Q2 2020 Twilio Inc Earnings Call
Good afternoon, and welcome to Trillium was Q2 2020 <unk> earnings Conference call.
My name is David and I will be your operator for today's call.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session.
I will now turn the call over to Andrew Silly, Vice President of Investor Relations Mr. Silly you may begin.
Thanks, Good afternoon, everyone and thank you for joining us for Trulia second quarter 2020 earnings Conference call.
We are once again conducting our earnings call from separate locations. So we appreciate your understanding if we run into any technical glitches.
Our earnings results press release, SCC filings and a replay of todays call can be found in our IR web site at investors that Twilio Dot com.
Joining me virtually today, our Jeff Watson co founder and CEO, George who COO.
Because they might ship Chandler CFO.
As a reminder, some of our commentary today will be a non-GAAP terms reconciliations between GAAP and non-GAAP results and guidance can be found in our earnings press release.
Additionally, some of our discussion and responses may contain forward looking statements, which are subject to risks uncertainties and assumptions.
In particular, our expectations around the impact of the Cobot 19 pandemic on our business results of operations and financial condition and that of our customers and partners is subject to change.
Should any of these risks materialize or should our assumptions prove to be incorrect actual financial results could differ materially from our projections or are those implied by these forward looking statements I.
A description of these risks uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent report on form 10-K, and subsequent reports on form 10-Q, and our remarks during todays discussion should be considered to incorporate this information by reference.
Forward looking statements represent our beliefs and assumptions only as of the date such statements are made we undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law with that I'll hand, it over to you Jeff.
Thank you Julie and good afternoon, everyone. Thank you for joining.
Before we begin I'd like to taken me so to speak as you all know the last several months have been very difficult. It started with coated and the impact that this has had on the world that we saw the much needed brought her social movement run black lives matter.
This year has shown more than ever the important role corporations play in the lives of our employees, our customers and society at large and we take that roll seriously.
Racial justice is an area where companies Tulio included can step up and help drive improvements in multiple areas.
It starts by introspective personally as leaders and people in a position of power and as a company and how we can use our power to instigate change. It begins inside our walls one of our core values of the Twilio Magic is he inclusive and we have a body of work to do in order.
It is true we build the company that's representative of the world around US where every person knows they belong we are committed to that work and make small strides of progress each day.
We also know the power of coming together as a company.
Systemic and justice as we commit as a company to the principles of anti racism.
And as I've talked with truly arms around the world in the past couple of months I found that we have a company for people who supports this cause most the issue of racial injustice facing black Americans and other groups like Latin next and indigenous Americans.
Similar issues faced communities around the world in AMEA 80 Jays lets him I phone similar desires to gauge to do the work and to fight and each one of our communities for the issues of diversity and inclusion and belonging to face every community.
I'm humbled and inspired by all of you, especially in a year where people could say look you have enough other problems right now so thank you Tony ons for engaging and committing to doing this work.
We know our work as individuals as leaders as a company.
It's just getting started.
And we stand in solidarity with the Black community and believe.
Secondly, black life's matter.
Consider this my thinking you need to begin this earnings call now onto Q2 results.
We saw continued broad based strength in our business in the second quarter as our customers leverage tulio to build the future of customer engagement over the last several years, we've built a well diversified customer base across industries regions and company size that has driven our great results and now.
We're seeing the strength of that diversification really play out during coking as we've seen new industries, new use cases, offset some of the more negatively impacted areas companies are adapting quickly to this changing environment.
Over the last few months, we've seen univers long digital transformation roadmaps compressed into days and weeks in order to adapt to the new normal as result of Coca 19.
Our customers in nearly every industry has had to identify new ways to communicate with their customers and stakeholders from patients to students to shoppers and even employees essentially overnight.
In fact in a recent Julio Global survey of more than 2500 enterprise decision makers 90, 70% believe covert 19 has accelerated their companies digital transformation efforts. We also found that companies digital communication strategies were accelerated by an average UBS.
Years barriers like lack of clear strategy are getting executive approval reluctance to replace legacy software and lack of time have broken down budgets are increasing as companies are seeing new ways of engaging customers.
As we remarked on the last call Tulio, what's built for this the things we've always brought to our customers digital engagement software agility and cloud scale are enabling organizations to innovate now even faster than ever.
Messaging email voice and video are allowing companies to engage with better customers safely, while we imagining their digital engagement strategies in ways that will be resilient for years to come.
This effort is the focus of every executive team at nearly every company.
Not only are we helping companies figure this out now, but we aren't engagement platform that was built for the future and we believe the solutions being built today will be the standard for digital engagement going forward.
In addition to the traditional use cases, we've always power we continue to see additional traction in healthcare education financial services retail contactless delivery an E. Commerce. In fact I was recently speaking with the CIO of a major retailer who said they saw their ecommerce adoption experienced five.
Five years of growth in the second quarter alone.
That need to scale every part of the business to meet that demand is substantial and in order to service those customers and meet that surging demand they turn to twilio.
We're also seeing companies face the same challenge when it comes to their Workforces, how do we adapt to this new dynamic of work where work in homes are blended and we don't go into the office every day.
While it would be nice if we could flip the switch and return to normalcy I think that the coming years will present, a more fluid version of work companies would Dax now im prepared to serve the needs of a more agile workforce will be the ones who thrived for example companies must prepare for customer service agents to work from home run.
Other than a crowded call center.
Retailers, who rely on the expertise of their in store sales associates will need to create workflows, where those employees can still advice customers digitally.
Thanks will need to replace their traditional in person branch processes to online services and the tools and services that keep these agile workforces up and running like Tulio, we'll continue to see demand increase.
