Q3 2021 Twilio Inc Earnings Call
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Okay.
Good day, and thank you for standing by and welcome to the Twilio Q3, 2021 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session and if he would like to ask a question. During the session you will need to press star one on your telephone keypad. Please be advised that today's conference is also being recorded and if you require any further assistance you May press star zero without further Ado I would like to be.
Welcome one of your speakers for today, Mr. Andrew <unk>, Vice President of Investor Relations and Treasury.
Sir the floor is yours.
Thanks, Carl Good afternoon, everyone and thank you for joining us petroleum third quarter 2021 earnings conference call.
Joining me today for Q&A are Jeff Lawson, <unk> co founder and CEO, George Hu, our outgoing CFO, Mark <unk>, CRM and container ship Chandler CLO.
As a reminder, some of our commentary today may be in non-GAAP terms reconciliations.
Reconciliations between our GAAP and non-GAAP results.
And further information related to the guidance can be found in our earnings press release.
Actually some of our discussion and responses may contain forward looking statements, which are subject to risks uncertainties and assumptions.
In particular, our expected business benefits and financial impact from our acquisitions, particularly segment.
And our partnerships and investments, including the associated transaction the impact of recent end user privacy changes on certain third party platforms and.
And our customers our outlook for the quarter ended December 31, 2021, our ability to achieve our targets for non-GAAP gross margin over time and annual growth rates over the next three years and our ability to manage changes in network service provider fees that we pay in connection with the delivery of our communications on a platform and the impact of those fees on our gross margin or something.
Exchange.
Should any of these risks materialize.
Or should our assumptions prove to be incorrect actual financial results could differ materially from our projections or those implied by these forward looking statements.
Certain of these risks uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings.
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.
As required by law.
With that I'll hand, it over to Jeff for a brief statement and then we'll open the call for Q&A. Thank.
Before we begin Q&A today I wanted to take a moment to thank our CEO George to the amazing contributions. He has made its fully out over the past five years with George's leadership, we really figured out the developer first go to market, which is an incredibly challenging feat given nearly no other companies.
Have a go to market that is unique or as efficient as ours GA status.
On a new trajectory and built a tremendous team.
Starting with his direct reports of all the way down the go to market organization and I can't wait to see what your thoughts George I'm also incredibly excited for mark or does it seem to be taking the torch and continue driving our core progress Mark has built the sales team from Europe to the powerhouse of challenge is today he's got the aberration.
In respect of his teams and a vision for how to continually evolve and grow our go to market with developers enterprises partners and digital leaders I'm excited for the next chapter Merck now answer questions.
Thank you Sir again as a reminder, if you have questions. Please press star one.
Okay.
Our first question comes from the line of Madtom Marshall from Morgan Stanley. Please ask your question.
Great.
Appreciate the question and congratulations on the quarter you know understanding you had a couple of hundred basis point headwind from political traffic that contributed to the deceleration in organic revenue growth we saw in Q3.
But what do you think is kind of the biggest contributor to the slowdown in organic growth and what kind of gives you that continued confidence that you can grow 30%. The next three years, a number we kind of understood to be an organic number.
Yes, Hey, Matt this is.
I would say first of all I mean at 38% organic we feel great about our overall performance in the quarter. Obviously, we are at about 65% on an inorganic basis and if you just look at the breadth of the growth across industries across use cases across geographies.
<unk> customers, maybe have a lot of confidence in the go forward capabilities of the business I would also add that we had a really strong quarter performance from segment and so when we put all of those different pieces together, we definitely see our ability to continue growing at elevated levels for the foreseeable future and we feel really confident in our <unk>.
<unk> delivered the 30% plus organic growth that we talked about last year over the next three years.
Yes.
Great. Thank you.
Our next question comes from the line of Fred Hebe Mayer from Macquarie You May ask your question.
Hey, Thank you very much.
Could you talk about your overall M&A philosophy, you know how do you approach that build versus buy versus partner debate at Twilio and then generally when youre looking across the landscape the market landscape. How do you think the M&A appetite are progressing and the C pass market and in the customer engagement market.
