Financial Trends -- 8/10
Twilio has flipped from a decelerating, cash-burning, share-diluting story (2022–2023) to an
accelerating-revenue, FCF-compounding, share-shrinking profile. Revenue YoY has accelerated for five
straight quarters into 20% in Q1'26; non-GAAP operating margin has expanded ~700bps over two years;
FCF tripled across FY2023→FY2025; and the non-GAAP diluted share count is down ~14% since 2023. The only
blemishes are a soft sequential FCF print in Q1'26 (seasonal) and a flat-to-compressing gross margin.
Neither is operational deterioration. No penalty modifiers.
Weight: 25%
Non-GAAP Op Margin
20.0%
+700bps over 2 years | Expanding
FY25 FCF
$945M
Tripled since FY23 | Growing
Share Count
Declining
-14% since 2023 | No dilution
Quarterly Revenue Trajectory ($M)
Clear revenue acceleration: +4.0% (Q1'24) to +20.0% (Q1'26).
Five consecutive quarters of accelerating YoY growth, capped by Q1'26 jumping to +20%. Driven by
Communications volume, A2P carrier-fee pricing, improving net retention, and an emerging voice-AI
cohort. Communications (~93% of revenue) is the engine of the ramp.
Operating Margin Expansion
Operating margins expanding materially. Non-GAAP op margin
rose +480bps from the 15.2% Q1'24 trough to 20.0% in Q1'26 (+520bps FY23→FY25). GAAP op margin swung
from -21% (FY23) to +3.1% (FY25), roughly +3,500bps. Opex leverage — not gross margin — is fueling
the operating-margin story.
Gross Margin -- The Soft Spot
Gross margin is the one metric going the wrong way. Non-GAAP
gross margin compressed from 54.1% (Q1'24) to ~50% (Q1'26), a ~400bps decline driven by Communications
carrier-cost mix and pass-through A2P carrier fees. This is the single reason the score is docked from a
9 to an 8 — the rubric's "10" requires broad margin expansion, and the gross line is compressing even as
operating margins expand.
Annual Financial Summary (FY ends December)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $2,841.8 | $3,826.3 | $4,153.9 | $4,458.0 | $5,067.2 |
| Rev YoY | — | +34.6% | +8.6% | +7.3% | +13.7% |
| GAAP Op Margin | — | -32% | -21% | -1.2% | +3.1% |
| Non-GAAP Op Margin | — | — | 13% | 16% | 18.2% |
| EBITDA ($M) | ($856.0) | ($1,133.6) | ($786.6) | $38.2 | $242.9 |
| Free Cash Flow ($M) | — | — | $363.5 | $657.5 | $945.4 |
| Non-GAAP Dil. Shares (M) | 174.2 | 183.0 | 185.4 | 169.2 | 159.8 |
| Total LT Debt ($M) | $985.9 | $987.4 | $989.0 | $990.6 | $992.3 |
Key trends
- Revenue re-accelerating: From $2.84B (FY21) to $5.07B (FY25), with annual growth re-accelerating from +7.3% (FY24) to +13.7% (FY25) and Q1'26 jumping to +20% YoY
- Operating profitability inflection: GAAP op margin swung from -32% (FY22) to +3.1% (FY25); non-GAAP op margin expanded +520bps FY23→FY25 to 18.2%
- EBITDA inflected positive: From -$1.13B (FY22) to +$243M (FY25) — a genuine profitability turn
- FCF tripled: $364M (FY23) to $945M (FY25), ~61% CAGR
- Share count declining: Non-GAAP diluted shares down ~14% from 185.4M (FY23) to 159.8M (FY25), buyback-driven with no dilution
- Debt flat: ~$0.99B senior notes, growing far slower than revenue — no debt penalty
Free Cash Flow ($M)
FCF positive and growing. Annual FCF compounded $364M → $657M
→ $945M FY23→FY25 (~61% CAGR); quarterly FCF YoY accelerated through FY25 (+33%/+31%/+174%). Q1'26 FCF
of $132M was down 26% YoY, but Q1 is seasonally the lightest FCF quarter on working-capital timing, and
TTM FCF remains near record. This is a lumpy-but-rising trajectory, not deterioration.
Share Count -- Declining
- Share count declining from the FY23 peak: 185.4M (FY23) to 159.8M (FY25), -14% on consistent buybacks ($253M repurchased in Q1'26, ~$900M remaining on authorization)
- No dilution: The turn from a share-diluting story (FY21→FY23 rising) to a share-shrinking one (FY23→FY25 falling) is a core part of the improved financial profile
Blemishes -- Not Operational Deterioration
| Blemish | Detail | Penalty |
|---|---|---|
| Gross Margin Compression | Non-GAAP gross margin fell ~400bps (54.1% → 50.0%) on Communications carrier-cost mix and pass-through A2P fees; this docks the score from 9 to 8 | None |
| Seasonal Q1'26 FCF Dip | Q1'26 FCF -26% YoY ($132M) on working-capital timing; Q1 is seasonally the lightest FCF quarter, TTM near record | None |
Neither blemish is operational deterioration.
Gross-margin compression is a mix/pass-through effect, not falling unit economics — operating margins
are expanding through it. The Q1'26 FCF dip is seasonal working-capital timing against a near-record TTM.
No penalty modifiers apply: FCF is strongly positive, shares are shrinking, operating income is rising,
and debt is flat.
Score Rationale
Score of 8/10 reflects a genuinely strong financial-trend setup: revenue YoY accelerating toward the top of the rubric, operating margins expanding 100+bps, share count declining, and FCF growing and accelerating on an annual basis. That is a 9 setup, docked one point to 8.
Supports 8/10:
- Revenue YoY accelerating five straight quarters to +20% in Q1'26 on Communications volume, A2P pricing, and improving net retention
- Non-GAAP operating margin +520bps FY23→FY25 (and +480bps from the Q1'24 trough); GAAP op margin swung ~+3,500bps
- FCF tripled FY23→FY25 ($364M → $945M, ~61% CAGR)
- Non-GAAP diluted shares down ~14% from the FY23 peak, buyback-driven, no dilution
- EBITDA inflected from -$1.13B (FY22) to +$243M (FY25); debt flat at ~$0.99B
Why not a 9 or 10 (no penalty):
- Gross margin is flat-to-compressing (non-GAAP ~400bps lower) rather than expanding — the rubric's "10" requires broad margin expansion
- Q1'26 FCF declined YoY on a quarterly basis, so the FCF-acceleration leg is not unblemished (seasonal, not deterioration)
Penalty modifiers: Negative FCF — N/A (strongly positive). Dilution over 10% — N/A (shares shrinking). Revenue up while operating income down — N/A (operating income rising). Debt growing faster than revenue — N/A (debt flat). No penalties apply.
Data sourced from Daloopa (company_id: 644). Fiscal year ends December 31. All financials in USD.