Q1 2022 Twilio Inc Earnings Call
Good afternoon, My name is Emma and I will be your conference operator today.
At this time I would like to welcome everyone to the Twilio first quarter 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad you would like to withdraw your question again press the star one.
Yesterday that you limit yourself to one question and one follow up thank you.
Benjamin SVP corporate development and Investor Relations you May begin your conference.
Thanks, Jim and good afternoon, everyone and thank you for joining us for <unk> first quarter 2022 earnings conference call.
Paired remarks earnings press release, Investor presentation, and SEC filings and a replay of today's call can be found on our IR website at investors that Twilio dot com.
Joining me today for Q&A are Jeff Lawson, <unk> co founder and CEO , Atlanta, Donyo, President revenue and Zama ship Chandler CFO .
As a reminder, some of our commentary today it may be in non-GAAP terms reconciliations between our GAAP and non-GAAP results and further information related to guidance can be found in our earnings press release.
Additionally, our discussion and responses contain forward looking statements, including our projections and expectations regarding future performance. These forward looking statements are subject to risks uncertainties and assumptions and should any of these risks materialize or should our assumptions prove to be incorrect actual financial results to differ materially.
From our projections or those implied by these forward looking statements 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 remark Mark joined today.
His discussion should be considered to incorporate this information by reference.
Forward looking statements represent our beliefs and assumptions only as of the.
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.
And with that I'll hand, it over to Jeff for some opening remarks, then we'll open the call for Q&A.
Brian we delivered another strong quarter of results and continue to execute against our long term strategy to build the world's leading customer engagement platform. We remain confident in our ability to deliver 30% plus annual organic revenue growth through 2024, and we're committed to delivering annual.
non-GAAP operating profitability starting in 2023.
To achieve this goal we will continue to make the necessary investments in 2022, which will put us on a solid trajectory to deliver against our growth and profitability targets over the coming years and as you likely saw in our prepared remarks and press release, we are really excited to welcome former Twilio Org member alignment Donyo as our president.
Of revenue Lima is a remarkable executive and leader with deep knowledge of the Twilio business, our market our value proposition and our culture, having served on our board since 2016, Elena has extensive experience leading massive growth and scaling go to market activity as the former CEO of axiom and the former president of.
SAP concur.
Later, we will help to elevate truly owe to its next phase of growth.
I'm thrilled to officially welcome her to the team and of course I want to thank Mark <unk> for his partnership and contributions to Twilio over the last seven years, and lastly may the fourth be with you all with that let me open the call for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again, we ask that you limit yourself to one question and one follow up thank you.
Your first question today comes from the line of meta Marshall with Morgan Stanley . Your line is now open.
Perfect.
And just maybe starting on the CFO transition could.
Could you just give a little bit more background of what the thinking behind that was and just given kind of recent management changes any continuity kind of efforts or considerations that you had in making that change.
Maybe as the first question that I have a follow up.
Absolutely. So you'll look I've had continuing and ongoing conversations with Elena throughout the years as she was considering our next operating role.
And about the opportunity to get her more actively involved in Tokyo's leadership team.
And we're incredibly fortunate that with Merck's intended departure, we had the perfect person to step into the role and the perfect role for her given her experience and she was already tremendously familiar with the organization.
Team the people involve the opportunity our customers et cetera.
Yeah look obviously when you have an opportunity to bring on a world class leader of <unk> caliber acute jumped at the chance to do so.
In addition to her tremendous insights into our company's culture and our products from her time on the board. She obviously brings a wealth of direct experience in software and SaaS and go to market and products and scaling organizations, while managing costs through a period of rapid growth and those are all the things that we're focused on doing so I'm extremely excited to have Elena.
The company is precedented revenue in the latest forward in our go to market efforts and by the way I'm incredibly grateful to Mark for his enormous contributions to <unk> over the years.
Got it I appreciate that and as a follow up.
I mean, clearly you guys have noted in the past that there would be quarter on quarter kind of volatility in the organic growth rate in that.
That growth may not be 30%.
Given quarter, but just any trends because they know that you think are worth noting.
The Q2 guidance that maybe caused the sequential downtick in gross or in a sequential growth rate. Thanks.
Not really I mean, I think the big thing to keep in mind here is that the 30% organic target is obviously on an annual basis and we've been pretty consistent about communicating that and then last year in Q2, 'twenty. One that we had a really really strong organic growth quarter at 50% year over year. So as we look at the second quarter at 30.
6% to 38 reported and then 27 to 29 organically, we feel pretty good about Q2, and then as we look out for the balance of the year.
See a more favorable set of comparisons as we go through the second half and so we do feel good about 30% for the year and we also feel pretty good about 30% for 2023 and 2024 as we communicated previously.
Got it thanks I appreciate it.
Thank you.
Your next question comes from the line of cash <unk> with Goldman Sachs. Your line is now open.
Yes.
Hi, Thank you very much much appreciate it Jeff I'm curious if you could give us some thoughts on the broader environment. Obviously, it's been a lot of volatility in rates and customers' propensity to deploy sac or maybe that has not changed could give us your state of the union perspective on how customers are prioritizing investments in Chile.