Thanks, Matt This is Jeff I'll take the question. So first on your question on the M&A philosophy, which has really remained unchanged.
And the history of the company, which is look we've got our insights about the market and where it's going and what our customers need from us.
As a result, we have a roadmap of the things that we want to accomplish for our customers to unlock this vision of being the leading customer engagement platform, which I see as the greatest enterprise software opportunity of our time.
And when we look at the things that we're going to go build whether it's the teams we have to go higher or technology, you have to build it.
If we see a team out there is amazing or we see a path out there.
Really exactly what we might go to ourselves then we might say well we can achieve this vision faster by bringing that team on that product on board and accelerating our ability to occupy space and that's really how we've always looked at which is does it accelerate our ability to achieve our vision of becoming a leader in customer engagement.
And I can take the second question.
Yeah. The second question there, but just generally how do you see any just overall M&A appetite for Twilio in this market and generally across the entire C pass market certainly there's been there's been quite a bit of M&A from other C pass vendors out there.
Hey, Brad this is <unk> I would say that I mean, we actually had a really strong balance sheet and a lot of cash on it.
The way that we look at it is exactly the way to Jeff described we will be opportunistic if an opportunity presents itself I think we obviously have been acquisitive over the last several years.
Segment of course last year kind of around this time and then we've done.
Some assets in more of the messaging space. Since then but it's not like we see something in front of us that we necessarily have to do.
Want to be selective about the opportunities. We obviously, certainly see where valuations are today as well, but I think more than anything just feel great about technology stack because we've already got.
And feel really really confident especially coming off of a really strong signal conference.
Great. Thank you.
Your next question comes from the line of Rishi <unk> from RBC capital markets.
Your line is open.
Hey, guys. This is Richard Deloria from RBC. Thanks, So much for taking my questions. John It's been great to work with you and all the best for the next chapter in cars and my congrats on the promotion or a new responsibilities just wanted to ask what one one question, which is you know from a macro perspective, you know look it seems like a really strong.
Demand environment, but how should we think about the puts and takes.
Some of the benefits that we saw from Lockdowns last year, potentially fading and and maybe the return of travel and specifically business travel, especially given that most industry seem to still be having not put on hold just how are you thinking about stuff like that coming back. Thank you.
And should we see this is Jeff I'll answer I mean first of all I agree with you. This is a strong environment for companies, who are undergoing digital transformation and those transformations have been accelerated by the pandemic.
And so something that I think it's really important to understand here is that this is not like a less churn or the digital interactions.
In the state of course is a mess.
You are too was not a deviation from like the future of the world. The second board. It was just an acceleration we're bringing forward a lot of the.
The innovation that were happening I think about telemedicine telemedicine, probably take a decade leap in its adoption and that is going to continue I believe to be the trend when I look at.
Do you want to drive across town for every Doctor's doesn't know what you can see a doctor in 15 minutes on a video call and they go back to work that's a better experience.
Races, like curbside pickup of online ordering and all these sort of things like this has been an acceleration of the natural digital transformation of the well is just going faster when you see that environment exists.
There's not going to continue to drive those.
Because the competitive environment demands it and customers get accustomed to these efficiencies and these good experiences and that creates even more demand for digital and so I think it's a.
While we all for how customers are now differentiating themselves digitally in this market and our customer engagement platform now enables us when you think about it like I talked last week at signal, our big customer conference about how long the pandemic has accelerated.
So many companies Southern company, we talked to 250000 customers in the digital acceleration that has happened is accelerating there.
Our digital presence like these digital maps, but guess what it's also a problem the digital Giants, Amazon, Netflix Facebook, Google et cetera, and so while those companies saw there our futures accelerated so we did the giant digital companies that has increasingly raised the stakes for every company to execute at a first class level.
In this digital.
The platform that we're building.
Customer engagement platform is designed to give all of those other companies the ability to listen to their customers understand their customers first party data.
And use that data to build a great understanding of the.
Personalize the journey and make it relevant and therefore with their customers.
