twilio had an exceptional second quarter. We delivered $1.5 billion in revenue, accelerating organic growth to 17% year-over-year, while non-GAAP gross profit growth also accelerated to 18% year-over-year. We generated $285 million in non-GAAP income from operations and $353 million in free cash flow. Twilio's momentum is strong. We're executing with precision and innovating across the board to power customer conversations in the age of AI. During the quarter, we hosted our annual user conference, Signal, which is always the highlight of my year. I love connecting with customers one-on-one and hearing firsthand why these brands choose Twilio as their foundational infrastructure. We are proud to have had brands like AWS, Centerfield, Koval, Deepgram, IBM, Nestle, PGA of America, Rivian, Sierra, and Stripe take the stage to share how Twilio is driving ROI for their businesses as they build for the next era of customer engagement. This year's signal was especially memorable because we announced the general availability of Twilio's next generation platform. Our conversations layer, which includes conversation memory, conversation orchestrator, conversation intelligence, Conversation Relay, and Agent Connect provide the building blocks customers need to deliver context-rich conversations over a consumer's lifetime. As an example, to drive conversion and scale revenue, leading automotive fintech company CarFinance247 joined our private beta program, a move that quickly evolved into a seven-figure deal to implement the new Twilio Conversations layer. Their AI assistant, Carla, has already handled nearly 300,000 customer conversations. Customers who engage with Carla convert to approved leads 1.6 times faster, delivering a multi-million dollar annual revenue uplift across their core commission and ancillary offerings. While our new products have only been in the hands of customers since May, these early stories validate that businesses need Twilio's conversational infrastructure that both serves humans and agents as they navigate a hybrid agentic era. The newly redesigned Twilio console also launched in May, giving customers a single command center to manage all of their Twilio workloads. It has an intuitive UX, frictionless trials to encourage experimentation, AI-guided onboarding, and one central billing experience. This is all in service of making it easier to build with Twilio, and the refreshed console bolsters our acceleration in self-serve and will make multi-product adoption more seamless. Since the launch, a majority of existing customers have migrated to the new console, and we're seeing a 90% plus uplift in conversions when compared to the old console. We continue to see strength across the business, highlighted by robust messaging growth, even as carriers have raised their fees on our customers. While these pass-through costs carry no direct impact on Twilio's profitability, we do recognize the pressure it creates for our customers, specifically small businesses. Our Twilio platform strategy equips our customers with complete access to a variety of channels, empowering our customers to diversify their engagement strategies, maintain cost efficiency, and reliably reach their own customers. Our go-to-market focus on multi-product adoption is working well, and we saw continued strength across our platform, including messaging, voice, and software add-ons during the quarter. The team signed an eight-figure deal with a leading AI company and other key wins with Alnapan Airways, Atlassian, Eltropy, Kixi, Lirio, Metabank, Olo, Open Evidence, Orion AI Solutions, Vazi, and Explore Technologies. Revenue growth from multi-product customers is accelerating, illustrating that our customers are continuing to use multiple products within the Twilio platform to power personal multi-channel communications. Let me walk you through a few examples. Olo, a digital commerce platform for restaurants, signed a cross-sell deal to expand their utilization of messaging and voice. Olo is leveraging Twilio's communications infrastructure to power real-time order notifications and seamless delivery updates across its restaurant network. We also landed a seven-figure deal with Eltropy, an agentic AI platform for credit unions and community banks to leverage messaging, RCS, voice, and branded calling across its platform. Altropy also built its AI voice agent using Conversation Relay to help financial institutions deliver better consumer experiences, accelerate resolutions, reduce operating costs, and create a scalable AI-powered contact center from day one. Or another win was with a leading home improvement retailer who signed a seven-figure deal to utilize messaging, voice, and branded calling. By consolidating its legacy communication traffic onto Twilio, the company is now able to streamline North American delivery logistics, leveraging trusted voice capabilities and rich RCS two-way interactions to optimize transactional order notifications and appointment scheduling. Another great win from the quarter was with a leading HR and payroll technology platform, which signed a seven-figure deal to leverage Twilio messaging and Verify to scale their unified employee engagement infrastructure. They are embedding messaging directly into their mobile application to power secure two-way employee communications and batch workforce text alerts while using Verify to deliver seamless two-factor authentication for payroll access. And Atlassian, a leading provider of AI-powered collaboration and team productivity software, utilizes Twilio's communications infrastructure to deliver contextual AI-powered omnichannel support within its new customer service management app. This partnership helps Atlassian reimagine customer experiences with complete context while scaling global channel coverage via Twilio's Flex SDK and Super Network. So that's the power of Twilio. Just as we've abstracted the complexities of global telecom for 18 years, we're now helping our customers abstract the complexities that come with creating omnichannel agentic conversations. And these innovations continue to earn praise from leading industry analysts. During the quarter, Twilio was named a leader by Gartner in the 2026 Magic Quadrant CPAS report, scoring the highest in ability to execute. Additionally, Twilio was also named a leader in the 2026 IDC market scape for AI-enabled CDP. In summary, there is tremendous momentum building across our business. From landmark enterprise wins to an eight-figure deal with an AI company. Twilio is empowering the next generation of companies with our world-class infrastructure that's delivering measurable ROI in the AI era. Our next generation conversational platform is live, our refreshed console is accelerating adoption, and our customer momentum has never been stronger. We remain focused on strong execution while building the future of customer engagement. And with that, I'll turn it over to Aiden.