And also secondly, it has a lot of wood to see the company.
Gear more towards operating leverage et cetera.
Are the things operationally that Twilio has is determined.
Determine that will provide sources of operating leverage in the future. That's it for me. Thank you so much.
Yes, So hey, Kash. This is <unk> theres a couple of things in there why don't I start and then if Jeff has anything to add he can you can comment as well.
Just in terms of the macro I think that's where you started.
I think obviously, if the economy were to dip into like some sort of significant recession, we're not necessarily immune from that but what we see based on both our internal studies and we alluded to the customer engagement report as well as a number of external studies is that digital transformation remains a top boardroom priority.
And that obviously benefits twilio as a variety of companies look to invest in their engagement strategy is going forward.
We're not it's not like we don't see the macro environment, whether it's economic or geopolitical, but we just think this business is extremely well positioned to capitalize on ongoing company's digital transformation efforts and despite impacts that we see that are inflationary whether it be supply chain, which we've talked about in the past or labor inflation more reach.
<unk> for interest rates as you mentioned, we built those impacts into our models. We also have the benefit of having a really strong balance sheet, which obviously helps in these environments and as I said on the prior question, we feel good about our guidance.
At 30% plus revenue growth through 2024, and again about non-GAAP annual profitability or operating profitability in 2023.
More to your question on the profitability because I think that's where you ended.
What we've been saying really over three years is that there were a number of investments that we felt were very important to make and these were planned investments and in general they were in.
Flex in our go to market capabilities, obviously more recently with segment as we see that as a crucial piece of our customer engagement stack.
And we're kind of coming to the peak periods of growth in those investments and it's not like we're not going to invest going forward, but the rate of cost growth and those investments is going to be lower than where we've been historically and so slowing that cost growth I think will be the way that we end up getting there into not the non-GAAP profitability for next year.
Sure.
Wonderful. Thank you so much.
Thanks Kash.
Your next question comes from the line of Michael <unk> with Wells Fargo. Your line is now open.
Hey, Thanks, Good afternoon I appreciate you taking the question.
Gross margin saw meaningful improvement sequentially. The prepared remarks still referenced some near term fluctuation potential just in sort of adding some more context around that I guess the question is just why wouldn't that be at least somewhat bottoming. If we're looking at sort of a point in time, where U S growth is moderating some of these 10 <unk>.
Seat impacts are playing through.
All comfortable that gross margin can at least remain around similar ZIP code, regardless about messaging mix plays through or anything else. You can just provide to help us think through.
Normalization of what those fluctuations can look like.
Yes, Thats a good question I mean, I think with respect to the gross margins in Q1.
We're obviously happy with them improving to 53% I think Michael.
Michael.
I encourage you to keep in mind is that <unk>.
The size and scale of our messaging business is what tends to drive it and so that's why we're kind of signaling some level of fluctuation in gross margins in the near term I think it'll be in that ZIP code I mean, I'm not I'm not going to be prepared to call.
The bottom or anything like that but.
I'd also remind you that we like the messaging business a lot and while it does carry a lower gross margin. It also generates a lot of gross profit that we reinvest back into the business and we spent some time over the last few quarters talking about this in at up strategy and messaging still serves as that important foot in the door with their customers to that.
We can execute on in an up and obviously on those deals we evaluate every one of those opportunities looking at.
Or not they're going to drive lower gross margins and making sure that there is real strategic value. There I think the flip of all of this is that our emerging software business continues to grow at elevated rates and obviously it does carry cigna.
A significantly higher gross margins and as we think about like our long term targets around 60% plus over time.
We continue to see a lot of tailwind there and we've continued to like the software business is quite a lot and we just have to continue executing on the strategy that we've been talking about for the last several quarters.
Yeah, that's all really useful and then I think great to see the lane that coming off the board onto the field can we just go back to just how you keep continuity in making that change mid year are there any near term changes, we should expect or how should we assess the transition there it looked like sales and marketing spend maybe ticked down a touch sequentially. So if you can just.
Kind of hit on those I think Thats also useful thank you I.
I will answer it through the lens, maybe go to market results and then I'd love for a window to maybe just introduce yourself and provide some of her own comments, but I think in short we don't really expect the transition to have much of an impact certainly on the short term and I think in the long term.
Certainly anticipate that Atlanta is going to have a very positive impact on the business right now like we have got a great team in place that go to market leadership team is very strong we have a clear plan for execution.
<unk> that we've already seen in Q1 are a good setup for the rest of the year and as I said, I mean, I think with <unk> coming on board I am very excited personally and I think she's going to have a really positive impact I think our track record speaks for itself and to bring a person of her caliber onto.
The management team is really lucky on our part, but let me maybe just turn it over for a moment and as you can tell you a little bit more about how should be thinking about things.
Hi, Michael.
Having served on the board for the past six years, which was just really the ride of a lifetime I have become really familiar with the company.
With all that as a backdrop and knowing our products our sales mix in our customers. Our team from the board lines is quite different from knowing it from an operating loss and so I look forward to bringing my own background skill set and lessons learned to the team, but also doing a ton of listening and learning, particularly in the early days I've spent my whole career.