Well and you can think about it when I talk to customers everybody out. There says you know what I wanted to do I wanted to acquire a customer was somewhat of a delay.
With an amazing product experience and make them a loyal repeat customer for life.
Vast portfolio enables companies to do and that has been I think accelerated because of the pandemic, which is all part of this digital acceleration that we're experiencing so yes, there's a strong environment out there and and I think that that is going to continue I don't think this is an aberration I think it's an acceleration.
Got it thank you.
Your next question is from the line of semi Samana of Jefferies.
Please ask your question.
Hi, good evening, Thanks for taking my questions just maybe wanted to kick off for you as you mentioned the signal conference without me rollout engage you've rolled out frontline.
Long before that I'm, just wondering if you're starting to see as you've rolled out more of these solutions.
On top of the core platform, if youre seeing any difference in the adoption on day, one from customers or if you're seeing kind of more bundling of the solutions upfront and how that's actually driving volume inside of the business as well.
That's a great question for our Chief revenue Officer.
Yes, so that would be affecting the adoption.
We have seen in the recent quarter as an example flex has.
Inspired our partners to consider building the next generation of their offering for contact center on flex solution.
Likewise with the announcement of engage.
Last weekend signal at a number of conversations with IFC.
That are looking at again.
<unk>, they're offering overall, probably the one that aligns with the most to your question is the.
The success that we've seen with our partner Waterfield.
Who has built a plug in for <unk>.
And made it possible for us to sell into more of the market and this past quarter, we saw a small company that needed.
A full solution on day, one adopting flat as their first solution from Twilio, which gives us great confidence about the potential of that flex represents from SMB all the way of GTK.
Great that's helpful on that.
I I don't want to put you on the spot with a math question, but I appreciate the additional disclosures, but I still had a follow up if I adjust for political revenue in <unk>. It really implies closer to the low forties organic growth. One I just wanted to see if that's correct and then the guide implies again kind of load there.
If you take out political revenue how should we be maybe contextualize that with that go forward, 30% plus growth as well.
Ford.
Yeah. Thanks for the question, it's not believe it or not actually Andrew a little bit of math on the fly.
I think the.
But you gave is about right I mean, I think we continue to see elevated growth across the business as we talked about earlier.
The reality is that we gave a 65% and organic 38% organic I think if you do the math that you just implied you're at about the ballpark that you. Just described the guidance that we put out for Q4, I mean, we feel really really good about.
We see a nice setup certainly for Q4 and as we look out based on a lot of the things that Mark just referenced a moment ago as well as some of the things that Jeff talked about relative to signal I mean, we see a tremendous amount of opportunity in front of us and have.
It's a really really strong conviction that we can deliver 30% plus over the next three years. So I think.
We just feel really really good about the broad based strength across the business.
Great I appreciate you all taking my questions. Thank you.
Thanks, Bob.
The next question is coming from the line of Derrick Wood of Cowen.
You May now ask your question.
Thanks for taking my question George Good luck in your next endeavor.
I know, it's probably early but anything you want to share in terms of what.
What are your early priorities will be as you move into the CFO role and then you've had a new zero per year market and are you on the call should we assume from a direct sales go to market standpoint, we shouldn't anticipate too much change or.
What should we be thinking about taking the time to make or make bigger tweaks to the model.
Yes, maybe I'll go first Derik and then Sam and then I'll turn it over to Mark.
I think from my standpoint.
In large part the role of the <unk>.
Spansion or additional responsibilities and I already had and so I see it more as a continuation of things that we've already been doing I think in general you know, we want to or I want to and the role. It really helped the operating team win as much as possible as efficiently as possible as fast as possible and to create the infrastructure and sports.
Inside the company so that all of our great teams inside the go to market and engineering teams can.
And then obviously distribute all the great products and services that we've got so I don't think there is like really a sea change in the context of my role I'm you know, obviously super excited not to take it on even more so I'm humbled and feel really privileged to be a part of the team.
You don't want to continue to help Jeff and the management team win.
Sure.
Thank you Suzanne and thank you Jack for the question a little background.