Thank you, Kozema, and good afternoon, everyone. Twilio had an exceptional Q2, delivering record revenue of $1.5 billion, up 22% year-over-year on a reported basis, and 17% year-over-year on an organic basis, which excludes incremental U.S. carrier pass-through fees. Non-GAAP gross profit growth accelerated to 18% year-over-year. We also generated record non-gap income from operations of $285 million and record free cash flow of $353 million. 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 DB&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 U.S. 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's 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 U.S. carrier fees. As a reminder, our organic revenue excludes the contribution from incremental increases to U.S. 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 percent, up from 9.5 to 10.5 percent previously. We are raising our reported revenue growth range to 18 to 18.5 percent, 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 U.S. 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 Zucin of Wolf Research. Your line is now open.

Hey, guys. Truly congrats on the quarter, and thank you for taking the question. And 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 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 cohort specifically versus your expectations?

Hey, Alex, this is Kazama. Thanks for the question. A lot there. So I would say kind of in general, maybe let's just start there. Like, obviously, we saw very good strength in messaging, very good strength in voice. And I would say messaging, it's still pretty early days in terms of like AI tailwinds starting to show up. They are happening. But I think most of the activity continues to be in voice. Obviously, you're familiar with a lot of the trends that are happening in voice right now with various kinds of both scaled companies as well as a lot of the voice AI startups, just a lot of traction. And we're obviously fortunate that most of these companies are choosing Twilio as their voice infrastructure. I would say more broadly, if you kind of go back to Signal even, so the channel story has definitely been good for us. I'd say in addition to that, you know, the conversation suite that we launched at that time, that obviously incorporates AI in the different categories there. We're definitely seeing some traction with it. I would specifically point to conversation memory and conversation intelligence, which definitely got a lot of attention from customers, incorporate different AI attributes. attributes and then several of our software add-ons that also incorporate AI, that did pretty well as well. So, you know, I guess maybe to sum it up, and I'll turn it over to Thomas if he wants to provide more detail. Generally speaking, you know, I guess I would call it broad-based strength across both channels and some of the newer products.

Hey, Alex, it's Thomas here. I just want to touch a little bit on the cohort part of your question. And so I'll give you two examples. The first one is a horizontal conversational AI company that started with Twilio in Q1 of 2025. Think of this as a low six-figure quarterly spend with Twilio that largely started with Voice. From there, the spend on connectivity since then has more than tripled, and the spend on software add-ons has gone from effectively nothing at the start to over a half a million dollars a quarter run rate. And so this is now a $6 million annual run rate customer growing 65% a year. That's one example of an AI native. Another is a verticalized conversational AI company. 2024 Q1 started with us with 200K. Same thing, voice messaging expansion. And now they're a $9 million customer with software add-ons growing 100% a year. So you can kind of get a sense for the production scale that these things are starting to happen at.