We're driving operations and hopefully delivering operational excellence growth and scale.
Huge opportunity to bring that capability into the company, we start with a fantastic team I'm really really proud of everything they've done in the past and the board role in that but I think the road ahead is perhaps even more exciting.
I'd also I'll also say is actively engaged with many of our team members customers, even investors and so I feel like I have a pretty good purchased it from but I'm also really excited about and continuing to learn from here to meet the rest of the team chicken gratulate them on all of their accomplishments historically.
But also to jump on the Rod went down from year end and envision a great future as the leader in customer engagement.
That's great. Thank you very much.
Your next question comes from the line of Mark Murphy with Jpmorgan. Your line is now open.
Yes, thank you very much.
And forgive me I joined a minute or two late.
If a case since we've done it but last quarter you had mentioned some domestic friction on the ADP registration side could.
Could you just describe that a little and I'm trying to understand if the friction is.
It's kind of solely related to the onboarding process versus anything about this.
The fees themselves and then what was there a deadline for customers to get that done during March and then a quick follow up.
Okay.
Yeah, Hey, Mark this is Christina good to hear from you. So.
The growth slowdown just kind of domestically generally and the friction associated with 10 DLC.
Really to do with the Onboarding process for both new and existing customers and it does create some friction in the short term, but over time creates a lot more trust on our platform and as a result of some of the friction that we saw we have built a number of features to make that registration process more seamless for our customers.
And the majority of our traffic is.
<unk> now been able to get through that registration process and so we believe that thats behind us.
With respect to your question about the deadline there wasn't deadline and that was March 1st and I think now with that behind us and the majority of our traffic.
Also having completed that initial process, we do expect domestic domestic messaging to normalize through the balance of the year.
Okay got it and then just a quick one for Jeff on the on the topic of two way messaging in the past I believe you said that it's still early days.
And so now you've got another quarter under your belt, you've got the conversations API.
Frontline product.
Developing do you see any more activity or is there any kind of a backlog building, perhaps in terms of two way messaging.
Okay.
Yes, Thanks, Marc I think that there is.
Tremendous opportunity as I've long said into a message first of all the interesting thing is that so.
One way messaging, where like the world and the market has been for the last decade, or so it's actually a great.
Place to be opening the door for two way. So it's a great lead into all of those customers who are using messaging for <unk>.
Alerts notifications and all that kind of stuff like just invites you to apply and then the question. The company has is okay.
Talk to us what are we going to do about it.
And increasingly companies are saying look what our customers want to talk to us or are we actually trying to.
Ignore them are we actually going to say a customer that wants to talk to us. We're just going to give him radio silence or given some automated apply that says call us or are we going to listen to pay attention to our customers and by customers wanting to reach out to us like how long the other side of the business, we paid advertisers to get customers want to talk to us over here, we're ignoring that and so it just was a ton of sense.
That you would open the door for these two way conversation so we're seeing it.
Certain markets like.
Financial services right you saw the large fine levied against one of the major banks because they were doing noncompliant two way messaging okay.
That whole industry is now taken.
<unk> taken.
Our attention to this matter.
Other ones like retail client, telling and we've got a lot of customers that we are planning to open over the history of using us for that whether it's companies like Nike you use flex to allow there.
Salespeople with athletes from our stores Youll talk to customers who are you.
In the App or on the website and expert advice.
It gives you a lot of opportunities there and that's why we're investing in the product roadmap that we are is because we are hearing from companies that yes, engaging youre not two way conversation is really the future of how theyre going to build a real relationship with their customers and so youre right conversations is the API layer is the substrate to connect the dots.
<unk> between multiple conversations whether they're multiple parties in a conversation with a recurring over different channels like SMS, and Whatsapp, and Facebook and even voice and things like that combine them all together and then we express conversations.
Through our products and flex in frontline and and elsewhere. So that companies can start to see that through line of all of these different points of contact in the company with their customer is one long running conversation during the day, but that's how we see it as a consumer when you're on the other end of it you see it as one conversation with this company.
Yes, they might see it as one I've got 20 departments 50 people in every one of the like.
Customers, who care about that.
They actually just care number one if you're trying to talk to you are you there listening and number two is it a coherent conversation or is it completely destroyed it across a much different phone numbers in short codes also our software does it make sense and that is a really big opportunity and we've been investing in that for a while and I think we see increasingly more and more companies are adopting actually I'll give you a customer.
Ample.
That I experienced just a couple of weeks ago I can tell you who it is but it's a company that sells.
Musical gear and I placed an order at this company and Theyre Twilio customer really core company.
And when.
It could shift I got a text message from my salesperson.
That said, Hey, Jeff I, just wanted to see the whole package.
And it was really cool and I was wondering actually somebody that's examples like this.
And somebody said what happens if you apply.
Got it.
Seems like it's from a person, let's find out counter applied with like some question of battles western side, but.
Well look let's say you're asking the question in short turnaround really got back to nearly I cannot do that and just help me someplace to some blog posts that were on their blog about how to set up this on that am I looking at that some amazing amazing customer experience.