We'll hear now for seven years since the acquisition.
Last company Op Ed.
And as Jeff referenced in his preamble. It was just a handful of sales reps at the time Youre at Twilio and majority joined five years ago I had the great privilege to build out the go to market strategy that you've been executing on that.
And as you identified Gary we're expecting to continue forward with this strategy that we have today, we've got a fantastic team in place.
We're well positioned to continue to execute against.
The already success.
Successful execution that we have with developers.
We're continuing to progress our success in the enterprise.
And we're expanding our overall international footprint.
As I mentioned earlier as well.
<unk>, we're making great progress on our partner community engaging them to build out the business together.
That's a that's helpful. If I could follow up on a financial question back to you because they came up.
Gross margins have certainly been topical with investors interesting slide you gave on the bridge to the Ada P fees, but you can just take a second to kind of really unpack that and kind of what's been causing the pressure.
You know, how we should be thinking about gross margin you know in the next few quarters and kind of what it's going to take to get to that 60% long term target.
Thanks.
Yeah. Thanks for the question Derrick I mean, I think the bridge with.
With respect to the <unk> dynamic at least is self explanatory right you can see that it slipped almost 400 bps relative to what we would otherwise have reported were it not for those fees I think more broadly what we've seen is constantly a fantastic problem, which is that our messaging business has been growing.
It really accelerated rates and we gave you some information last year for example, during our Investor day that basically illustrated the relative gross margins of our products and services and so as the messaging business rose at this accelerated rates. It makes sense the margin rate down a little bit, which honestly is a trade that.
We're more than willing to take given the fact that we are focused on gross profit dollar expansion. So that we continue investing in the business in terms of the latter part of your question and 60% plus I mean, we still have a lot of conviction in that 60% plus longer term framework and I think we're that's going to come from is the accelerated growth that we are.
And our application services category and I think segment is obviously the most recent example of that I think the certainly the promise of engaged in what we described at the signal conference last week as well as the fact that segment had a fantastic quarter sequentially coming off of Q2 into Q3.
It gives us a lot of confidence that that business performed well and continued to underpin a lot of different things that we want to do with the rest of the business and then obviously, we're very excited about the progress on flex two and so I think it's a combination of those things that we continue to believe in that 60% plus long term targets.
Your next question comes from the line of Michael <unk> of Wells Fargo Securities. Your line is open.
Hey, there. Thanks. Good afternoon I appreciate you taking the questions George certainly wish you. The best know from just a number of these calls have been instrumental in things like Intel.
Instrument.
The go to market and the partner initiatives. There can you just maybe broadly as a team talk more about continuity just on on the go to market side, given where heading into the year and we can appreciate that Mark has been with you for some time, but maybe just adding additional context for investors and.
Evolution and.
The confidence in sustaining the tremendous pace that the business has been able to have a format for for a number of years now.
Thank you Michael This is George Thank you for the kind words and.
It certainly is a difficult decision and so incredibly excited about twilio and its feature I think especially coming off of an amazing signal, where I talked to so many customers that are just excited about the customer engagement platform vision and segments.
What gives me confidence is the.
A tremendous leadership team you have here I've been working with Mark now for.
A number of years four years.
Mark just done an amazing job and he's really built an entire sales machine and deliver the numbers or after quarter. It is an incredible leader. He has hired all the breach how having a salesman.
And I know that you've been doing a nice job going forward I think there's going to be a ton of continuity.
And I think that market is also going to be.
All of the organization and forget to the next level also.
I also follow up Marc chime in I also wanted to really congratulate and acknowledged because there's going to be an amazing CLO portfolio.
The agent partner in each one of the smartest people I've ever worked with a great leader and it's gonna do phenomenal phenomenal things for the next the next chapter for Yeah.
Yes.
George.
Michael Thank you for your question.
Right now the expectations are very solid around the team and how we're going to be progressing into.
How are we going to be progressing with the plan that you have in place. This plant has not.
That plan has been developed over the last five years with George and I and lockstep when George joined he brought.