That's excellent. Aiden, maybe just a quick one for you. Obviously, dollar-based net expansion, biggest run-up we've seen. Maybe just touch on that and gross profit dollar growth and gross margins continue to accelerate. Was there any one time there, or should we expect that to continue through the back half this year.

Yeah, and dollar-based net expansion. So fees did help that number. In full transparency, they contributed about five points to that number, but we did see DB&E accelerate even adjusting for the fees. It was about a point better quarter over quarter. And really, in terms of what's driving it, just healthy growth with our existing customers. In particular, I would say ISVs had a very strong quarter where we're seeing meaningful expansion rates. And in addition to that, revenue growth for multi-product customers is accelerating, which is helping expansion within our installed base. As it relates to gross profit, I would say it's a couple of things in terms of what's driving the acceleration. First, strength in our higher margin products, right? Voice software add-ons like Verify or some of our voice software of products, strengthen our support and services organization. All those pieces of the business are very high margin. So that helps on the gross profit growth side. But in addition to that, we continue to focus on optimizing costs. So email margins continue to improve as we lap the cloud migration project that we undertook really to optimize our hosting environment. And we also continue to pursue things like direct connections with different carriers around the world. We announced in late March that we became the first cloud communications provider to secure direct connections for 10 DLC and toll-free messaging with all major U.S. carriers. Things like that help us drive efficiency in our messaging business. So I'd say it's a combination of mix as well as cost efficiencies. In terms of how to think about it going forward, no change to kind of what we've said. We expect gross profit to grow at a similar rate to organic revenue.

Excellent.

Congrats, guys. one moment for our next question our next question comes from the line of taylor mcgins of ubs your line is now open yeah hi thanks guys congrats on the uh quarter and thanks so much for taking my question just as we look at the 3q guide it implies that the strength that you saw in the first half of the year is going to continue into the second despite some of the tougher compares so could you touch on the drivers underpinning that guide it seems like you know it assumes that messaging growth can maintain, you know, the levels that we've seen excluding ADP fees. But you also mentioned things like 30% plus verified growth and acceleration in self-service. So, maybe you can just unpack how you're thinking about growth across the different segments because it seems like you're seeing strength in a bunch of different areas.

Yeah, sure. I'll start. So, I'm not going to get into each of those pieces for Q3, but what I'll talk about is how they performed in Q2. So, 17% growth overall, incredibly strong, perhaps more importantly, gross profit growth accelerated to 18%. And when we look at the drivers of that, on a sales channel basis, ISVs and self-serve continue to perform very well. ISVs are 25% plus, self-serve 30% plus. Products were very strong. Messaging, 28%. And I'd say that's volume in the messaging business as well as some of our other newer channels like WhatsApp and RCS contributing well, albeit off of a smaller basis. Voice was above 20% in the quarter. That's both the channel as well as some of the software add-ons that Thomas was talking about a minute ago. And then software add-ons overall were very strong. So it's pretty broad-based. And when we look at it by industry, same thing, right? Tech, financial services, healthcare, all very strong. So we feel good about the setup for Q3. We are flowing some of that goodness through to our guidance. We're guiding 11% to 12%, which is the highest guidance that we've offered in three years. Now, that said, I recognize we beat by 5% plus in Q1 and Q2. We don't expect that to be the new norm for the business. We do face some more challenging comparisons in Q3 and Q4 in voice and software add-ons. They started to accelerate in the back half of last year. So, we are facing into that a little bit as well.

One moment for our next question. Our next question comes from the line of Samad Samana of Jefferies. Your line is now open.

Hi, good evening, and thanks for taking my question. I'll echo the congrats on the strong quarter, great results. Maybe just on the voice AI strength, how much of that is new customer acquisition and onboarding with them lighting it up versus existing customers expanding into voice AI products? And then to the extent that you can break it out, I mean, how concentrated is that voice AI strength, or is it relatively broad-based? And then I have one follow-up.

