TWILIO INC

Previous wording

We regularly assess the need for a valuation allowance on our deferred tax assets. As of June 30, 2026, based on our analysis of both positive and negative evidence, including the amount of pre-tax book income in the U.S. in recent periods and our expectation of future profits in the U.S., we concluded that it is more likely than not that the majority of our U.S. deferred tax assets are realizable. As a result, we released a significant portion of our valuation allowance on the net deferred tax assets in the U.S., resulting in the recognition of deferred tax assets and income tax benefit of $944.1 million during the three and six months ended June 30, 2026. For further detail refer to Note 14 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

We regularly assess the need for a valuation allowance on our deferred tax assets. In the second quarter of 2026, based on our analysis of both positive and negative evidence, including the amount of pre-tax book income in the U.S. in recent periods and our expectation of future profits in the U.S., we concluded that it is more likely than not that the majority of our U.S. deferred tax assets are realizable. As a result, we released a significant portion of our valuation allowance on the net deferred tax assets in the U.S., resulting in the recognition of deferred tax assets and income tax benefit, which was $937.1 million for the nine months ended September 30, 2026. For further detail refer to Note 14 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

Most of our usage-based customers gain access to our platform through a self-service process, which requires an upfront prepayment via credit card that is drawn down as they use our products. Pricing is generally based on a publicly available, self-serve pricing matrix that generally allows customers to receive tiered discounts as their usage of our products increases. Many of our larger usage-based customers enter into contractual arrangements with us for a period of at least 12 months. These contracts may include negotiated terms and typically include minimum revenue commitments of varying durations. Usage-based customers subject to such contracts are typically invoiced monthly in arrears for products used. In the three months ended June 30, 2026 and 2025, we generated 75% and 74% of our revenue, respectively, from usage-based fees.

Current wording

Most of our usage-based customers gain access to our platform through a self-service process, which requires an upfront prepayment via credit card that is drawn down as they use our products. Pricing is generally based on a publicly available, self-serve pricing matrix that generally allows customers to receive tiered discounts as their usage of our products increases. Many of our larger usage-based customers enter into contractual arrangements with us for a period of at least 12 months. These contracts may include negotiated terms and typically include minimum revenue commitments of varying durations. Usage-based customers subject to such contracts are typically invoiced monthly in arrears for products used. In the three months ended September 30, 2026 and 2025, we generated 76% and 75% of our revenue, respectively, from usage-based fees.

Previous wording

Subscription-based fees are earned in accordance with subscription pricing terms. For our subscription-based products, customers generally enter into negotiated contracts, which are typically one to three years in duration. Subscription customers are generally invoiced in advance at the start of the contract term. In the three months ended June 30, 2026 and 2025, we generated 25% and 26% of our revenue, respectively, from non-usage‑based fees.

Current wording

Subscription-based fees are earned in accordance with subscription pricing terms. For our subscription-based products, customers generally enter into negotiated contracts, which are typically one to three years in duration. Subscription customers are generally invoiced in advance at the start of the contract term. In the three months ended September 30, 2026 and 2025, we generated 24% and 25% of our revenue, respectively, from non-usage‑based fees.

Previous wording

Our other (expenses) income, net, consist primarily of our share of losses from our equity method investment, impairment charges and gains and losses related to our strategic investments, realized gains and losses from marketable securities, interest income and expense and debt-related costs.

Current wording

Our other expenses, net, consist primarily of our share of losses from our equity method investment, impairment charges and gains and losses related to our strategic investments, realized gains and losses from marketable securities, interest income and expense and debt-related costs.

Previous wording

Our benefit from (provision for) income taxes consists primarily of the tax benefit from the release of a significant portion of our U.S. valuation allowance; and also, federal, state and foreign income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business. From time to time, we may recognize tax benefits arising from various matters, including newly enacted legislations. Benefits from income taxes may fully or partially offset the provision for income taxes within a reporting period.

Current wording

Our benefit from (provision for) income taxes consists primarily of the income tax benefit from the release of a significant portion of our U.S. valuation allowance; and also federal, state and foreign income taxes and withholding taxes in foreign jurisdictions in which we conduct business. From time to time, we may recognize tax benefits arising from various matters, including newly enacted legislations. Benefits from income taxes may fully or partially offset the provision for income taxes within a reporting period.

Previous wording

In 2026, the primary difference between our effective tax rate and federal statutory rate relates to the tax benefit recognized from the U.S. valuation allowance released during the second quarter of 2026. In prior periods, the primary difference between our effective tax rate and the federal statutory rate related to the valuation allowance we established on the federal, state and certain foreign deferred tax assets.