Expertise, that's very familiar to me from my previous enterprise experience.
And he supported us in building out a plan that allowed us to reach to the enterprise from a model that is physically develop a seltzer.
And helped us to build out the overall global footprint and ultimately our partner.
Initiatives. These are all things that are in flight at great stages the success.
I'm very confident the team that's in place that we can continue their trajectory.
That's all very helpful. If I'm if I could just ask a follow on just.
Gross margins were actually I know you've gotten a couple of questions here because they are actually slightly up I think many investors are expecting that we might see just continued headwinds given the international business is now.
A third of overall are we at a point, where if things like segmented ZIP with are starting to provide the counterbalance or anything else you'd call out and you also added a slide on just gross profit growth. So is that a metric maybe just to highlight in terms of just the conversations around these dynamics.
Yes, I would say the inclusion of our gross profit slide.
Necessarily an indication of anything new we've been saying for a while now Michael but we've been focused on gross profit dollar expansion, obviously that gives us lot of fuels to be able to reinvest back into the business. We just thought it would be helpful in terms of providing positioning color.
Same thing is kind of what the gross margin slide which is I'm not sure. There's really kind of a story behind the story other than obviously, the e&ps have clipped us a little bit.
You can see that in the bridge that we provided I think generally speaking.
As I said earlier like we feel great about but put unquote problem that we have and that we have this incredibly fast growth messaging business, which is mix. The overall gross margin of the company down but to your point.
It's some of the newer acquisitions or our flags or segment.
We do have a number of things that can provide fuel for a gross margin uplift over time, we're not guiding to that today per se, but.
We do have a lot of confidence in our long term framework of 60% plus over time.
Thank you.
Thanks, Mike.
The next question comes from the line of <unk> Kidron from Oppenheimer <unk> Company. Please ask your question.
Thanks, Jeff I'd like to start with you on Twilio engage.
Super excited for that announcement I guess help me think about the ramp here I know when <unk> came out.
Yeah.
Servitude, but clearly did very good out of the gate you have already an established customer base here with segment.
Opportunity for this business to ramp.
Faster than one would think end to end.
And he is there is there a do you need to make any adjustments on the go to market approach and pushing this product.
<unk>.
Thank you times, Jeff So let me give you some forward looking projections about this just kidding.
Yes.
You asked about the ramp up and like obviously I can't tell you anything supposed to think about the product nor do I know what the ramp is going to be but what I can say is that two things number one I think there's a lot of demand in the market for this product right.
Digital growth digital personalization for how businesses are building their businesses is a tremendous opportunity and that opportunity is actually accelerated by the privacy changes going on in the world I DFA tags on third party cookies.
Those things getting changed because companies can rely on what's honestly shenanigans.
The changes that have been going on whether it's cookies are idea based tags like these privacy changes are on the right side of history.
And so what Toby I was providing us the antidote to all those changes, which is a personalization and marketing system that starts with first party data that starts with a company understanding making sense of all the first party signal they get from their customer data.
Data our approach to that and use that signal use that first party data to then go personalized can build great relationships with their customer across all these touch points, whether it's marketing contact center sales you name it or whether it is across all these different channels messaging voice email.
Now on the web et cetera.
That's the heart and how companies are going to win the hearts minds and wallets of their customers and the changes in privacy provided a really nice tailwind I think in the macro sense what companies need to do in order to continue growing our relationships with our customers and continue growing their customer base. So that's the first thing the second thing I want to point out because I think there's a very.
Natural synergy with not one but two go to market.
Right, it's a natural upsells from our messaging.
Because it makes our messaging even more powerful and it's a natural upsell from segment, which allows you to do something new and interesting with your data, which is actually he's done and so I'm really looking forward to that as that product rolls out from D. A.
In 2022, and we're looking forward to that like how we can bring that in front of customers and I'm really excited about.
Very good maybe a follow up for you because anymore on the retention rates, maybe you can I'm sorry, the net expansion, maybe you can kind of.