We're just scratching the surface of this huge opportunity as companies around the world Reimagine their customer engagement for the digital world.
This is what Twilio has always been focused on and now this opportunity has been supercharged as customers continue to use our customer engagement platform for new use cases brought about by the current environment.
Well, there's a lot of uncertainty in the macro environment, we remain cautiously optimistic about our opportunity for the remainder of this year and we're even more excited about what we can do in the long run before I hand, it over to George I want to highlight a couple of other items I want to welcome Michel Grover as truly owes new Chief information Officer.
Michelle joins us from Sep concur and will be responsible for the technology systems and processes that drive innovation and growth at Twilio ultimately empowering the company to better serve customers. We're thrilled to welcome her to the team.
I also want to remind everyone that signal our customer in developer conference is coming soon from expert speakers sessions product deep dives speaker panels, and more signal delivers powerful impractical sessions to build legendary customer relationships with tulio, you'll learn how to unlock the power of a single communications platform to engage.
If your customers anywhere on any channel it will be a virtual event on September Thirtyth October Onest and you can register today and Twilio Dotcom slash signal.
Finally, I want to thank our employees for their dedication to our customers. During this unprecedented time and for delivering these great results. I also want to think all of those who are on the front lines of this pandemic and continue to fight to keep us healthy and safe our food supplies continuing on our stores stocked. Thanks.
You for everything you're doing for the rest of us with that I'll hand, it over to George George.
Thanks, Jeff.
Against the backdrop of a very difficult macro environment. The first full quarter of remote work our team pulled together, it's delivered great results in second quarter.
Our investments in the enterprise.
Expanding internationally and growing our partner ecosystem continue to drive great outcomes as we are helping companies across industries and around the world with their digital acceleration efforts.
Our marketing team transitioned several events from in person to virtual putting multiple encaje everywhere event.
For the industry specific event focused on health care and retail.
Our developer relations team drove great results with more than 1 million unique visitors to our blog during the quarter.
We were able to shift our customer hackathon to virtual experiences for multiple companies.
I can't help companies reimagine their customer engagement strategy using the Twilio platform and we continue to see digital transformation projects accelerating a company that organizations of all sizes at across industries.
As Jeff mentioned Cobot is accelerating the digital transformation efforts of companies that organizations everywhere, because there's no such thing as routine customer engagement anymore and our opportunity has been supercharged in light of that's driving some great new deals in response to coated.
Few companies have seen as an explosive growth as soon as a result of coded and with that growth they needed an email platform that would scale to match their needs.
Already it's really all customers in an email knowing we offered a platform that would consistently deliver email in a timely fashion at scale.
Well deliverability and speed to support their customers during this massive growth phase.
We expanded our relationship with Pell upon the largest interrupted fitness platform in the world with more than 2.6 million members.
They needed an email infrastructure that would grow with that.
Hello, hogs elected to fill the of email platform for all of their marketing emails to optimize deliverability allow them to integrate quickly and provide the scale they need for the future.
There's also never been a better time to be into contact center space.
We're happy with the momentum we've seen reflect the date.
The flexibility of the platform allows for many different use cases outside of traditional customer service.
One area, we've seen great traction in the contacts racing.
Well, we've worked with several universities and city and state governments tough and prepare to reopen safely and efficiently.
In Q2, we signed more than 25 transactions with these organizations, including New York City and New Mexico.
Flux also allow companies to cut costs by moving from expensive on premise implementation to the cloud.
Adventures a portfolio of digital companies, but looking for ways to cut costs, while continuing to provide great service.
Having use the legacy on premise is vendor for more than 10 years Red ventures chose fully reflect to provide a cloud based solution to drive cost savings, while delivering a highly customized sales experience.
We also entered into a new relationship with BG L. group, a leading digital distributor of insurance and household financial services over 10 million customers.
EG Els existing legacy solution did not allow for large scale, we're about working and requiring staff to stay in the contact center was not acceptable.
EG I'll turn to truly are flat to deploy a remote contact center nibbling several hundred agency up and running in two weeks and according to the BG L. team drove a straightforward decision to change.
Our results also show the power of our diversified go to market supporting companies of all sizes across multiple industries and geographies.
In the enterprise, we expanded our relationship with a fortune 50 company, serving millions of customers a week, they're seeing a spike in usage of their buy online pick up in store option and they needed a solution to verify the customer phone number at checkout or a pickup.
This company is shifting from buying 80% of their software to building, 80% of their software and selected truly owed to build a solution using trolio verified look up that's enough voice and email.
We entered into a new relationship with a fortune 50 multinational company they needed a more efficient and effective way to issue escalation alerts and notifications from their service now Command Center.
They will be implementing service now notified powered by Trolio SMS and voice seamlessly deliver these critical communications the global employees and executives to ensure fast response times for their customers.
We entered into a new relationship with TV already Spain division of the world's largest commercial real estate services for.
Like many companies CB, our east, Spain was trying to imagine what a return to the office would look like.
Their head of digital and technology stepped up and built and solution and less than 24 hours using twilio studio.
With Tulio voice Ivy, our SMS and email employees can now book a debt over the phone for Stephen SMS accounted for more information about the reservation and finally receive a personalized E mail with authorization to returns at the office.
Globally, we've also had tremendous success.
We entered a new relationship with took a PDF and Indonesian technology company with a mission to democratize commerce through technology.
With the exponentially increasing traffic due to coded took a PD it needed to secure and reliable solution to support their growth and selected Twilio for SMS notifications.
We entered a new relationship with you on next a company that provides electricity and gas more than 5 million people in the UK beyond next is delivering.