Hey, Samadis, Thomas. The strength in voice AI is broad-based across all of our channels. I do want to highlight, though, self-service voice in particular was very strong growth with over 50% year over year. So a lot of these customers are originating as voice customers in the self-service channel. And as I mentioned in a couple examples earlier, we're just seeing them start with voice and then expand to other channels as well. Messaging is natural follow-up, RCS, et cetera. So if you look at it from the purely AI natives, we're seeing that, as well as the larger, more established ISVs where they're adding voice into more of their agentic, autonomous, customer engagement-type workflows. Great example of that was the Atlassian work that we're doing with the partnership there about embedding a lot of our voice AI capabilities directly in their customer service management platform that they just launched. So it is pretty broad based across enterprise ISV large, as well as the AI natives.

One moment for our next question. Next question comes from the line of Elizabeth Porter of Morgan Stanley. Your line is now open. great thanks so much for the question i wanted to follow up on the new console where you noted that the majority of existing customers have migrated and the conversion is more than 90 higher just what precisely is the conversion metric measuring and since it is still pretty new should we be thinking about kind of a second product attach um starting to be an uplift to revenue with a you know 2027 contributor or how do we think about the timing of the uh feature changes and when they can start to benefit. Thank you.

Yeah, Elizabeth, as Kozema mentioned earlier, the conversion rate that we're seeing on the one console is largely because we've reduced a lot of the friction in the process of signing up with Twilio, getting started, setting up their first campaigns or messages, etc. What we're seeing is in the top of the funnel, really strong conversion rates from the launch in May all the way through the Q2. A lot of that's experimentation that starts to result in production workloads getting online. Those are all good leading indicators for us in future revenue realization as those customers go more into volume. But just reducing the friction up front and having that conversion rate all the way through the funnel is what we're looking for, and the leading indicators are quite positive.

One moment for our next question. Our next question comes from the line of Callie Valencia at Goldman Sachs. Your line is now open.

Hey, team. Thank you for taking the question, and congrats on the quarter. When you look at your pipeline today versus a year ago, what inning do you think we're currently in and kind of seeing this uplift to the voice ecosystem as a result of AI, both with AI natives than they be as other businesses adopt AI as well? And what factors do you kind of consider when measuring the durability of this tail end and ability for Tilly to benefit kind of regardless of where the value accrues in the rest of the stack? Thank you.

Yeah, good question, Callie. This is Kozima. I would say it's pretty early innings, very early innings, as a matter of fact. I mean, like one way to kind of conceptualize it is, is that if you just think about like the number of voice AI interactions that you yourself have had, my guess is it's like probably less than five or six over the last year or so. That's certainly the case for me. And so I think the reality is, is that while we're seeing pretty good growth right now, like a lot of this volume is still very much on the come. Now, the reason that you do get customers to end up choosing this stuff, especially like in our suite with conversational intelligence and memory, it has the benefit of doing two things. One is that it's driving high ROI, otherwise they wouldn't buy it in the first place, obviously. But the second thing is that it actually also allows them to reduce their token spend because there's this notion of context that's being used to drive the memory, to drive the intelligence. And by using context, you don't have to kind of scour the history of the internet. You're just using what's relevant for that particular consumer interaction. And so as we think about like durability going forward, I mean, I would imagine like there's probably going to be some ups and downs as the AI story unfolds. But, you know, the secular tailwind, I think, is very clear. The ROI that we're seeing with customers is also very clear. And so I would imagine that given that it's early innings, given that we're seeing very high ROI, both in terms of revenue uplift and cost reduction with our customers, there's significant durability, not just into like one or two years, but for many, many years going forward.

One moment for our next question. Our next question comes from the line of Jackson Ader of KeyBank Capital Markets. Your line is now open.

Thanks for having a question, guys. But I was curious about the split between, you know, net new revenue and the existing net retention rate. If I just do a quick lab for the last few quarters, it's been, you know, you grow at 15, 16% organically, and the net retention rate's about 5 or 6% below that, you know, at 110, 111. And I'm curious, as you add on these both, like, new channels and new customer acquisition channels are improving, should we expect that, you know, the growth over and above the net retention rate could start to widen relative to history? Thank you.