Walk us through a little bit perhaps the puts and takes of that matrix going forward. I know you still have the political activity, which I guess would weigh on that number next quarter, but I think you also are going to celebrate the anniversary of segment, which will include it in I don't remember if segment was above or below average on that standpoint can you help us think about.
What would be the right way to think about how net expansion rate is going to change over the next call it three or four quarters.
Yeah. So a couple of things. Thanks for the question. So first of all I mean, we feel great about 131% on the extension rate.
This is growing.
Elevated levels and just given the size that we are at a run rate we.
We feel great about it and 131 is kind of in the range.
Where we've been over the last several quarters, so really good broad based strength across the business.
We don't guide on expansion rate as you know and so I think if you hold a premature for me to kind of talk about where I anticipate that end up ending up being in Q4 and beyond what I will say is that we.
We do intend as we disclosed in our.
In our remarks earlier that segment. We will include as part of Q1 being the first full quarter kind of post.
We will publish those results and includes certain at that time, but.
We will have to kind of wait and see for for that work.
Very good good luck.
Thanks, Steve our next question.
Sorry, our next question comes from the line of Parker Lein ups people. Please ask your question.
Yeah, Hi, Thanks for taking my question, Jeff I was wondering if you could talk a little bit about the stickiness of the incumbent platforms.
Our end markets and when you look at the BDC component there how much appetite do you think there is for disruption.
Those legacy platforms, particularly as some of your competitors out there in the newer markets are launching their own CDP offerings. Thanks.
Yes. Thanks Darko. This is Jeff. So we're really excited about segment, which is obviously the number one CDP in the market. We're really excited about twilio engage which is built on top of that and you know it's interesting when I look at the market I just see a huge hole in the market for a platform that is helping me to see companies really understand that.
Customers and execute on that understanding by personalizing every part of the journey and empowering their employees with great engagement.
And the CRM market is a great one, but that's about <unk>, it's not configured to do this.
<unk> CRM.
Let me start with salespeople entering notes, which is just a completely different starting point.
Each of the company's need and so the opportunity that we're going after.
And what our customers are looking for is how would you be to see customers and volumes of data how do I take that data understand its impact on the us across all the different applications at all touch points that they have and that's a fundamentally different market that nobody has really cracked it and that's the opportunity portfolio customer.
In game platform and that's the opportunity that customers are pulling their horns, because because no. One has solved it and so that's what we see as the market how the market is going down.
The next question comes from the line of Mark Murphy from Jpmorgan, you May now ask your question.
Yes. Thank you very much Jeff question on Twilio engage what do you see as the differentiation or the line of demarcation there if we compare it to some of your partners, who provide cross channel experiences, where they're using pushing in app in SMS and email then I believe some of them are then send it.
Their messaging traffic to you if you could just help us maybe with a little compare and contrast.
Yeah. Thanks, Mark Mark that is a really rich landscape and we have as many companies out there doing all sorts of interesting things and what we're seeing is that customers are really asking for a data.
Roche to their growth automation and approach that starts with data and then move out from that data into understanding customer building protocols and then building action from the data and that's where segment has always played in that segment has strengthened so ultimately we're serving an unmet need when customers come to us, saying Hey can segment.
That would be used to build these journeys and then ultimately when these campaigns and actively neat thing about sudden or is that not only do we allow marketers to create these rich segmentation.
At signal about how into it when they went from like 30, sorry. It went from three segments to pay the whole customer base, you've got the three segments. So now like 450 and that increased engagement and our customer base from 20% to 50% I mean that was the story of the Burnham Little at signal last week, which is amazing and put the segment.
It also allows marketers to use all the data points to see the measure of the effectiveness of their campaigns, which I think is another interesting point of engage so instead of measuring you know once you email hope I'm just you know when they delivered when they opened when they get done setback allows marketers to optimize for what actually drives revenue.
As a result and people buying things, which of course is the ultimate goal. So what we're hearing from our customers is that the Gainesville first approach.
Which starts with having great data about your customers that.
All sorts of new ways for smart growth marketers do their job and ultimately one that the market I think that's helpful.
Okay, I think I understand yeah, so the CDP as a basis there.