And now I've got a person I can talk to at this company and I am telling everybody, including everybody listening to this call now about the amazing customer experience coming out. So yeah I think the two way messaging is fantastic whether you are buying.
Mortgage banking product.
Our musical instrument or a snorkel.
Maybe you can play the music sometimes.
You don't want that you'd rather go snort.
[laughter] alright, either way thank you very much.
Your next question today comes from the line of Derrick Wood with Cowen. Your line is now open.
Alright, great. Thanks, Jeff I guess for you burst.
You guys have seen a lot of leadership change over the last year. It sounds like there was a little bit of inquiry.
The treasury in the quarter in Q1.
We've seen that certainly for many companies that are scaled so quickly and have to evolve into a much larger organization, but just curious.
Have all of these changes Ben.
Any disruption kind of looking backwards or looking near term forwards.
And then as you just look at the.
Adding kind of head count and backfill on some of the attrition in Q1, what are the plans in terms of <unk>.
Investments for the rest of the year.
Yes, Thanks, Eric I'll answer the question about the executive but I think it's a fair question.
You never like to see executive turnover for sure and attrition is elevated across the market. That's underserved twilio. So I'll just tack, it's actually the entire economy basically when do you see it probably especially true in companies that are growing as quickly as twilio is in some ways. It's reality, we're all living in every company, but it's also a reality.
For any fast growth company.
But what I really look at is that we have been consistently able to attract incredible leaders to twilio with highly relevant expertise necessary to take the company to the next level and Thats. What we are always doing as we grow the company and very appreciative of the leaders that have.
Where we are but also looking forward to leaders are going to take us where we're going and you can do both of those things at the same at the same time and Elena brings a tremendous wealth of direct experience in software in SaaS in building go to market and in product and in scaling organizations, while managing costs through rapid growth like what these are.
All the things that we are doing right now and that we are going to be doing for the coming years, and so look I'm incredibly excited to have for driving our go to market efforts going forward.
Look I always.
It's always bittersweet when you say goodbye to an executive you've been in the trenches work defaults, but you also then really look forward to the people coming in who are here or two to bring you where you're going and I've been running twilio for 14 years, So I've seen.
Groups of executives come in to help me build the company to where we are today is we $5 billion revenue company growing very quickly and it's just sort of part of what happens when you grow a company incredibly quickly.
No doubt you've had incredible growth that makes a lot of sense.
Real quick because I have it for you I know, we're not getting specific numbers on application services, but anything to share in terms of how growth trended or how that performed against expectations.
Anything to share around the efforts.
Training the broader salesforce around segment.
Yes.
I would say in general it's kind of a repeat of what we've talked about in the past, which is we feel really really good about the segment product we feel great about the performance of it and certainly that team has been really really additive to the long term success twilio.
More specific to your question.
That software category more generally has been growing at elevated rates and obviously based on the margin profile.
We clearly like that a lot and that certainly underscores our faith that we can get to our long term gross margin targets of 60% plus and I think <unk>.
Having as many people trained up on the product as we possibly can obviously should accelerate its growth.
Over time, so feel really good about where we are with segment and that's.
It's going to be really important to us as we build out our customer engagement leadership.
Thanks for taking my questions.
Thanks Derek.
Your next question comes from the line of Samad Samana with Jefferies. Your line is now open.
Alright, great. Thanks for taking my questions I guess first one for you because when I think about the disclosure on <unk> the international versus U S. But that makes back in I'm. Just curious how we should think about the gross margins I don't want to re litigate <unk> necessarily but usually that U S domestics higher gross.
And then international so I'm just curious.
If it was not mix maybe was there something else that we should think about for the <unk> gross margin pressure and then I have a follow up for Jeff.
Yes, it's a lot it's a fair question so.
First off just to kind of own what happened.
There was a discrepancy in the mix of that domestic versus international revenue and it should have been caught in Q4.
Luckily It was Scott as we ran the closing process in Q1, and we noticed the discrepancy then.
We have put in place some additional analytics as well as some additional controls to make sure something like that that doesn't transpire, but I did want to own it before.
Answering your question in.
In terms of that split.
The way that we provide the disclosure that split is based on the IP address for the mailing address of the customer at the time that they register with Twilio.
So effectively it's something that we used for reporting purposes, but it's not actually how we manage the business day to day and so my view of the business pretty well like we focus tends to be on where those messages actually terminate and we continue to see very strong growth in messages that terminate outside of.
In the U S and if you go back a couple of years.
When we did the Investor day. We showed then that that split is about 50 50, and it's continued to grow from there and that tends to be the much more significant impact on gross margin. Obviously there is some correlation between the.
The destination messaging as well as what the customer origin is and it can deviate obviously from period to period, but that's the gist.
Hi.
That commentary from Q4 remains true today.
That's really helpful and I definitely appreciate the additional clarity there I think that that clears a lot of it up and Jeff I want to follow up with something that because AMETEK sandwiches. The knowing the business and look at the end of the growth is still very strong and.
On big numbers, So I guess, when I think about the company and the growth going forward. What are the maybe go to market changes that you think are going to happen or their go to market changes that are anticipated in and kind of reiterating that 30% plus guidance are higher which how should we just think about it based on the changes in the management team.
