Revenue of $1.560 billion beat the $1.515 billion estimate by 2.9%, and non-GAAP diluted EPS of $1.65 beat the $1.47 expected by 12.2%.
Full-year guidance was raised twice over: reported revenue growth to 20% from 18-18.5%, organic growth to 15% from 13-13.5%, and non-GAAP operating income and free cash flow both to $1.19-1.20 billion from $1.135-1.155 billion.
Operating leverage is the quarter's result. Non-GAAP operating margin reached 21% from 18% as non-GAAP operating income rose 39% to $325.7 million on 20% revenue growth, while GAAP operating income more than tripled to $148.6 million.
Fourth quarter guidance implies a step down in underlying growth: organic growth of 11-12% against 16% in the third quarter, with reported growth of 17-17.5% and non-GAAP EPS of $1.48-1.53.
The one thing that matters: the margin story is real and the guidance raise is larger on profit than on revenue, but the fourth quarter organic guide of 11-12% is the first set of numbers management has put against the deceleration question.
Key metrics
Metric
Reported
Prior year
Change
GAAP gross profit
$760.5 million
$ 632,077
up 20% year-over-year
GAAP income from operations
$148.6 million
$ 40,948
up 263% year-over-year
Non-GAAP income from operations
$325.7 million
$ 234,508
up 39% year-over-year
Non-GAAP operating margin
21%
18%
—
Free cash flow
$369.6 million
$247.5 million
Free cash flow margin 24%
Dollar-Based Net Expansion Rate
114%
109%
—
Guidance changes
Item
New guidance
Prior guidance
Q4 2026 revenue
$1,595 - $1,605
—
Q4 2026 organic revenue growth
11% - 12%
—
Q4 2026 non-GAAP diluted earnings per share
$1.48 - $1.53
—
FY2026 reported revenue growth
20%
18% to 18.5% previously
FY2026 organic revenue growth
15% year-over-year
13% to 13.5% previously
FY2026 non-GAAP income from operations
$1.19 billion to $1.20 billion
$1.135 billion to $1.155 billion previously
Quality of earnings
Reported growth outruns organic by four points. Revenue of $1.56 billion grew 20%, while organic revenue of $1.50 billion grew 16% after stripping $53.1 million of A2P carrier fees and $1.8 million of acquisition revenue.
The GAAP earnings jump is not all operational. GAAP net income of $161.2 million includes a $22.0 million benefit from income taxes, and nine-month net income of $1.32 billion carries a $937.1 million tax benefit from a valuation-allowance release.
Cash backs the quarter and dilution is easing. Free cash flow of $369.6 million at a 24% margin exceeded GAAP net income of $161.2 million, with stock-based compensation down to 9.9% of revenue from 12.2%.
Gotchas & watch items
Gross margin is the one line that did not improve: non-GAAP gross margin of 49% against 50% a year ago, with non-GAAP gross profit up 18% against 20% revenue growth.
A2P carrier fees are now material to the headline: $53.1 million of revenue passed through to customers at cost, which is what the organic measure removes.
Expansion is improving, not just pricing: dollar-based net expansion of 114% against 109% a year ago, the metric that measures existing customers rather than acquired or pass-through revenue.
The buyback is two thirds spent: $127.2 million repurchased in the quarter, approximately $1.3 billion cumulative, leaving about $700 million of the $2.0 billion authorisation that expires at the end of 2027.