A quick follow up maybe for Zimmer or Jeff I think the sequential organic growth in revenue was a bit less than some.
Some of the prior quarters, although interestingly I think the same thing happened a couple of quarters. After you acquired send grid in Q3. So I guess, we've seen that could you just touch on that was is that voice or video or something else in there and just give it to you you're reaffirming this 30% plus growth for three years. The can we presume that you use.
Visibility into.
Some better kind of sequential build into into Q4 and early next year.
Yes.
Yes, Mark.
I'll take the question I mean, I wouldn't read too much into like product mix dynamics I think we feel really good honestly about the sequential growth in <unk>.
Just kind of the overall growth of the company at our scale and based off of our product set and I think.
As we've talked about I think earlier in this call.
You look at some of the things that we announced the signal in the fuel that's going to provide us going forward, we feel fantastic about the overall growth prospects.
Of the business. So in terms of the set up on the 30% plus I mean, we provided guidance obviously for Q4, and we feel really good about that.
And we see continued strong growth into the future in that 30% plus that we provided last year, we certainly see that on an organic basis over the next three years or so.
The next question comes from the line of Mike, Matt Stotler of William Blair You May now ask your question.
Hey, guys. Thank you for taking the questions here, but I guess, one just looking at the revenue growth performance in the quarter.
So if you look at the relationship between our dollar based net expansion we should go to your point it has been.
Incredibly consistent and that's kind of range on a multiyear stack. When you look at the difference between that and the organic growth that you guys report the relationship between those two essentially gives you some sense of the incremental revenue that you're generating from new customers in any given quarter.
This quarter that contribution seem too.
B the primary source of the step down in <unk>.
And organic growth.
Sequentially, they're going from 50 to 38 can you just talk about anything that youre seeing in terms of what might be driving that lower contribution from revenue from new customers organic basis, this quarter or anything interesting in the market that they could help to.
Help us to make some sense to that.
Yes.
Because they may Matt I can talk about it from a financial perspective, and then maybe mark can talk about it from kind of a customer adoption perspective.
I'd say, there's nothing specifically that I would necessarily on pack in terms of new customer growth I mean as you saw in the quarter. We had very strong adds in terms of new customers. We had a great expansion rate in the quarter, we had strong overall revenue growth both on it.
Inorganic and an organic basis I think the math that you're trying to do is kind of directionally accurate, but there is.
A certain amount to.
Back there, which we can essentially offline, but I think in general I would say, we feel great about the overall prospects of the business, we feel great about the setup for Q4 and.
A lot of conviction in our 30% plus.
Organic revenue growth over the next three years.
Mark do you want to add to that maybe from a customer adoption perspective, certainly zama mapped.
Matt. Thank you for your question.
From an adoption standpoint, we had a terrific Q3 across all aspects of the business.
As you know we have a very diversified business that is.
Relevance.
A variety of economic conditions, which allows us to continue to deliver these strong results.
What's even more encouraging, especially on the heels of signal is the kind of.
Reaction that we're getting to the messages that we shared here today and it's just that.
Elaborated on around customer engagement platform and the value that our solutions like really on gauge on the progress progress, we're experiencing with flex and candidly the excitement around a data source model.
Everybody.
Looking for ways to deal with the new challenges, they're facing in the market around first party data and as a result.
Or really solid excitement that.
It gives us confidence around the business as it is.
Got it that's helpful and then maybe just one more on.
Just a quick one on the gross margin front. So the bridge you gave us very helpful right kind of taken out the Ada P fees and then understanding that was very helpful. You also signed a.
Our new commercial agreement with <unk> earlier, this year, which seems like it would provide maybe a little bit of a tailwind to gross margin is that something that was embedded in the results. This quarter or is that something you can talk about in terms of how it held to learn going forward. Thank you.
Yes sooner versus nothing really to talk about yes, we do expect that investment to take place before the conclusion of the year, but.
Got it back to nutrition results yet.
Got it thanks again.
The next question comes from the line of Catarina Travnik of call your Securities.