Thank you so Michael why don't I have ill, let answer that question.
Arthur Thank you so.
So first of all I would say a lot is going well like we really like our long term growth trajectory and I intend to continue along that trajectory.
And so what I think about how I spent my first couple of months first and foremost, it's obviously about getting to know the team and customers more deeply he says I can internalize there.
Aspiration, and and really get to know them as we had to our plants that I would say there is a couple of really important short term priorities that go along with that number one is accelerating software growth, especially.
Specialty segment and engage once launched number two is calibrating our resource model explicit lead toward the greatest efficacy possible and so that means nurturing our product led growth engine that we can build over time and messaging, but also amping up our direct and channel sales capabilities and software and lastly.
Both of those things are all driving additional operating leverage in go to market overall, so that we're ultimately paying off the investments we've made over the past number of years.
Great. Thanks, Atlantica looking forward to get to know you better.
Thank you for your channel.
Your next question comes from the line of <unk> Kidron with Oppenheimer. Your line is now open.
Thanks, Jeff I'll start with you on Twilio engage can you be perhaps.
Perhaps a little bit more specific on timing when is that finally going to be available in any color you can share with regards to the trial activity with.
Customers, how should we think about traction and adoption here once it's out.
Yeah. Thanks, <unk>. So first of all timing, we're looking at GAA and engaged in the second half of the year and second is on the learnings from our early customers.
You bring a new product into the market you do it as a beta format and you bring on your you are in a handful of early customers.
And they help you guide the roadmap and they tell you where to be focusing and so we have great feedback from early customers are engaged.
We actually have more customers requesting access and we can accept and that's that's always a good sign but we've been receiving great feedback from our pilot customers and we are taking the steps.
Following this feedback really understanding the problems they want to solve with engage making sure. We're building the product that list them solve their problems uniquely and looking I think he gave just filling the hole in the market with a platform that is built to help be the C. Companies in particular first of all really understand their customers in terms of data and then execute on that under.
Standing by Personalizing every part of the journey and like empowering.
The in place with these with these engagements for building and so when I think about what engage is doing it is taking a data first approach to marketing.
And that is the modern way companies or market, especially in this whole privacy forward World, where you don't have you cant do the lazy thing with third party anonymous cookies 90, FAA and just kind of churning through customers that you bought.
On an advertising platform really modern marketers are saying I need to understand my customer I need to personalize the journey.
That customer is on.
Really good attention to them so that they become loyal happy repeat customers and so those are the types of companies that we are seeing early on in our pilot.
Requesting access because they are saying what the tools out there to do this are not what we need and some scale is filling this gap and look in the fullness of time I think all marketing as Google. This way I think every marketer as kind of a first of all be spending money on their having having the best data.
Which is where all of this starts.
And then going to need to have a platform that really is about activating data as opposed to like blindly spending campaigns and just measuring well how many people hoping to reach once described.
I think those days are over and the other neat thing about using data as the basis for the marketing.
Sure.
Is that you can optimize for the outcome the business care spot.
Because segment seasonal slow of data from a variety of systems.
We can tell the market or not just like this campaign you got this many openings I was wondering clicks.
How many companies will make money with opens it clicks.
By sales and segment keys that do so they can say hey, this campaign resulted in this amount of dollars of sales.
This campaign is working this one is not.
Amazing and so you think about the value proposition to be able to give to the company.
The marketer, who we now can justify the spend on that tool because they're saying look we're making money on it. So I think it's a really great value proposition are obviously still early in the lifecycle of that product, but we anticipate bringing into <unk> in the second half of the year.
Okay. That's great. So then follow up for you just on the gross margin again.
Great to see the progress I'm, just trying to tie that to the registration desk.
Date March 1st where I think you talked about you expect messaging to normalize I assume that that means that around that date.
Messaging with somewhat depressed because some customers were not registered.
And so as I think into the second half of the year political activities part of your.
Adjusted gross margin and that clearly is going to comment a higher volume in the second half of the year and you also have normalization around messaging volumes in the second half of the year. So should we not expect any.
Incremental perhaps gross margin improvements between now and you ran just because.
<unk>.
These two elements are going to inflate messaging volumes in the second half of the year is the right way to think about things.
Yes.
I think if all of that broke our way it's possible, but it's certainly not something that we're necessarily forecasting as you know.
I mean, we don't guide on gross margins I would say the factors that are really going to drive it more than anything are going to be just the way that the messaging business kind of fluctuates up and down I mean, it's just it's so big and the scale of it is such that it really tends to be the principal driver and based on what I said in.
The prior question.
The way that those messages and are terminating and who drive that traffic and how that all plays out.
Fairly complex mix of things and so I think it's going to be in the Zip code.
But it's not something that we're guiding to today.
Alright, good thanks.
Thanks.
Your next question comes from the line of Joe Goodwin with JMP. Your line is now open.
Yes.
Oh, great I think that might be need pad.
Elena I have a question for you just I would love to hear.
Any sort of learnings that you have from your time at concur. So the other board your honor other companies that you think.
It might be relevant it might be things you can apply at twilio.
Yeah. Thanks for the question very much.