And developing a new customer engagement platform in an effort to become the leading residential energy provider.
They are leveraging Trillium voice messaging email to build this new engagement platform and we're excited to support them in their effort to deliver the best customer experience in the industry.
We expanded our relationship with car Finance 24, seven UK number one car finance broker.
Turning their customers from initial loan application to car purchase they had been a great customer of ours for years and this quarter editorial flexed for their customer support and sales contact center based on the flexibility scalability of the flex platform. We're excited to continue to build on its great relationship.
Overall, I'm very proud of the entire team for their performance through the first half of this year our investments in enterprise go to market International expansion in our partner ecosystem are paying off and are setting us up for long term success.
We remain focused on supporting our customers through the current environment and helping them build customer engagement solutions for the future.
And finally to Echo Jeff I encourage everyone to register for signal to hear all about how you can leverage tulio for your own customer engagement needs.
With that I'll hand, it over to Cosima.
Thank you George and good afternoon, everyone.
Total revenue for Q2 grew 46% year over year to 401 million dollar based net expansion it was 132%.
As a reminder, this was the first quarter, we fully lapped the separate acquisition.
Reported numbers do not require an organic adjustment.
Recall that Q1 organic revenue growth and dollar base net expansion were 48% and 135% respectively. After adjusting for the one month stub period.
During the second quarter, we continued to see a net positive increasing usage during covert 19 relative to our expectations.
Well some of the more negatively impacted verticals showed a slight come back there still below their pre cobot levels. However, use cases within healthcare education ecommerce and others continued to offset the headwinds.
Reemphasizing Jeffs comments earlier, we have a well diversified and resilient business model.
Well it was built for this and we remain cautiously optimistic about the remainder of the year and as enthusiastic as ever about the long term.
Revenue from our top 10 active customer accounts represented 15% of revenue, which was flat sequentially and up from 13% last year.
International revenue was 27% of total revenue in Q2 compared to 28% last quarter and 29% in Q2 2019.
Whatsapp contributed approximately 7% revenue, which was flat sequentially.
Horizons, ATP or application to person messaging be contributed approximately $7 million to revenue.
As a reminder, this fee is a direct pass through to customers and does not impact gross profit dollars.
Second quarter non-GAAP gross margin was 56% and was negatively impacted by 100 basis points from 80 bps.
Non-GAAP operating profit came in at $10 million stronger than originally forecasted there were two primary drivers for this outperformance one higher revenue than forecasted which was the largest contributor.
And to cope unrelated items, including hiring travel and office expenses among others.
Moving to guidance, we continue to watch the same economic indicators as all of you and it is clear that the macroeconomic environment remains uncertain.
In context, we're only providing Q3 guidance and we expect revenue of 401 to 400 $106 million, including ATP fees for year over year growth of 36% to 38%.
We expect a third quarter operating loss in the range of $10 million to $15 million.
Our focus for investment remains the same continuing to build out in R&D Center of excellence in India hiring and go to market and systems infrastructure.
Given the inherent difficulties of hiring and infrastructure building, while we're all working from home. We do expect some of these investments to continue next year.
We're highly confident in the ROI. These investments will produce over the long term and are making them with the strong balance sheet.
One other important note you mentioned with regards to operating expenses the signal our customer and developer conference signal will take place virtually September Thirtyth two October onest incurring expenses in both Q3 in Q4.
We originally forecasted signal expenses to be about $10 million before moving to a virtual event and any cost savings from hosting signal virtually will be reallocated to other marketing areas.
We are still planning to host a virtual investor day on October Onest to coincide would signal we are finalizing logistics and we'll provide more specifics in the coming weeks.
Finally, I wish everyone, well and I hope you are all healthy unsafe. Thank you for joining operator, please open the line for questions.
Certainly.
In order to ask this question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q and a roster.
Your first question comes from the line of metal Marshall with Morgan Stanley. Your line is open.
Great. Thanks, maybe.
Maybe first question just on how its cobot informed where are you or how you continue to evolve. The platform are there areas, where you know it's been highlighted by customers that they would like more investment or more capabilities.
And then second just you know how has it changed how the Ais b or ESI community has their interest level and working with you guys and level of engagement with those communities. Thanks.
Thank you Peter this is Jeff I'll I'll take the first part of the question then or maybe all of George answer the second part well with regard to how we're evolving the platform. Yeah. I think there's two parts to that answer first is one of the neat things about being a platform.
In being able to items that can be used to build so many different things is that we don't necessarily have to like rebuild our product for new scenarios or new use cases that arise because of cobot in many ways. Our platform approach allows us to be adopted very well to changing circumstances, and so that really makes our product.
Very perfectly oriented towards uncertain times like this you know I've talked about how the need for software agility is one of the key things at the World has needed. During this time to respond to to unprecedented events. So I think our platform is.
Nicely oriented towards helping our customers solve problems that maybe didn't even really exists in the world six months ago, but as far as how we are adjusting a roadmaps. There are adjustments that have been made for example, you know we are investing quite a bit in our video product to respond to new demand and new use cases that are rising or heard excel.
Rating in their demand because of coded and so that's an area, where we're focusing focusing our energy as well as many of the new use cases that are emerging because of it because of things like contact list delivery or tele health or distance learning right. These bring about new use cases or growth of existing use cases that may have existed before.
We're achieving new levels of interest and scale.
And then those things will then help US were just a roadmap, but like I said as a platform I think we're really well positioned already to be able to capture new workloads as they emerge. It sounds like we have to go reinvent our product or build a brand new product for these emerging use cases, and that's a pretty good attribute of a platform business like ours without let me hand over to George Sutton.