Yeah. Jackson, you're very, very hard to hear. So we think we got the question. Basically, I'm going to summarize it as follows, that you're asking about what's the difference between DB&E and the overall growth rate, especially when you adjust for fees. I think that's the gist of it. And I think that there's two things going on. So one is, is that as Aiden said, and in her answer to a prior DB&E question, like, we're definitely seeing strength in same store sales. So, you know, we did see an improvement in that quarter on quarter. And a number of these customers that have been with us for a very long time, like they continue growing and, you know, obviously contributing to the overall organic growth rate. In addition to that, like we're also seeing like a lot of new customers, right? So Thomas gave you a number of examples. We gave you a number of examples in our prepared remarks. Like those guys are obviously starting to contribute to the delta, if you will, between DB&E and our overall organic growth rate. And that's a great setup for us, obviously, right? Because if you kind of follow that story that Thomas gave you a second ago about that customer that started with us, you know, one to two years ago, they were like close to kind of zero in spend, started with one product, started adding multiple products over time. Like that's another factor that I think plays into the durability that we see over time. And so these NPCs, new kind of paying customers, as we call them internally, they'll turn into expansion customers over time.

I'll just add one more quick data point on that.

We are seeing, for example, our largest customer cohort the million dollar plus customers that's growing over 20 as well so another example of the expansion that we're seeing one moment for our next question our next question comes from the line of nick altman of us bancorp your line is now open hey awesome thank you um i wanted to follow up on elizabeth's question on the new console and the first part is just how much of the acceleration and multi-product revenue in the quarter would you attribute to the new Trilio console? And the second part is, I understand it's early, but how meaningful do you believe the new console can be to driving multi-product revenue mix higher in the near term, especially as it relates to some of the higher margin offerings, such as, you know, the software add-ons, voice, et cetera? Thank you.

Yeah, in terms of your first question, Nick, very little. It didn't contribute much at all in terms of multi-product revenue in the quarter.

I will say, Nick, we are very optimistic about what it will do. As customers are signing up in the new console, as I mentioned, going through the conversions, the upgrades to a place where they're activating their first product, one of the benefits of the new console is that we have credits available for customers to try multiple products as part of that one console experience. And as they're activating the first channel, they can start the second channel, the third channel, et cetera, with some of those credits. So we're going to begin to see that play out. I know it's hard to predict exactly when and what the implications will be from a revenue realization perspective, but the feedback we're getting from users has been really positive.

One moment for our next question. Question comes from the line of Derek Wood of TD Cowan. Your line is now open.

Great. Congrats for me.

Kazama, OpenAI recently announced a new product called Presence, and they mentioned an early focus was using their speech models for voice and text conversational interactions, I think inside customer support and customer experience settings. I mean, with this backdrop, how do you see OpenAI as a customer, a partner, or a competitor, and what are some of the new opportunities that you can target with them given the innovation with their models and now, you know, at the application layer? Yeah, I would say this is not unique necessarily to open AI, but a number of folks that we work with in the ecosystem, they probably fit all of those descriptions based on different characteristics at different times. I think by and large partner in this case. I mean, I think for the most part, like what we see and hear expressed from customers is that they prefer working with a neutral party. And so being able to integrate from whatever LLM or data model of they're choosing, being able to integrate off of whatever data warehouse, being able to integrate off of, you know, whatever context layer, being able to integrate off of whatever cloud. So I think we're going to stick to our positioning as being, you know, kind of the Switzerland of it all. And, you know, customers are going to make decisions and they're going to change those decisions pretty rapidly, right? And you already see this a lot with companies. And I would certainly put Twilio in the mix too. Like we're constantly experimenting with different models and as different ones improve or the cost characteristics change or whatever, I think having neutrality be the calling card of the company, I think that best situates us going forward. And then if a customer wants to avail themselves of a particular tool, perfect. They can integrate to us either way and they can get up and running with Twilio.