There's a lot of learning.
I started at concur with my will start up with acquired a 1998 at zero.
It's an amazing years from the early two thousands in the dot com boom and bust through into 2008, and all of that product and kind of market transitions that went along with that so moving the company from on premise shipping Cds to SaaS company from a company focused on <unk>.
The web front end mobile from a company that sold one product and expense reporting to one that's still travel invoice management and a whole host of others and ultimately became a platform company, while drawing overseeing is growing into the U S federal government growing down market.
Certainly <unk> seen a lot of different transitions and take a lot of lessons away from that.
Including moving into the president role when we are required by <unk> in 2014, and all of it came with a period of intense change for our people and so maybe those are some of the things you may think I pride myself on that though.
Sort of navigating a purion is fantastic growth, but equally embracing our people, making sure we're thinking about careers and growth in the human side of leader shaft. So I'm excited to bring as much of that as I can to the process in terms of other boards.
Twilio with a great learning ride for me over the last six years and I think it's given me an interesting and unique land into the business, but that lateral shift as I move into this new operating Raul.
Lastly, I would say I think board work in general I do still sit on a number of other private boards and I think that boardwalk in general just keeps me in the next hearing from other boards. Other investors. Other leadership teams building other products that I think are both interesting as.
Opportunities to learn from Ed So.
I'm excited about that and excited to continue to do that work and bring the basket that set of learning and <unk> into the sort of pause at Twilio, but also base first of all I hope still been outpacing the industry.
Here from all of the wonderful talent that will be around me here in this building at virtually.
Alright, well, thank you very much for that perspective.
Your next question comes from the line of Frank have Meyer with Macquarie. Your line is now open.
Close Fred how them iron I'm happy to be on the line here and chatting with everyone. So I wanted to firstly ask we've discussed a couple of the executive changes that have happened within Twilio recently and I noticed that recently you made a couple of actually two prominent.
Privacy and trust related hires so I just wanted to ask what is the importance of both privacy and trust to Twilio as you're expanding globally and also perhaps as you are navigating the inherently trust based environment of 10 DLC policies.
Yes.
Yes.
Go ahead, Jeff.
Okay.
Hey, Brad This is Jeff I'll answer it look I mean, what privacy and trust.
This is the.
Just some of the most important concepts of our era for companies to be investing in privacy, and obviously trust with their customers and.
It's.
Think about privacy in particular, we talked a lot about privacy and how it's changing the way companies acquire.
And serve and build relationships with their customers in the privacy landscape is really changing the nature of like advertising companies and like where the revenue is coming from I think you see some of that coming through in earnings I think.
That you.
See the way companies go about building their customer bases I think about it every time I go to our website.
And you agreed with that dialogue, that's like do you want to sell your personal information or not and you click no and then you've got like three layers of like.
Yes, please don't sell my not private information.
So that was behind here.
And this is really the world. We have this is getting in the way that everyone's growth.
Is the fact that the privacy landscape the way companies have to navigate it to do with their customers want not just the government.
Is incredibly complex so not only are truly obviously doing that for our own customers and our own employees.
Things that every company is doing to comply with privacy.
Also building products.
That are helping our customers like segment think about which segment does that help companies understand their customers better so that they don't have to rely on third party.
Shenanigans in cookies, and all this kind of stuff and navigate the changes that Apple has brought about.
Because.
The platforms are dictating it and B consumers wanted consumers want a world where their privacy is respected people want to be tracked across the internet and so this is one of the largest shifts that has gone on since the internet.
Since the Internet became a vehicle for business honestly.
Not only twilio navigate that but helping us help our customers navigate that is incredibly important so amy is going to lead the team responsible for navigating this.
Plex compliance program is a privacy regulations and the shift to this.
Utterly enormous changes on the Internet works.
Okay. Thanks for the thoughts on that and now are supposed to be the analysts to ask the M&A question, but you have.
Solid positioning on your balance sheet, just wanted to ask with valuations, having compressed and this market generally how is truly we're thinking about M&A appetite and then as a.
Kind of related question could you give any update on where or how the <unk> relationship is progressing.
Progressing thank you.
Yes, Hey, Brett this is Len.
Let me take the second part first.
In terms of universe, I think subject to the closing conditions of the agreement we do anticipate closing that transaction by the end of May I think that's probably what you were getting at the relationship with that organization.
It remains great and we think that'll be an important part of how we go forward certainly in divestiture business relative to M&A more broadly I mean, you're right. We do have a very strong balance sheet. We are certainly going to remain opportunistic and we look and evaluate different opportunities all the time and maintain it.
Gameboard.
I think if something comes along and we feel like it's a good fit and we'll certainly take a look but there's nothing necessarily imminent plans at this time.
That's really all about that I can say about it.
Great. Thank you.
Thanks.
Your next question comes from the line of Matt Stotler with William Blair. Your line is now open.
Hi, everybody. Thanks for taking the question I guess, just one kind of looking at.
Your application services, but specifically flex and segment. So I mean, just kind of looking at the overall trends in the market and what we're seeing in kind of spending intentions in what's happening with customers and partners I mean, it seems like we're setting up for.