About the the ecosystem.
Thanks, Jeff I think that what we're seeing an ecosystem mirrors a lot of what you said certainly on the IC side, we've seen traction with a company that are developing new and disruptive business models to try and address covance scenarios. So we've seen growth and I see that are focused on.
Changing education through a remote proctoring, we've talked about our relationship with epic and we're definitely seeing more companies in the Tele health space Isvs want to work with Twilio and then on the on the high side. It's also been a catalyst for us.
To build relationships with size.
A good example that would be what we're seeing on the contact tracing side.
A lot of just Contactors use cases with state local government, they're bringing I saw it helps them up to the work and these pfizer being introduced to Twilio and in some cases deepening their relationship with Tulio because of this and as they learn more about us and see what's going on with our technology. There are more and more excited about it because it's such a great fit for this time in place so.
Overall, I would say, we've definitely seen it as a catalyst for improved growth in relationships in some of these specific areas.
Great Thanks and congrats.
Your next question comes from the line of Alex second with RBC capital markets. Your line is open.
Hey, guys. Thanks for taking my question Congrats on a great or maybe just to for me. The first maybe just help us understand a little bit around the magnitude of the headwinds that how much improved and whether you're seeing some of these new tailwinds in the structural change.
To the way that your product this even perceived in the marketplace and then as a follow up just maybe comment on dollar base that expansion expectations for Threeq, you and anything we should keep in mind of as we model or the that metric for the rest of the year.
Yeah, Hey, Alex this is because AMA. Thanks for the question.
Around dollar based net expansion I mean, that's not a metric that we guide to so I would say we feel good about the broad based strength of the business generally we feel great about 132 that we put up in the quarter and we do and we've said this for a long time, we anticipate the that metric over some period of time will fade out of interest.
Law of large numbers at some point, but we feel great about kind of where we're headed right now and the performance of our customers in terms of some of the impacted industries I think that was the first part of the question.
The impact that industries that we called out there there's still a little bit down I will say that we are starting to see some green shoots you know, we basically called out in the past.
Right share hospitality travel.
And we are starting to see a modest rebound I wouldn't say that are anywhere near the levels that they'd been historically, but we are starting to see a little bit there and then I think on the plus side you know some of the other areas that Jeff had called out previously around education healthcare E Commerce, even philanthropy I think these are now becoming kind of secular.
Tailwinds for us and so I think we're starting to see structural changes in consumer behavior, what you're going to drive some ongoing and long term strengths and those industries for us.
Perfect.
And maybe just if I could sneak one more in anything you guys can talk about with respect to election related spend and kind of where you've seen that trend either in the first half and what's the right way to think about that and the next quarter.
Yeah, we're not we're not really breaking it out Alex in terms of you know the revenue impacts of that traffic. What I will say is that in Q2, we did see a healthy amount of political use cases in the quarter and I think as you can probably imagined that with a lot of the events in rallies being canceled staying in touch with constituents via the pros.
We offer email messaging voice becomes really important, but we haven't really changed our assumptions around political traffic for the remainder of the year, but we are starting to see some activity there.
Perfect. Thank you guys.
Yeah.
Your next question comes from the line of attained Kidron with Oppenheimer and company. Your line is open.
Hi, Thanks, Hi, guys, Congrats fantastic quarter, I guess I wanted to have a couple of questions first floor.
George on the international sometimes how the tissue activities here, but it seems like your girlfriend, there on a year over year basis.
Decelerated quite substantially so help me understand how much of that was up.
Business activity or is there anything unique to redo your international markets <unk>, maybe because they're not maybe there's different effects impact here will love to get done insights on data Dan.
Because they're not just wanted to make sure I understand your comments on your Opex I understood I certainly understand the higher revenue as a driver for for higher operating margins.
But last quarter, you kind of detailed a plan to aggressively hired this year and pool hires from mixture introduce year are you basically, saying you're not able to run at a pace said you're planning to do.
[music].
One and I start and then because in the can go into the hiring pieces, George so interest or the international mix.
But certainly it's changed marginally as you continue I talked about in the numbers in terms of our percent of revenue from international.
Largely oh, we.
Attribute that to a relative coven impacts honestly is expected of us a slight difference there in terms of what we're seeing in other markets relative to North America on North America, We've definitely seen I was that maybe globally. There has been similar and hopped in certain industries, but we've definitely seen.
Some of the Counterbalancing forces and certain industries I picked up to be little bit more active in North America.
And you know that that's that's a byproduct from also little bit about the of the fact that our distribution little bit more mature.
With America, but it's nothing like either small deltas. So you know we're not you know you know not not concerned about it.
Something that we think this largely toprol as we all go through this pandemic impact together I'll turn it over to them on our funds.
Great Hey.
Part of your question George was also around FX I wouldn't say the FX was immaterial impact for us in in Q2, obviously rates have moved a little bit around and watch that for future quarters in terms of your question around operating expense.
You're right that.
In part slower hiring was part of the good news that we saw in Q2 I would say the preponderance of it honestly was driven by our revenue beat so I just want to kind of put those in proportion to one another but what we saw in Q2 and it was a little bit a continuation of what we saw in Q1 is that we continue hiring we continue making investments in infrastructure, we called out a few.
With the specifics around the R&D center of excellence or are our investments and go to market systems and infrastructure. The reality is just harder to.
To do these things at the rate that we'd anticipated when we started the year and we keep updating that as we go through the year, we're hoping to catch up some of that in Q3, but I think theres going to be a little bit more spend associated with that as we go.
Very good good luck guys.
Thanks Peter.