Just to add to that, at Signal, we did announce a number of integrations with AI model providers, Codex being one of those, as well as Cloud Code and Vercel, Replit, Figma, all those different cursor. So we are, as Huzema said, focusing on bringing Twilio into the agent builder tool set so that it's easier for people to be able to build and integrate their AI agents directly with Twilio Communications and Infrastructure. And we're doing the same thing with the Microsoft, the AWS, et cetera, as well. So back to the point of, you know, you've got to reach the end user at some point on their device, and Twilio Super Network connects very nicely into those AI frontier model infrastructure.

One moment for our next question. Our next question comes from the line of Citi Penegrahi of Mizzouho. Your line is more.

Great. Thank you. You guys position Twilio as more like a neutral infrastructure provider in this agentic era, now integrating with LLMs and other data warehouse. But how do you see as some of the like system of records company like Salesforce ServiceNow and, you know, other front office company, they try to get into this space, you know, do you see more of them as more of a competitive threat or do you see more as a complementary solution to that?

I mean, again, Citi, I would say being neutral has its advantages here. I would say on a different day, they could be a complementer, they could be coopetition. By and large, we see these guys as complementary, to answer your question. I mean, in the case of both of the companies that you mentioned, we do have integrations to both. And so to the extent that a customer of ours wants to be able to integrate to one of those different systems of record and then be able to use the rest of somebody else's AI tool set, like Twilio is perfectly situated for that. Like we can sit in the middle. The good news for us is that to be able to drive any intelligence, you've got to have context and you've got to have a channel. And so, no matter what, Twilio wins, and in those two cases, as I said, we integrate to both.

For our next question, our next question comes from the line of William Power of Baird. Your line is now open.

Okay, great. Yeah, congratulations on the results, and really nice to see that sustained gross profit grow, too. I just want to come back to the Q2 upside, you know, matching, you know, the upside you had in Q1. I mean, it sounds like it's pretty broad-based, but I guess anything in particular you'd call out that might have been an upside surprise? And I guess, you know, part two, it'd be great to get any color you can share just on the sources of the messaging strength and kind of where RCS is, you know, playing out within that.

Yeah, I don't know that I would say there was much in terms of a surprise, Will. I think we've performed pretty well across broad number of industries, broad number of products, broad number of sales channels. And so we feel pretty good about that. And we feel pretty good about the setup for the back half of the year. As it relates to messaging, maybe I'll start, but then Thomas can certainly jump in. Again, broad-based, I'd say X the fees, it grew about 18%. So the fees are contributing about 10 points to the growth of the messaging business. But we saw healthy contribution from some of the smaller components of the business. WhatsApp and RCS are growing very quickly. That was good to see. When we look at it by industry within messaging, I'd say tech, financial services, professional services, healthcare, retail, e-commerce, they all generated meaningful double-digit growth. So pretty broad in terms of the industry look there. And then from a sales channel perspective, ISVs were very strong as well as self-serve. So maybe the other angle I'd look at is use cases. Again, ISV speaks to one use case, our verified product growing, 30% plus speaks to another in terms of authentication. So it was pretty broad based on the messaging side as well. We do see some growth with the AI natives on that channel as well, though I would say that the volume that we see from AI companies on messaging is much more a traditional use case that they're using the messaging channels for.

The only thing I'd add to that is just the fact that we are seeing, because of the new platform, the conversations capabilities that we just launched, there is a trend toward consolidating spend with Twilio. A lot of our enterprise and ISV customers who may have been multi-sourced are beginning to converge more on our platform and take advantage of some of the software add-ons that we've recently introduced. A good example of that is the work that we're doing with OpenEvidence, which is an AI decision platform for physicians. And they chose Twilio largely because of the reliability, performance, and global reach that we have that's just unmatched when you combine that with a software orchestration layer that sits on top.

One moment for our next question. Our next question comes from the line of Joshua Riley of Needham. Your line is now open.

Thanks for taking my question. Just one from me. In terms of the voice AI startup customers, do you have a feel for how much of their traffic is on your platform versus their appetite to send traffic via any of your competitors? And how would you expect as these startups mature to continue having such a large share of volume on your platform versus what you think they would try to diversify their traffic a bit? Thank you, guys.