Current wording

In 2026, the primary difference between our effective tax rate and federal statutory rate relates to the income tax benefit recognized from the U.S. valuation allowance released during the second quarter of 2026. In prior periods, the primary difference between our effective tax rate and the federal statutory rate related to the valuation allowance we established on the federal, state and certain foreign deferred tax assets.

Previous wording

In the three months ended June 30, 2026, revenue increased by $270.7 million, or 22%, compared to the same period last year. This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our DBNE of 116%, as well as an increase of $75.7 million in revenue derived from customer accounts not captured in our DBNE calculation, which are primarily new customer accounts. The increase also reflects $71.1 million in revenue related to the incremental A2P fees recently introduced by major U.S. carriers.

Current wording

In the three months ended September 30, 2026, revenue increased by $259.1 million, or 20%, compared to the same period last year. This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our DBNE of 114%, as well as an increase of $81.0 million in revenue derived from customer accounts not captured in our DBNE calculation, which are primarily new customer accounts. The increase includes $53.1 million in revenue related to the incremental A2P fees introduced by major U.S. carriers since the third quarter of 2025.

Previous wording

In the three months ended June 30, 2026, cost of revenue increased by $147.5 million, or 24%, compared to the same period last year. The increase was primarily attributable to a $138.8 million increase in network service provider costs, net of the impact of hedging instruments, which includes a $71.1 million increase due to the incremental A2P fees recently introduced by major U.S. carriers.

Current wording

In the three months ended September 30, 2026, cost of revenue increased by $130.7 million, or 20%, compared to the same period last year. The increase was primarily attributable to a $129.3 million increase in network service provider costs, net of the impact of hedging instruments, which includes a $53.1 million increase due to the incremental A2P fees introduced by major U.S. carriers since the third quarter of 2025.

Previous wording

In the three months ended June 30, 2026, gross profit increased by $123.1 million, or 20%, compared to the same period last year. This increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

Current wording

In the three months ended September 30, 2026, gross profit increased by $128.5 million, or 20%, compared to the same period last year. This increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

Previous wording

In the six months ended June 30, 2026, research and development expenses increased by $37.7 million, or 8%, compared to the same period last year. The increase was primarily attributable to a $22.6 million increase in hosting fees to support development and staging of our products and a $12.5 million increase in total personnel costs.

Current wording

In the three months ended September 30, 2026, research and development expenses increased by $18.1 million, or 7%, compared to the same period last year. The increase was primarily attributable to an $8.0 million increase in impairment of capitalized internal‑use software development costs, a $5.9 million increase in hosting fees to support development and staging of our products and a $2.9 million increase in software subscription fees.

Previous wording

In the three months ended June 30, 2026, sales and marketing expenses decreased by $3.9 million, or 2%, compared to the same period last year. Fluctuations in the various sales and marketing expense categories were not significant either individually or in the aggregate.

Current wording

In the three months ended September 30, 2026, sales and marketing expenses decreased by $4.0 million, or 2%, compared to the same period last year. Fluctuations in the various sales and marketing expense categories were not significant either individually or in the aggregate.

Previous wording

In the three months ended June 30, 2026, other expenses, net, increased by $5.6 million, or 166%, compared to the same period last year. Fluctuations in the various other expense, net, categories were not significant either individually or in the aggregate.

Current wording

In the three months ended September 30, 2026, other expenses, net, increased by $1.2 million, or 15%, compared to the same period last year. Fluctuations in the various other expenses, net, categories were not significant either individually or in the aggregate.

Previous wording

In the six months ended June 30, 2026, benefit from (provision for) income taxes increased by $1.0 billion compared to the same period last year. The increase was primarily attributable to the release of our valuation allowance on certain of our U.S. federal and state deferred tax assets in the six months ended June 30, 2026, which generated a $944.1 million income tax benefit. For further detail refer to Note 14 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

In the three months ended September 30, 2026, benefit from income taxes increased by $17.5 million, or 383%, compared to the same period last year. The increase was primarily attributable to the excess benefits on share-based payment awards, which had a greater impact on the benefit from income taxes in the current period as a result of the release of our valuation allowance on U.S. federal and state deferred tax assets in the second quarter of 2026.

Previous wording

In the six months ended June 30, 2026, revenue increased by $505.1 million, or 21%, compared to the same period last year. This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our DBNE of 115%, as well as an increase of $146.6 million in revenue derived from customer accounts not captured in our DBNE calculation, which are primarily new customer accounts. The increase also reflects $117.1 million in revenue related to the incremental A2P fees recently introduced by major U.S. carriers.