Your next question comes from the line of Nikolay Beliov with Bank of America. Your line is open.
Hi, Thanks for taking my questions Ben and thanks, so much to the theme for making it easier for all of US dialed into these calls and I'm. Just curious is that the window into phase you're using for the first time this quarter.
Kind of reliability, we had changed it is not it is not Antonio interface for this this quarter.
Okay look forward to the new into fighting in the future. My question is it on the fly a flexible really a great traction consistent with our fuel check.
And one thing that we heard from your Flex partners, which then to of course, so some of the smaller like they'll do that well liked is more of a framework crowd on actual product. He thinks whenever its want three months to install flex and you guys are you prepared remarks, you were talking about a two week got like.
Implementation cycle, which is which is amazing. So this deep this still seems to be some lingering perception that selective more of a framework rather than an actual product. It doesn't nishu. When you sell cycles than call you guys are addressing that if that's okay.
Well this is George I mean, certainly and like the value proposition of flux is around the word flexibility.
The product can be highly tailored to the needs of a customer which is one of the great selling proposition with a product obviously to to do that tailoring that customization.
Cars, some amount of time and it really depends on the complexity of the use case. So you know we definitely can get customers up and running for you know for to get started within a couple of weeks and get a lot of value out of it then usually those customers overtime wants to do more and more so I really I think depends on.
The nature of the nature of that use case, you know just moving agents home or setting up an IDR can be relatively quick to do a full rip and replace a complex contact center. It's you know realistically not going to happen in two weeks I don't care, what what product in the world [laughter], you're looking at but but flux definitely is fantastic products and you're right. It is getting traction.
Second place the value proposition is resonating and I think those steel checks you're doing are on in terms of the demand and I think as people get more educated about the platform and the value proposition I think people shouldn't realize that this model is actually the future. So we're excited about it we're seeing a excitement in our partner community as well.
And the quick follow up because im up because the multiples the linearity in the quarter April versus neighbors to join them and what trends are you thinking them up on July that's it for me. Thank you.
Yeah, I'm not going to comment on the current quarter I would say I mean, it it's been pretty steady I mean, we don't typically break out linearity in terms of our performance, but we're seeing a pretty consistent results through the balance of the quarter.
Thank you.
Your next question comes from the line will power from Baird. Your line is open.
Okay, great. Thanks, Yeah, a couple of questions.
I guess, probably first for 'cause aim as as we think about Q3.
I didn't see other revenues up a bit sequentially, but you know, but not to degree that we've seen in past years I guess I just wonder if you can comment on the broader trends you're seeing it in the business are you seeing you know any kind of meaningful slow down and traffic and to what degree perhaps as conservatism part of that just given some of the ongoing uncertainty.
These.
And then I wanted to come back to Jeff some of the comments on new use cases, I wonder if you could expand upon perhaps what you view some of the more innovative use cases and.
How you're thinking about the staying power of some of those use cases, as we kind of move past suspended back at some point.
Yeah, Hey, relevant because then I'll go first and then I'll turn it over to Jeff.
In call it anything specific in terms of our Q3 guidance I mean, we've delivered great results in Q2, and we continue to see broad based strength across a very diversified business you know as I mentioned on the call. We continue to see all the same economic indicators that you do and I think there are still some questions around the macro.
Vitamins, so we're definitely cautious optimism cautiously optimistic about Q3, and the second half a year more broadly we're extremely optimistic about the longer term, but you know, we're having a kind of hard time predicting the future and the very near term and so I think our Q3 guidance, putting aside and sequential certainly shows.
His continued strong growth on a year on year basis, and we're very comfortable with a with a range we provided today.
With that maybe I'll give it over to Jeff.
Great. Thanks, well for the question, Yes, I think we've seen so much innovation go on in the last six months in related to coded and I look at this is an acceleration I think that's how are customers due to yeah. We mentioned that survey that we did which essentially cobot is accelerating plans when things they might have dabbled in or maybe taking their time with Uh huh.
I've been really accelerated because of the necessity of Covisints I look at some of these really innovative use cases like one of them all obviously curbside pickup.
Like I've been a customer reviews curbside pickup a workflows at retail businesses, where you order online and the basically you drive by and it's a very streamlined workflow when they basically throw your your bag into the back to your car and you keep driving and it's like you know if you're going to the to the store to pick up I don't know like a bag emotional lows and like what you want to walk.
Into the store and have to go find the right ill or do you want to its like use a great convenient interface on your phone and and then basically drive off text something like I'm here and have them, putting their car and I think that even after koby. There's over these workflows are going to be really powerful way for bricks and motor retailers to provide a great customer experience.
Merging their mine presence is also reflected bricks and mortar presence you know what are some other use cases that I think a great. You know I think tele medicine again is a fantastic. So the use cases I'm very happy that we invested in hip I'll compliance across many of our products are really starting like 18 months ago. So that we could deliver that functionality earlier this year to when a customer.
It is because you think about the convenience of a tele medicine visit for a lot of visits I think doctors are finding.
That's the convenience level for a patient to not have to take half a day off a work in drives sometimes the whole understudied to get to the medical center, where they've got the specialists with the expertise, but rather just fiber camera and almost like just a meeting that you might have in your calendar for half an hour be able to see a doctor and get the same level of care.
For for substantial number of the medical visits that go on their country. You know that is that's pretty game changing from people's ability to get care and so I think organizations, but to a really good job of delivering video care are going to essentially have an advantage in the market with patients you know another a particularly innovative use case.