Well, I think the answer to that is partly embedded in what Thomas said a second ago. I mean, the trend we're seeing is like sort of the opposite of what you said a second ago, which kind of implies diversification. Instead, we're seeing consolidation because to be able to take full advantage of our conversation suite and, you know, in particular, like if you think about like an AI native, they want to be able to use context. They want to be able to use the infrastructure to be able to create like that AI experience on the other side without which they can't really do it. And so I think we don't have a measure, per se, of, you know, where their different pockets of spend are. But to maximize their ROI, I'd say consolidation is probably where it's headed, not the other way around.

One moment for our next question. Our next question comes from the line of Arjun Basia of William Blair. Your line is now open.

Perfect. Thank you. And I'll end my congrats here. I'm curious just where we are kind of in the cross-sell motion. I know that's been a pretty big initiative. It seems like a lot of the growth in individual channels is certainly coming through volume expansion and consolidation. But is that, from a go-to-market perspective, are we starting to see cross-channel, cross-sell, or is that a benefit that's maybe still ahead of us?

Hey, Arjun. And we're absolutely seeing the cross-sell momentum and the upsell momentum in the business. And some of the examples that we shared so far are examples where customers have started with either messaging or voice and then separately added the second or third channel because they want to be able to communicate with memory and orchestration capabilities and the observability layer of insights that understands sentiment across those channels that can then be integrated between the brand and the consumer on personalizing those engagements. And so we are seeing it, whether it's the AI natives who started with voice, as I mentioned, that have added more WhatsApp or other types of chat-based services through messaging. And we've also seen it with the largest ISVs who are rolling out branded calling when they started with messaging, or they're adding Flex embedded into their core platform when they might have been a messaging-only customer. So the channels are happening, and the software upsells you've seen, and we're 25% plus growth this quarter. So we're seeing great momentum on upsells.

One moment for our next question. Our next question comes from the line of James Fish of Piper Sandler. Your line is now open. Now open.

Hey, guys. Just maybe circling back on Will's prior question. Look, small part of the business, but how should we be thinking about RCS at this point in terms of what you're seeing on volumes and what we could see in terms of a margin profile within the messaging business as a result? And within ISVs, is there a way to think about what you're seeing in terms of the underlying mix of your products at this point?

Thanks, guys.

I didn't understand the second question, but on the first question with respect to RCS, the way I would characterize it is growing very fast off of a pretty small base. So I think we We kind of remain optimistic about what RCS can do. Obviously, it's got some awesome characteristics. The product itself is very attractive, but it's still relatively small in the scheme of things, but again, growing very, very fast.

And from a margin perspective, just assume it's roughly in line with the rest of messaging. I think on product mix and ISBs, I'm not sure if we caught the question, but yeah, I'd say it continues to be a broad mix of messaging, voice, email use cases across a plethora of ISDs from the long tail up to bigger enterprises. In addition, I'd say we're seeing them more and more regularly adopt some of our software add-ons.

One moment for our next question. Our next question comes from the line of Samick Chatterjee of J.P. Morgan. Your line is now open.

This is Brian on for Samick. Thank you for taking my question. For orchestrator, memory, and intelligence, is early adoption coming mainly from existing customers replacing orchestration and context layers they build in-house, or is it coming from customers standing up entirely new AI workflows, and which motion is reaching production faster? Thank you.

Yeah, it's a good question. I would say it's a bit of a mix. What we've seen is the initial conversation rollout of customers, the ones that participated in our private beta program who have now gone into production and we're starting to see at-scale volumes. We talked about Car Finance as an example of that, you know, a seven-figure deal as resulting to it. So that's an example of existing process that can be dramatically improved with Twilio's core capabilities that are now being offered. At the same time, there are some smaller, you know, AI-native type companies that are building on top of this as a new offer as well. And that could be for both customer support use cases, but also for AI sales outbound use cases as well. And it's improving the customer experience and reducing the cost of serve to offer these virtual agents, whether they're voice-centric or messaging centric. So it is a pretty good balance. It is early days, but we're seeing the consolidation of the traffic and volumes of spend getting onto the Twilio channels, and we're starting to see the software being rolled out into production use cases.

One moment for our next question. Our next question comes from the line of Koji Aiketa of Bank of America. Your line is now open.