Current wording

In the nine months ended September 30, 2026, revenue increased by $764.2 million, or 21%, compared to the same period last year. This increase was primarily attributable to the increased usage of our products by our existing customers, as reflected in our DBNE of 115%, as well as an increase of $227.6 million in revenue derived from customer accounts not captured in our DBNE calculation, which are primarily new customer accounts. This includes an increase of $167.8 million in revenue related to the incremental A2P fees introduced by major U.S. carriers since the beginning of 2025.

Previous wording

In the six months ended June 30, 2026, cost of revenue increased by $279.3 million, or 23%, compared to the same period last year. This increase was primarily attributable to a $257.0 million increase in network service providers’ costs, net of the impact of hedging instruments, which includes a $117.1 million increase due to the incremental A2P fees recently introduced by major U.S. carriers.

Current wording

In the nine months ended September 30, 2026, cost of revenue increased by $410.0 million, or 22%, compared to the same period last year. This increase was primarily attributable to a $386.3 million increase in network service providers’ costs, net of the impact of hedging instruments, which includes an increase of $167.8 million due to the incremental A2P fees introduced by major U.S. carriers since the beginning of 2025.

Previous wording

In the six months ended June 30, 2026, gross profit increased by $225.8 million, or 19%, compared to the same period last year. The increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

Current wording

In the nine months ended September 30, 2026, gross profit increased by $354.3 million, or 20%, compared to the same period last year. The increase was attributable to the factors impacting our revenue and cost of revenue, as described above.

Previous wording

In the three months ended June 30, 2026, research and development expenses increased by $29.8 million, or 12%, compared to the same period last year. The increase was primarily attributable to a $13.8 million increase in hosting fees to support development and staging of our products and a $10.3 million increase in total personnel costs.

Current wording

In the nine months ended September 30, 2026, research and development expenses increased by $55.7 million, or 7%, compared to the same period last year. The increase was primarily attributable to a $28.5 million increase in hosting fees to support development and staging of our products, a $13.4 million increase in total personnel costs and an $8.4 million increase in software subscription fees.

Previous wording

In the six months ended June 30, 2026, sales and marketing expenses decreased by $4.2 million, or 1%, compared to the same period last year. Fluctuations in the various sales and marketing expense categories were not significant either individually or in the aggregate.

Current wording

In the nine months ended September 30, 2026, sales and marketing expenses decreased by $8.2 million, or 1%, compared to the same period last year. Fluctuations in the various sales and marketing expense categories were not significant either individually or in the aggregate.

Previous wording

In the six months ended June 30, 2026, general and administrative expenses increased by $27.4 million, or 14%, compared to the same period last year. The increase was primarily attributable to an $11.1 million increase in total personnel costs, a $7.1 million increase in the provision for doubtful accounts and a $4.6 million increase in professional services fees.

Current wording

In the nine months ended September 30, 2026, general and administrative expenses increased by $34.1 million, or 11%, compared to the same period last year. The increase was primarily attributable to an $18.1 million increase in total personnel costs, primarily driven by an increase in stock-based compensation related to a probability assessment change on existing performance-based restricted stock units (“PSUs”) and the grant of additional PSUs in the first quarter of 2026; an $8.7 million increase in the provision for doubtful accounts and a $3.8 million increase in professional services fees.

Previous wording

In the three months ended June 30, 2026, impairment loss on prepaid assets increased by $32.8 million compared to the same period last year. The impairment relates to certain prepaid network services that we determined we would be unable to consume due to operational and financial challenges experienced by two network service providers. No such impairment occurred in the prior year period.

Current wording

In the nine months ended September 30, 2026, impairment loss on prepaid assets was $32.8 million. The impairment relates to certain prepaid network services that we determined we would be unable to consume due to operational and financial challenges experienced by two network service providers during the second quarter of 2026. No such impairments occurred in the prior period.

Previous wording

In the six months ended June 30, 2026, other (expenses) income, net, decreased by $14.6 million compared to the same period last year. The decrease is primarily attributable to a $7.7 million decrease in other income, net, primarily driven by unrealized losses from fluctuations in foreign currency exchange rates and a $6.9 million increase in our share of losses from our equity method investment.

Current wording

In the nine months ended September 30, 2026, other expenses, net, increased by $15.8 million, or 194%, compared to the same period last year. The increase is primarily attributable to a $10.9 million decrease in other income, net, primarily driven by unrealized losses from fluctuations in foreign currency exchange rates, and a $4.9 million increase in our share of losses from our equity method investment.