That we've seen bank branches, many and closed on being able to open accounts all done via video that's an emerging use case to replace that in person having to fulfill line you know no your customer be able to have to go into a bank branch open an account that can now be done virtually and then I thought the customer that we talked about on the call actually CBR eat in Spain, If you play.
Talk about that solution like they need people to go back to work, but work is going forward is not going to be like work used to be like I think a lot of companies are not just gonna have like one desk per person and you know the been conference rooms that were used to have like the nature of what office environments are gonna be like he's going to change and CB already and it really.
State space is kind of ahead of the game here. If you will in that they are you know deploying these workflows for like do you want to go in you know basically essentially submit your desire here you get notified if you're allowed to go in you get assigned the desk you get everything digitally we assigned to your your phone for that day like those are the types of new workflows emerging.
Cool offices to be open safely conveniently and using all this digital technology to manage of workflows.
Basically didnt exist six months ago organizations like CB already I really am a leading edge and I think that that's there and again I think a lot of his office environments are going to be changed permanently not just temporarily because of hoteling and people working more remotely that'll probably go on how long into the future.
Those are great examples thank you.
Thank you will.
Oh, okay.
Question comes from a line of Michael turn with Wells Fargo. Your line is open.
Hey, there thanks, and good afternoon off to two questions from me I'll ask both upfront.
Net customer adds the pace there continues to impress you're now at 200000 active customers is is there anything happening there more recently with some of the new use cases that is pulling some potential new customers for word or can that trend persist maybe not at the pace.
We've seen but given where penetrations arbors. The total opportunity just could be curious your your view there and then George no. It's relatively still early on the go to market evolution for Trulia, but is there anything you're seeing that could lead to more verticalization of the salesforce and a few focus industries like healthcare financial services or education. Thanks.
This is Georgia. Thanks for the question I'll take a crack at both of those and then certainly anyone else can comment.
In terms of it that they're not customer ads I mean definitely what we've seen a consistently across our funnel is a lot more experimentation happening.
As people I'm trying to figure out how to adapt to changing circumstances I think that's all part of this digital acceleration trying to just talking about its not certainly confined to one one use case or or one specific subject matter and what's interesting is as we look our numbers.
What kind of document or possible and all of our you know inbounds.
Use cases, they come in and it's not like they're all focused on one thing or even as certain early cobiz used cases have come back a little bit. There is another thing. So I think it's a very diversified interest in digital acceleration across different industries and geographies I think that's what's vessels healing not.
In terms of the Verticalization.
We I do think there is an opportunity for that for us to do more of that in the future. We have some greats specialist resources right now ready.
In areas like health care, and and financial services as well as.
You know in in a in the we're seeing opportunities in local state and local government for example of contact tracing. So you know we're certainly today still mostly a geo and segment based distribution organization, but you see an opportunity across you know us is kind of normal course of speed things over time to do more.
Greetings and we're really excited about some interesting and healthcare for example, after our kept the.
Capability announcement earlier this year, it's really I think open the door for us to build out more and more of those conversations which is really really exciting for us.
Thank you.
Your next question comes from the line Derrick Wood with Cowen Your line is open.
Thanks, and congrats on a great quarter, Jeff Your survey was pretty astonishing, particularly around you know finding that the average enterprise is pulling forward there their communication engagement strategy by six years and I'm. Just wondering if you could give us a flavor of how the scope of engagements is changing for you guys, particularly with.
With larger enterprises, and I guess I'm looking at.
Our our companies looking to do bigger overhaul of their communication technologies at wants or take on bigger pieces or are you seeing kind of an acceleration of replacing legacy or or.
Seeing more executive level involvement just that would be great to hear how you're seeing the engagements a ball.
Yeah, absolutely there. So I think what we're seeing is a like a broad set of used cases in a broad set of companies and so it is deferring a bit by company. Obviously you. Many companies are focused on short term needs first right. When you had to send all of your workforce home and they weren't able to do their jobs anymore and well that's the top priority for.
For a company and that's kind of what we're looking at Ruby and Kobin and but as as like as I called coping response version, one which was like scramble to get stuff done based over the course of like a weekend or a few days.
Has that stabilized a lot of organizations lot of industries. I think have started to think about okay. What is version two of the sounds like you know what do we really want and I think that's where you're starting to see like you know like our deal with epic in health care space, which is hospitals wanting to put in a vertically specific solution for health care.
We will serve them long into the future.
As opposed to a more horizontal solution that was maybe version one of that solution and so I think that sort of a trend that you're seeing play out which is like first is the kind of initial response and then playing out where people are building more integrated more use case or vertically specific answers to how they are they're building and I think.
One thing is given that urgency of these use cases the importance of solving these digital transformation problems quickly during coated well that is accelerating many of the introductions to new businesses that were seeing Im sure. George as you know examples of that as well as just the strategic importance of the work that companies.
They're doing with Twilio, Yeah, we are important as a strategic partner to companies has grown quite a bit this year because in many cases the use cases no workloads that we're seeing have direct line of sight to CEO visibility and C suite importance, where maybe before Kobe they weren't quite there yet and now they are definitely.
No.
Line of sight for key decisions and key strategic initiatives are going out. These companies on a George is there anything you would have.
I think that's spot on and I think we've already talked about in our in our on US core script. Some of the logos that weve been able to bring in some new some existing but I think the common Brad is that if you look at all of these customers. We've talked about we're talking to and we're selling to a higher level than before.
The decision is moving quicker.
And oftentimes what we're seeing is that these projects are.
Phase one two something bigger so theres more on the plate, whereas before maybe it was just isolated transaction and or these are expansions of existing relationships, which just shows that we're continuing to go grow in our depth and quality of relationship.