Your line is open.
Oh Hi, Thank you for taking my question could you break down what do you think your biggest competitors are disappointed with.
We announced 12 Yale engage thanks.
Yeah. This is Jeff I'll take the question so really our competitive spend has always been very diverse you know this is typically not one competitor that we see in a whole lot of different situations.
A lot of that is because of our unique developer first approach developers bring twilio into such a wide variety of companies to solve such a wide variety of <unk>.
Things that they are building and that leads us into the company in a way that's not like a traditional like hey, let's do an RFP like so many of our deals are like that and so that's the historical of Twilio and you'll going forward and what is that the new products for our customer engagement platform, which is really a new cabinet.
There are.
That are meeting the needs of the market and that's why we're building and so when I look at what we are building, whether it's twilio engage or whether it's the.
<unk> like the <unk>.
GDP in the market on top of it building a product that customers have been asking for which is a data first approach to marketing.
Yeah, I, just don't see it as a direct head to head I think we're building something new.
Both in terms of each of the individual products I think flex was different than what's out there in the market. We're solving problems that customers say they have and that's why we don't like same thing with the gauge same thing with frontline and these are the pillars really of our customer engagement platform, which as a whole is certainly solving a really all calling from <unk>.
Which is totally understand my customers and engage with them and there's nobody who can solve that problem.
Okay.
Alright, Thanks, I'll ask more on the next call I appreciate it.
The next person to ask a question is Pat will Ravens of JMP you.
You May now ask your question.
Oh, great. Thank you Hey, Jeff so as.
We're looking into.
2022, and hopefully it's pretty different from 2021 months.
I'm curious what you what you think your top two or three strategic imperatives are.
Yeah. Thanks, Matt So obviously, we've been really progressing.
The twilio engagement.
From a customer engagement platform and so one of my first priorities. This year was making sure that we brought to market two io engage them and then it was a great.
Okay great.
<unk>, which we did all last week and signal I've also been really prioritizing the company our teams because we're obviously in the second year, but these.
These are difficult times for every team out there so really prioritizing.
Well being and the productivity and the growth of our team and our team has grown tremendously.
Got it.
And then of course, our customers customers' needs are evolving but at this time and really sending many new customer challenges like sending those customers in our direction and help solve those challenges whether it's the fact that I've.
And the idea phase changes cookie changes in just the many things that companies are having to deal with at the world is rapidly evolving and those companies have to become builders have to build those relationships with customers and keep up with the evolving landscape.
Those are things that are pushing customers towards us and giving us a lot of insights about how we can serve them and I've been very focused on that as well. So those are probably the three big areas, which as you know our products our teams and our customers, which is I think the right things for you have to be focused on.
Great. Thank you.
Our last question comes from the line of Taylor My goodness of UBS. Please ask your question.
Hi, Yeah. Thanks for taking my question with gross margins flat this quarter relative to last and given all of the ADP piece you guys had this quarter.
How much of that was potentially driven by a mix shift from a slowdown in messaging versus maybe more durable factors and efficiencies that you guys might be seeing so was that just all mix shift related or is there something else driving driving that.
Yeah, Hey, Dana I'll take the question I wouldn't say there was necessarily any one factor I mean, I think what we're seeing is continued strength in the messaging business and so there's not really like an underlying story relative to that product set we continue to feel great about the growth prospects there as they've been.
First half of the year and certainly in Q3 as well I think equally we feel very excited about the performance of segment and we continue to see higher growth in our application services category.
In a given quarter I mean, any one of the kind of product mix dynamics or international or even customers to some degree.
Louis what the gross margin rate is in a particular quarter.
For now we're really concentrated on gross profit dollar expansion and obviously over time, we do intend to work that gross margin number off do you think that will come from a mix shift in those application services in certain standby our longer term target of 60% plus gross margins.
Yeah.
Great. Thanks.
Thanks Tyler.
Well thanks, everybody for joining me today are that will end the call for us and look forward to chatting with you throughout the rest of the quarter.
Thank you again for participating this concludes today's conference call you may now disconnect.
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