Previous wording

In the three months ended June 30, 2026, benefit from (provision for) income taxes increased by $1.0 billion compared to the same period last year. The increase was primarily attributable to the release of our valuation allowance on certain of our U.S. federal and state deferred tax assets in the three months ended June 30, 2026, which generated a $944.1 million income tax benefit. For further detail refer to Note 14 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

In the nine months ended September 30, 2026, benefit from (provision for) income taxes increased by $1.0 billion compared to the same period last year. The increase was primarily attributable to the release of our income tax valuation allowance on certain of our U.S. federal and state deferred tax assets in the second quarter of 2026, which generated a $937.1 million income tax benefit in the nine months ending September 30, 2026. For further detail refer to Note 14 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

As of June 30, 2026, we had cash and cash equivalents of $823.3 million and short-term marketable securities of $1.8 billion. Cash equivalents consist of money market funds, commercial paper and U.S. treasury bills. Short-term marketable securities consist primarily of U.S. treasury securities, high credit quality corporate debt securities and commercial paper. The cash and cash equivalents and short-term marketable securities are held for working capital purposes.

Current wording

As of September 30, 2026, we had cash and cash equivalents of $1.1 billion and short-term marketable securities of $1.8 billion. Cash equivalents consist of money market funds, commercial paper and U.S. treasury bills. Short-term marketable securities consist primarily of U.S. treasury securities, high credit quality corporate debt securities and commercial paper. The cash and cash equivalents and short-term marketable securities are held for working capital purposes.

Previous wording

In the three and six months ended June 30, 2026, we repurchased $66.0 million in aggregate value, or 0.5 million shares, and $319.4 million in aggregate value, or 2.6 million shares, respectively, of our Class A common stock. As of June 30, 2026, approximately $826.0 million of the amount authorized in January 2025 for share repurchases remained available for future repurchases.

Current wording

In the three and nine months ended September 30, 2026, we repurchased $127.2 million in aggregate value, or 0.5 million shares, and $446.7 million in aggregate value, or 3.1 million shares, respectively, of our Class A common stock. As of September 30, 2026, approximately $698.7 million of the amount authorized in January 2025 for share repurchases remained available for future repurchases.

Previous wording

In the six months ended June 30, 2026, cash provided by operating activities consisted primarily of our net income of $1.2 billion adjusted for non-cash items, including $944.1 million of tax benefit related to release of our U.S. valuation allowance, $278.4 million of stock-based compensation expense, $63.7 million of depreciation and amortization expense, $51.6 million of our share of losses from an equity method investment, $33.6 million of amortization of deferred commissions, $9.5 million of non-cash reduction in our operating right-of-use asset, and $175.0 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts payable and other current liabilities decreased $67.3 million primarily driven by the payment of the 2025 company-wide bonus in the six months ended June 30, 2026. Operating lease liabilities decreased $17.8 million due to payments made against our operating lease obligations.

Current wording

In the nine months ended September 30, 2026, cash provided by operating activities consisted primarily of our net income of $1.3 billion adjusted for non-cash items, including $937.1 million of income tax benefit related to release of our U.S. valuation allowance, $432.3 million of stock-based compensation expense, $91.4 million of depreciation and amortization expense, $77.1 million of our share of losses from an equity method investment, $48.9 million of amortization of deferred commissions, $14.2 million of non-cash reduction in our operating right-of-use asset, and $200.8 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, deferred tax assets increased $82.2 million driven by the release of our valuation allowance on U.S. federal and state deferred tax assets during the nine months ended September 30, 2026, other long-term assets increased $57.5 million primarily due to an increase in long-term prepayments to support our business and deferred sales commissions related to the growth of our business, and accounts receivable and prepaid expenses increased $40.2 million primarily due to the growth of our business and timing of cash receipts.

Previous wording

In the six months ended June 30, 2025, cash provided by operating activities consisted primarily of our net income of $42.4 million adjusted for non-cash items, including $288.5 million of stock-based compensation expense, $99.4 million of depreciation and amortization expense, $44.7 million of our share of losses from an equity method investment, $38.4 million of amortization of deferred commissions, $10.5 million of non-cash reduction in our operating right-of-use asset, and $59.8 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $81.6 million primarily due to timing of cash receipts and prepayments of certain operating expenses. Accounts payable and other current liabilities decreased $64.4 million primarily driven by the payment of the 2024 company-wide bonus in the six months ended June 30, 2025. Other long-term assets increased $51.4 million primarily due to an increase in long-term prepayments to support our business. Operating lease liabilities decreased $18.7 million due to payments made against our operating lease obligations.