I'm, a pretty interesting year for flex in terms of opportunities right. It's honestly, it's been it's been growing quickly.
But it seems like were in a particularly advantageous position right now so I'd like to maybe just get some color or just expanded thoughts on.
How that pipeline developing any thoughts on kind of the year for that obviously not asking for product guidance, but.
More and more qualitative and then in terms of how it relates to the CDP, what kind of interest you're seeing in bundling there and if the addition of segment as kind of having a a pull through effect as youre looking at the ramp of flex over the course of this year.
Yeah. Thanks, Matt This is Jeff I'll answer the question look we're really excited with the progress we are continuing to make with flex and we continue to see really great traction with customers and in particular pay attention to the customers that we call out on earnings calls you see a really nice selection of companies in different verticals different sizes everything from like the.
Digital Disruptors, all the way up to like enormous Fortune 500, Fortune 100 legacy like insurance companies and so you see a really great set of customers who are the adopters of flex and we consistently hear from companies that their legacy solutions really just can't provide the flexibility or the channels.
But they need to address customers in the digital world today.
This is why we remain so excited at the traction we've seen with flex and the opportunity ahead of us.
Seeing customers take flex on like for the first time, our compass was when we talked about in the prepared remarks today.
But we also see companies expanding their use cases like a global 2000 financial services company, a global 2000 automaker I mean these are companies we've referenced on prior earnings calls and so overall our traction is strong we're just scratching the surface of what's possible also with our partner ecosystem and we've talked about.
Partners, we brought on board to help accelerate our go to market.
Actually taken into verticals and taken into different types of segments of the market. So we're really excited about the market. We're addressing here, we think it's an amazing opportunity for for the partner ecosystem that we're building for the joint customers, we're serving and I love. The fact that we're seeing look you've got your digital Disruptors, you've got your enterprises, you've got everything in between all around the world.
Also if you notice.
Using twilio and are using flex in particular, and so I think those are the signs USC, which is youre hitting a broad.
<unk> need and you'll see a great set of customers, helping you've got way improving proving out here as we see it.
Got it thank you very much.
Your next question comes from the line of Taylor Mcguinness with UBS. Your line is now open.
Yeah, Hi, thanks, so much for taking my question. Another one on gross margin, but when we think about when we look at the <unk> sequential increase was there any color you can provide.
On how much of that would've been driven by maybe a recovery in domestic growth versus segment and you know some of the other high high margin business is becoming a bigger portion of the mix and I guess to US as we look ahead based on what Youre seeing today any thoughts on that.
The mix of messaging versus customer engagement in the revenue line and how that could evolve just.
Given the tough comp that there is in Q2.
And then easier compares.
As we get throughout the year and how that might just be influencing your view that gross margins could stay in the Zip code.
Yeah, Hey, Taylor <unk> so.
A couple of questions in there. So let me let me just try to unpack it a bit so in terms of.
Just the concept for Q2, and then the second half of the year.
Alluding to the.
The business in total there are not any specific pieces Q2 rare.
Relative to last year last year was 50% organic growth quarter and so therefore, that's why we guided the way that we did for Q2 this year, whereas the second half next year.
Provides a more favorable setup for the back half of this year and that's why we continue to feel great about our 30% plus guidance for for the year in terms of the margins themselves that are kind of underneath that looking at sequential Q4 to Q1.
I mean, I think obviously, we're happy with what transpired, but.
Business, just given the relative size of messaging most things are driven by various fluctuations in the way that various accounts are behaving in that part of the business.
Where they're terminating what their margin rates or what have you and so the mix of messaging tends to drive.
Kind of the mix of <unk>.
More broadly and as I.
I alluded to earlier, we are comfortable with the gross margins of that business, we love the gross profit for the throws off.
We reinvest those profits and more probably most importantly is that messaging provides a very interesting entry point for us into customers and we just make sure that those.
Deals hurdle in a meaningful way that the margins that they provide or not just accretive but also strategic relationships in terms of the software components of the business as I said.
I feel really really good about.
You heard Jeff's comments, a moment ago about flex and the energy that we have around that product.
And that part of the business another application services to continue to grow at elevated rates that do carry higher gross margins as you said and I think as we go overtime, we feel great about our longer term gross margin guidance of 60% plus and.
It will take some time just given the.
Size of messaging, but we do anticipate that that mix shift happens happens over time that we gave you some indication of that in our disclosures in the prior quarter.
Great. Thank you.
Thanks Taylor.
Your next question comes from the line of Ryan Macwilliams with Barclays. Your line is now open.
Alright, thanks for taking the question. So we heard from some customers that there could be a price increase this month on Twilio SMS.
SMS.
This is the case like just looking at the first price increase in recent memory in the U S. So how should we think about maybe the thought process behind that if that's true and maybe what this can mean for us for growth.
I didn't hear the last part of your question Ryan what could it mean for what.
U S Rev growth.
U S revenue growth that we said, yes, yes, okay.
So yes. It is true we did update you at SMS pricing in both the U S and Canada to reflect our underlying costs as well as continuous improvements to our infrastructure and software.
And to provide trusted and reliable global messaging the price changes that we put through they will take effect on.