Yeah, thanks so much. Just one question for me.

And so one of the messages it sounds like I'm hearing from you is that the future is really about humans and agents operating together. And so when we do our checks, and frankly, even when we listen to other management teams from other tech companies, they're calling out that agents are spooling up their own actions in whatever workflow that they're addressing. And so when I think about Twilio, does the long-term opportunity for you scale more with agent, AI agent driven actions, or is it more with a traditional human driven actions, but at a much higher monetization level?

Thank you.

Yeah, I think it's going to be both. I mean, you know, again, the reality of like where we are today, and I'm going to say probably for the next couple of years, it's going to be mostly human oriented. I mean, the vast majority of interactions each of us has in our daily lives, you know, probably every person on this call is still mostly human, human to human. That said, you're seeing a tremendous amount of that get augmented with AI. And the future that we're certainly building towards anticipates that a huge portion of that volume ends up flipping to human to agent and agent to human. I still think it's going to be a while before it's like fully agentic, agent to agent kind of stuff. But for a lot of these transactions that we're talking about that are very high value, high stakes, especially in financial services and healthcare, you know, they do require a lot of these different capabilities where, you know, you've got to be able to validate what's going on. And, you know, given the fact that it is high stakes, you want a human in the loop. And so that's kind of what we're building towards. Again, we're starting to see a lot of that stuff take off, but it's early days. And I think that's what gives us confidence that there's real durability here over the next several years.

One moment for our next question. Our next question comes from the line of Patrick wall raisins of citizens. Your line is now open.

Thanks for taking the question. This is Pete Longley on for Pat. Just one question. Is there any commentary you can provide on how we should think about the timing of AI contributing more meaningfully to revenue or its current scale?

Well, I mean, as I said a second ago, like, I think that it's pretty early days in terms of the ai story more broadly i mean i think that we're starting to see an indication that ai can be a meaningful contributor it's certainly starting to animate a lot of the voice ai commentary that we've given previously but it's early innings and we think there's a very durable tailwind here and our expectation is is that as interactions move from human to human human to agent agent to human that provides a lot of durability for the business on the one hand And then also, most of the interactions that we're seeing today are on the voice channel. We would expect that a lot of those move over to other channels over time, too, which also generates pretty good durability for the business.

One moment for our next question. Our next question comes from the line of Parker Lane of Cycle. Your line is now open.

Hi, good afternoon. Thanks for taking the question here. Aiden, one for you.

Yeah, I think DB&E characteristics are very strong. I mean, as Thomas talked about, he gave examples of some AI companies and their expansion path on Twilio. So, once they come in, they typically come in on a channel, and then they'll grow on that channel. They'll expand into software products. They may adopt a second channel. So, DB&E is way higher than the average for the company for that cohort, and that's factored into the guidance that we're providing for the back half of the year. One moment for our next question.

Our next question comes from the line of Andrew King of Rosenblatt. Your line is now open.

Hey there. Thanks for taking my question.

I, too, will echo the congratulations on the strong quarter. Just wanted to dive in a little bit more on Nick's question. Can you give us a little bit more idea or any more color on how the free token usage has progressed versus how you've seen it internally?

And any particular products that are driving a significant amount of engagement from customers with those free tokens? Thank you.

Are you talking about in terms of the usage by customers? Yes. Oh, the free credits or the free trial for the platform?

Oh, yeah.

I mean, I would say – oh, okay, okay. Thanks for clarifying. I mean, I would say in general, you know, the experience that we're seeing on the console has, like, certainly been above our expectations. You know, we just launched it during Signal. We've already talked about, like, some of the conversion rates. We've already talked about, you know, most customers kind of moving over to that console. And the console itself has a lot of attractive characteristics of which, you know, the free trials is one. You know, as Thomas said a second ago, like, it definitely allows customers to experiment with a bunch of different things. We guide them through those experiences based on what their stated use cases are. are, excuse me. And then I think what we're more encouraged about over time is that based on the way that the console is architected and based on the way that we guide the experience, it's our expectation that that would certainly allow for better cross-sell and up-sell adoption over time. And, you know, that's kind of what we're expecting will happen over time.

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