Current wording

In the nine months ended September 30, 2025, cash provided by operating activities consisted primarily of our net income of $79.7 million adjusted for non-cash items, including $446.7 million of stock-based compensation expense, $147.9 million of depreciation and amortization expense, $72.2 million of our share of losses from an equity method investment, $56.9 million of amortization of deferred commissions, $16.6 million of non-cash reduction in our operating right-of-use asset, and $97.2 million of cumulative changes in operating assets and liabilities. With respect to changes in operating assets and liabilities, accounts receivable and prepaid expenses decreased $46.7 million primarily due to timing of cash receipts and prepayments of certain operating expenses. Accounts payable and other current liabilities decreased $55.9 million primarily driven by timing of payments to vendors. Other long-term assets increased $64.3 million primarily due to an increase in long-term prepayments to support our business and an increase in deferred sales commissions related to the growth of our business. Operating lease liabilities decreased $26.9 million due to payments made against our operating lease obligations.

Previous wording

In the six months ended June 30, 2026, cash used in investing activities was $94.4 million, primarily consisting of $53.2 million of purchases of marketable securities and other investments, net of proceeds from sales and maturities of marketable securities and other investments, $33.4 million related to capitalized software development costs, and $7.2 million related to purchases of long-lived assets.

Current wording

In the nine months ended September 30, 2026, cash used in investing activities was $124.5 million, primarily consisting of $63.7 million of purchases of marketable securities and other investments, net of proceeds from sales and maturities of marketable securities and other investments, $48.0 million related to capitalized software development costs, and $12.2 million related to purchases of long-lived assets.

Previous wording

In the six months ended June 30, 2025, cash provided by investing activities was $382.9 million, primarily consisting of $409.2 million of maturities and sales of marketable securities, net of purchases, partially offset by $24.2 million related to capitalized software development costs, and $2.2 million related to purchases of long-lived assets.

Current wording

In the nine months ended September 30, 2025, cash provided by investing activities was $221.4 million, primarily consisting of $263.7 million of maturities and sales of marketable securities, net of purchases, partially offset by $38.0 million related to capitalized software development costs, and $4.4 million related to purchases of long-lived assets.

Previous wording

In the six months ended June 30, 2026, cash used in financing activities was $290.4 million primarily consisting of $323.0 million of cash paid to repurchase 0.5 million shares of our Class A common stock, including related costs, partially offset by $32.8 million in proceeds from exercises of stock options and shares of Class A common stock issued under the Company’s ESPP.

Current wording

In the nine months ended September 30, 2026, cash used in financing activities was $411.3 million primarily consisting of $448.3 million of cash paid to repurchase 3.1 million shares of our Class A common stock, including related costs, partially offset by $37.3 million in proceeds from exercises of stock options and shares of Class A common stock issued under the Company’s ESPP.

Previous wording

In the six months ended June 30, 2025, cash used in financing activities was $301.7 million primarily consisting of $323.2 million of cash paid to repurchase 3.0 million shares of our Class A common stock, including related costs, partially offset by $25.9 million in proceeds from exercises of stock options and shares of Class A common stock issued under the Company’s ESPP.

Current wording

In the nine months ended September 30, 2025, cash used in financing activities was $649.7 million primarily consisting of $670.5 million of cash paid to repurchase 6.4 million shares of our Class A common stock, including related costs, partially offset by $26.3 million in proceeds from exercises of stock options and shares of Class A common stock issued under the Company’s ESPP.

Previous wording

As of June 30, 2026, we demonstrated sustained profitability in the U.S. over a cumulative period of three years based on the U.S. pre-tax book income adjusted for permanent book-tax differences, and we expect to continue to sustain this profitability position in the U.S. for the annual period ended December 31, 2026. This evidence is objective and verifiable and represents strong positive evidence that carries significant weight.

Current wording

We have demonstrated sustained profitability in the U.S. over a cumulative period of three years based on the U.S. pre-tax book income adjusted for permanent book-tax differences, and we expect to continue to sustain this profitability position in the U.S. for the annual period ended December 31, 2026. This evidence is objective and verifiable and represents strong positive evidence that carries significant weight.

Previous wording

Based on our analysis of all available positive and negative evidence, including the objective and verifiable positive evidence as described above, and anticipated future earnings, we concluded that it is more likely than not that the majority of our U.S. deferred tax assets are realizable. As a result of this change in estimate, we released a significant portion of the valuation allowance on our U.S. deferred tax assets in the current quarter. For further detail refer to Note 14 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

Based on our analysis of all available positive and negative evidence, including the objective and verifiable positive evidence as described above, and anticipated future earnings, in the prior quarter we concluded that it is more likely than not that the majority of our U.S. deferred tax assets were realizable. As a result of this change in estimate, we released a significant portion of the valuation allowance on our U.S. deferred tax assets in the second quarter of 2026. For further detail refer to Note 14 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.