Customers and I'm very excited about signal I think we're in a house are you know our best showing yet for example for our creator summit puts our executive track I think you know every year, we see the titles get a little bit higher competition to little bit more strategic and I certainly anticipate this year as signal we'll have more.
As a virtual event.
Great. Thank you.
Your next question comes from the line of Alex Kurtz with Keybanc capital markets. Your line so.
Thanks can you guys your me okay.
Yep, that's weekend, Greg just that.
Thanks to the fact, the flex and now that you have more time looking at deals in the pipeline and seeing how customers are interacting with the platform.
How would you say it.
Materializing as far as deal size now that you've got a couple more quarters that is the same roughly the same.
Kind of landing planning size in the first couple of iterations of how people are using it.
And I guess the sales cycle.
It's a little bit different than the core platform and how its deploy cited me a little bit more context is as you guys have taken a little bit more time look at the pipeline and how its progress so far.
I think it's hard to it's hard to generalize it because if you were just looking at like you know raw average dollar value per.
Opportunity I think it'd be misleading.
That you know we are seeing some some large transactions in the pipeline you know the working on but a lot of these covenant is done it's really triggered a lot of these shorter term.
I would say short term, but like initial deployments that people are in a kind of us as Jeff oncology phase one Kobe getting people getting something had to get it done in context, which is Great example, where you know even if eventually they want to get thousands of contact tracers and starting point typically is a much smaller number not so if you look at the initial deal size I think it's kind of misleading.
What we are seeing is faster engagement for certain projects that are more time sensitive and also beginning of what we hope to be larger and larger projects. Some examples I mention plus details. Good example works you know we think there's an opportunity to do even more with them overtime. So I think somebody's initial deal sites or a precursor to.
Bigger opportunities for us down the line and I think Thats were excited about it for planting a lot of seeds.
During this period and we're getting a word out about flex and people are really liking, what they're seeing which is great.
Thanks.
Your next question comes from the line of Heather Bellini with Goldman Sachs. Your line is open.
Great Hi, most of mine had been answered, but I just had two quick ones because im not just on the Ada P. For the third quarter is it should we be assuming you know just as a baseline roughly the same as the 7 million you got in this past quarter and then I had a question Jeff just if you go back to.
January onest prequel that being on anyone's mind can you kind of think about what your three year outlook was for flex and adoption and you compare it to how you feel now how would you characterize the difference in how you're feeling about you know just kind of the trajectory of that business and that's it.
Thanks.
Hey, Heather this is because im I'll take it first and then turn it over to Jeff in terms of ATP I would say roughly order of magnitude. The same it's obviously going to vary a little bit with volume, but you're in the ballpark for sure.
Jeff Thanks.
Oh, Hey, Heather this is Jeff. So yeah I was first flex goes I mean, I think that the fluxes already off to a fantastic start as a product I think it's a extraordinarily compelling value proposition for customers to be able to finally movies workloads into the cloud right and as we've talked about in the past. Its you talked to analysts that was something like 85% of contact center west.
Oh on Prem.
Despite the fact that customers want its movies workloads into the cloud and flex was a product that it was allowing them to do that and I think hopefully there's only accelerated the adoption of that idea you know we talked to customers. There's a lot of customers who had plans to move their contact centers into the cloud and these were multiyear roadmaps and those will have some.
Just been getting compressed now we've talked about some of them more extreme examples of like Oh, I think I'm done or weekend and those are great. Examples to talk about but I think the reality is that the majority of these ones, they're not going to get on the weekend, obviously, but those roadmaps are being compressed from years, probably down to quarters and I'm really excited by the conversation.
That we're having with a wide range of companies about the long term plans my contact centers and how coated in some ways, it's been an accelerant to make decisions.
To invest resources into really modernized how they engage with customers using these digital channels and part of the driver of that as we've talked about the palaces work from home agents and the flexibility that the cloud enables for those employees to work from anywhere, which I think is really important given the agile workforce that everybody is planning for now not knowing exactly where.
For those employees are going to reside when they do the work, but also because new channels are enabling new ways to flexibly and it scale will be able to communicate with customers things like messaging and when those things we hear a pretty consistently from customers on slacks is that messaging, so SMS or what SAP or Facebook messenger using these messaging Chen.
Models together engage with customers in many ways as game changing I think flex is the best message you're going to contact center out there and so I think that's another driver that was existing before covance and now because scaling up these digital channels is getting even more important flexes and even more valuable value proposition for customers because it's.
The reasons my flex is a great product for the market before covered and now because of coven, that's even accelerated.
Thank you so much.
Your next question comes from the line of Mark Murphy with JP Morgan Your line is open.
Thank you I'll add my congrats.
So Jeff we've heard some commentary from your peer group that increased usage, there was driven by covered 19.
Back in April and then it has dissipated month over month, but it's remained at an elevated level.
Some of that might have related a little more to the video conferencing scenarios I'm. Just curious did you sense that too to an extent or are your use cases broader such an accent that it that it doesn't apply or that it's kind of getting counteracted by the other scenarios that are newly emerging.
Well given that we have a almost entirely usage based revenue model by the magnitude of our of our performance or beat this quarter. I think you would say that's a usage continued to grow.
And when you look at the factors as Cosima talked about in in earlier in the prepared remarks.
There are some headwinds to certain industries, and we spoke with customers and helping them to build through the crisis, but they have seen decreases in usage for certain of those key travel hospitality type industries, but that's been more than offset by increases across the board and a number of other industries as so many different kinds of companies.