The 11th of May and it doesn't affect our customers who are locked into a fixed price and we don't necessarily expect a material impact on our results in the short term and we're still evaluating whether or not additional price increases makes sense in other products, but we obviously are in an inflationary.
Free environment and so it felt like it made sense.
To us given the value that we offer to customers the technology and just given the current environment.
Thanks, if I can just follow up really quickly just on the first quarter of one the $10 million beat to the high end of your guidance revenue is this kind of in line with your commentary of what you were thinking last quarter about like a new guidance philosophy going forward guidance.
Yes pretty much I mean, as we mentioned we did refine our guidance approach. We wanted to provide guidance more consistent to actuals to just give investors a better approximation of where things are headed.
Basically the way that Q1 played out.
Okay.
Thank you.
Your next question comes from the line of Alex Zukin with Wolfe Research. Your line is now open.
Hey, guys. Thanks for taking the question I want to follow up on pricing first.
So if we think about it was this driven more by kind of the inflationary environment and if you think about it is there an opportunity to do this globally is there a way to tie this to a more strategic interaction with the customer around the application services just walked through.
<unk> a strategic lever here or was this more of a one time kind of adjustment that you haven't really exercised.
Over the course of the companies left.
Yes.
Think it's a lever.
Wouldn't say that we have necessarily grandiose plans to roll it out globally are across every single one of our products. So I think we're still evaluating stuff like that but just maybe to take a step back I mean, we have done price increases in the past not necessarily it's been a while in SMS, but we have done them for example.
In the email business, we've done them, a few times actually even under our ownership.
They've also been done in other parts of the business, most notably in segment and so it's not like it's something thats.
That's not planned or something that hasnt happened before in Twilio and I don't want to leave you with that impression.
I think for US we're seeing enough inflation in the environment, both based on our variable cost line as well as the labor inflation.
That we felt like it was appropriate to pass through a price increase like I said, while that those changes take effect on the <unk> 11, there are a lot of customers that are still on fixed price contracts and I don't think it's going to be material in the in the short term, but it's something that we'll evaluate as we go through the balance of the year and we'll see how things play out.
Perfect and then I guess with respect to the second half you called out the more favorable comparables.
From the prior year.
And this maybe goes back to cashless question about just the macro environment like is there any adjustment or anything you're doing in your models at all take into account any.
Impacts from Europe , or revenue in Russia, and Ukraine, and then separately as we are coming out of the pandemic hopefully are there any verticals that you are starting to see where use cases bouncing back stronger than others.
Okay.
So <unk>.
Let me take them one at a time so on Russia.
Russia, Ukraine, I, Wouldnt say theres been really much of an impact at all.
Volume in that region is pretty small piece of our global traffic and we haven't seen a material impact in our business to date.
What I can tell you is that for any new business in Russia, we've suspended doing any and to the extent that we had any traffic with state owned customers. We've terminated that and then we've seen a little bit around the fringes with some isolated customers.
Who might pause their traffic to Russia, but it's a pretty de minimis impact to our business and yes, we have model that to the extent that it would even impact us in terms of broader macro I mean, we're watching all of the same factors that you all do I think what I would go back to is that what we're finding both based in.
Our conversations on the ground with customers, what we're seeing in our revenue line, what we're seeing.
Seeing in some of the research that we've done and what others have done is the digital transformation continues to remain a top boardroom priority and so we.
We see that as a very secular trend not one that's cyclical.
And so as that continues to happen over a long period of time, we feel like.
There's a lot of tailwind here for virtually and I mean of course there are.
Economic factors geopolitics supply chain labor et cetera, but all of that stuff is largely built into our models and so our 30% plus.
Plus growth confidence as well as being profitable next year has a lot of those impacts baked in and we obviously have a strong balance sheet as well.
I'd say.
There is one other part of your question I thought I can't remember now.
The vertical that are coming back are stronger than others.
I mean, what we saw kind of transpiring going into the pandemic I mean, obviously.
Rideshare travel hospitality were pretty significantly impacted to the bad.
And based on some of the reports you've even seen recently like those industries coming back pretty nicely.
And obviously.
That drives some additional volume to us I think.
Thing to bear in mind, there is that we're very very diversified now.
In terms of our customer base and so no one industry necessarily drives an outsized impact on our revenue line I think the things that we saw during the course of the pandemic that we expect to be quite durable are.
For example e-commerce.
Care financial services, a lot of the use cases in in those categories became elevated but I think what we're hearing from our customers.
And those verticals is that now that they've gone down the path of digital transformation and they have seen such significant rois. They want to keep going and so we've just gotten started with those verticals and I think theres a lot more of that now Molina and her team are going to be able to do and helping customers.
So they're different problems in those areas and we stand ready to do that with them. So I'd say a bit of tailwind and some of those industries and then a bit of a tailwind in those that I referenced earlier that were down on the early part of Covid.
Got it thanks guys.
Operator, I think with that.
We're going to wrap it up as.
As far as questions and answers. Thank you everybody.
Who joined the call certainly the IR team is available subsequently.
We welcome your questions. Afterwards, thank you very much and we'll talk to you soon.
Thank you for attending today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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