In so many different verticals have had to invest in digital accelerate those digital plans and really build great digital customer engagements to be able to serve their customers. During this time and lung beyond because this is clearly the trend that the world's going on and so those plans that have been accelerated per survey you know companies took their plans and accelerate.
Done by on average six years.
And that's a pretty powerful tailwind for us.
Thank you.
Your next question comes from the line up in that Stotler with William Blair. Your line is open.
Hey, guys. Thanks for taking my questions first one just another another question on flex.
Some positive headlines around flex adoption.
A lot of interesting used cases in ways is being leverage in this current environment well, let's touch base on where we are in terms of the feature functionality and it was a year that you guys. It position does kind of reaching that critical feature functionality for broader adoption.
To give an update there and any compelling opportunity that you see that further capabilities from here.
This is George I'll comment from fuel perspective, and then maybe just wants to comment product perspective, Yeah. Sorry, certainly you know we are we are executing our plan. So we're definitely seeing the product velocity be on pace.
And so we are we are.
Delivering more and more capabilities.
Would expect so and we're seeing that play out in terms of course assessment field. So overall I think we feel good about our product philosophy always more to do the nature of software.
This is a critical year for us, but but overall, we're happy with the progress Jeff If you want to add more color.
Yeah, absolutely you know, there's always more features and functionality to add based on customer need.
Yeah, I think that the key thing that we have done reflects has got the sort of the bones that product rights architecture, the core value proposition, but forgot inability model that allows customers to go build on top of it you know those are things the industry Hadnt seen before when we introduced in a way that enables companies to move really sophisticated workloads to the cloud.
Pretty unprecedented way and so when it while there is the feature road map that we're always investing in.
I think the hard things to get done really that architecture that that core foundation to build upon is so good as it relates to the sort of foundational features that we keep building absolutely we've been knocking those out.
Probably the biggest requested one was up on dialing we knocked that went out in Q1 and yeah. We continue going down the list to too too.
Finer and finer grained.
Kinda foundational features from our customers, we have repurchased ties some of those in favor of Kobin related features and functionality that customers have needed to scale those those tobin related workloads and this year, but we feel great about the the progress we're making on the run those features in the customer adoption and customer feedback, we're getting as it relates to both the kind of foundational element.
The architecture and the core value proposition as well as the road map for for building out those features that help customers along.
Right.
Super Helpful. And then just one quick follow up you know as someone who asked before I mean, the pace of customer adoption is really picked up three last four quarters.
As a plus net adds.
Obviously still well our revenue coming from existing customers a net dollar retention rates vary.
The positive so what does the land and expand motion looked like it has been a big part of your business. Historically, what was it looked like and his kogan environment and are you see any trends towards larger initial contracts or initial usage. Thank you.
I I would say, we haven't seen dramatic trends in dots.
I would say as I've said before that we see a lot of putting a lot of interest in terms of sign ups experimentation.
So again I think you know if you just look at raw account dollars per new new sign up or things like that I don't think that's the that's the story here I think the story as we are seeing just more interest top of funnel and that we are seeing some of these use cases cry.
You know significant growth for us even as other industries are being impacted so I think that's that's been consistent we are doing very well with our.
You know our top customers.
You alluded to and you know definitely what we're seeing in the world in General is that pandemic is creating certain companies are it's a it's a headwind for some of the tailwind for others and for the ones who is a tailwind for we're definitely growing along with them and doing doing very well so.
I think that's kind of behind some of the numbers and trends we're seeing.
Got it thank you and congrats again.
Your final question comes from the line of Rishi Jaluria with D.A. Davidson Your line is open.
Hey, guys. Thank you so much surplus squeezing me in and nice to see continued strong results in this environment just just two questions for me.
First in the discussion on these new verticals, a new use cases I understand your platform people are going to always find new ways to.
Usually it's really a platform I'm not so I think a really exciting part of the story is there potential that one of these kind of newer verticals or near use cases, I can be somewhat chronic ties in the same with what you're doing with blacksmith contact center.
And then I want to ask because im about gross margin I, even think control for 80 after the HP right. It looks like gross margin declined about 70 basis points sequentially at 260 basis points year over year, just any color you can provide on this because I know there are a ton of moving pieces and what drives gross margins. Thanks a lot.
Hi, This is Jeff I'll answer the first part of the question then I'll hand, it over to because anymore. So as far as the.
Like new use cases that are emerging because of coded yeah, I think that one of things I've talked about the past is the the great things about being a platform business is that we deliver these building blocks to the developers the world into all of our customers and they build solutions to the big problems that they have their business and by the very fast.
That customers.
Taking our building blocks and are building solutions to big unsolved problems like the fact that they're taking their time the precious developer resources to go build.
On our platform indicates that there is probably an opportunity and when we see areas, where many customers are going and essentially inventing the same thing we see that as an opportunity to go and essentially assess whether this is a big broad needed by the market and whether by US building product there we can accelerate all.
All of our customers' ability to adopt that kind of use case and and that's exactly what let us to be opportunity were flux and I think we do continue to see opportunities that arise that had been maybe not created because of cobot, but accelerated like greater macro trends that have been accelerated because the co bid that opportunity supposed to go addressed with.
Correct.
With that I'll hand, it over to come.
Thanks, Jeff Hey, Ritchie.
There's nothing really specific that I would call out around gross margins you know, we pointed to the ATP impact and as we've said in the path in gross margins can bounce around a little bit.
Due to a variety of factors, we've in the past talked about customer mix or geographic mix products.
Our next what have you there's really no change to our our model we still see.
Gross margins in the mid to high Fiftys for the foreseeable future. So no real thing to call out there.
Okay.
There are no further questions at this time. Thank you for participating you may now disconnect.
[music].