Q2 2022 Twilio Inc Earnings Call

Good afternoon, My name is David and I'll be your conference operator today at this time I'd like to welcome everyone to the Twilio Q2, 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'd like to ask a question. During this time simply put.

Let's see Starkey followed by the number one on your telephone keypad. If you like to withdraw your question Press Star one once again, thank you Brian Dutton SVP of Investor Relations you May begin your conference.

Thanks, David Good afternoon, everyone and thank you for joining us for Twilio second quarter 2022 earnings Conference call.

Paired remarks earnings press release, Investor presentation, SEC filings and a replay of today's call can be found on our IR website at investors that Twilio dot com joining.

Joining me today for Q&A are Jeff Lawson, <unk> co founder and CEO , Atlanta, Donyell President of revenue because they may ship Chandler CFO .

As a reminder, some of our commentary today, maybe in non-GAAP terms reconciliation between our GAAP and non-GAAP results and further information related guidance can be found in our earnings press release <unk>.

The information provided and discussed today also will include forward looking statements, including statements about our future outlook and goals. These forward looking statements are only projections and expectations regarding future performance involving risks uncertainties assumptions and other factors that are described in more detail in our most recent periodic reports filed with the SEC, including.

Our most recent report on Form 10-K, and subsequent reports on Form 10-Q.

And any amendments to any of the foregoing and are available on our website and at SEC Gov.

We're looking statements represent our beliefs and assumptions only as of the date such statements are made actual results may vary significantly and we expressly assumes no obligation to update any forward looking statements.

With that I'll hand, it over to Jeff for some opening remarks, then we'll open up the call for Q&A.

Thank you Brian before we delve into questions I am pleased to announce that <unk> customer and developer conference signal will be held virtually November 2nd and third 2022 in the North American and EMEA regions in November 3rd and for 2022, and APAC signals, our flagship customer developer conference.

We explored the intersection of technology innovation and of course customer engagement. We've got a really exciting lineup planet. The main event will be held virtually and we will host to in person customer events, our creator summit and our new CDP stomach dedicated to our marketing and segment customer audience, a virtual Investor day will also take place in alignment with signal.

And more to come about that Investor day soon so with that let's open the call for questions.

Thank you 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, we'll pause for just a moment to compile the Q&A roster, we'll take our first question.

Derrick Wood with Cowen Your line is now open.

Oh, great. Thanks Helane.

Elena maybe I'll start with you you've been there for a few months.

Just wanted to kind of hear what sort of tweaks youre looking to make in the go to.

To market.

Things around like account structure and product focus.

Got it.

What things you have in mind as you build through the year and particularly how.

Youre trying to design that to help kind of move more up stack with both the salesforce and the partner ecosystem.

Hey, Thanks, Derek really appreciate the question.

In an exciting and eventful last year.

Super excited about the opportunity had listeners.

Opportunities, we've identified to drive our focus of time toward the highest value outcomes.

Yes.

We're at different stages.

Executing across each of those.

First and foremost I feel like the organization and our processes our systems. Our tools are really ready to work harder for us and I think what that means is that we should be working on March march toward applying human touch well manage the customer journey that really require it entered the solutions and solutions selling moments it really required as well so we're.

For efficiency. There, we're also finding efficiencies in marketing and ensuring our pricing is reflective of the value that we're providing and exploring new and novel ways to tap into that vibrant partner ecosystem that you mentioned.

All of that is leading to an opportunity for us to shift more of our selling capacity to software.

We're also making sure that we're leveraging more self service capability for customers that don't actually require hand to hand.

Coverage.

I think the opportunity is massive and those areas actually we have tremendous assets to work with and our client relationships, but also in our team and I are actually at our products. It's about as well. So I'm excited to begin to push on those levers more aggressively and you just watch our <unk>.

Software selling notion to take off from here.

Great.

Im sure investors certainly.

We'd like to see that and I guess for <unk>.

The direction of gross margin coming back down in the quarter I guess, a little surprising given.

You guys raising pricing in the quarter the thought that.

You'd see a higher mix of domestic messaging post 10, DLC registration Scott.

And even if I look at international mix at 35% of revenue was flat sequentially.

So.

I know it sounds like Youre, calling out international mix, but are there other components that play perhaps within international where costs are going higher.

Can you just give a little bit more color on the puts and takes on gross margin and perhaps how to think about it directionally in Q3.

Yes, I mean by and large the way that you characterized it is right that the decline in gross margin is largely driven by our strength in international messaging I think one thing that you do have to bear in mind.

As you think about the 35%.

Sequentially quarter to quarter, that's based on where the customers addresses or where traffic originates not necessarily where that traffic and set terminating and so as we have both U S customers as well as customers that resided internationally that continue to send messages internationally, you're going to have a slightly lower grew.

Margin just as a result of the fact that international messaging margins are structurally lower and Thats kind of whats been the drag on our business. What I would say is that in general while that has kind of a margin rate. In fact, we do feel good about the growth in overall messaging and it's still a major entry point for us with <unk>.

<unk> and it opens a lot of opportunities.

Related to what <unk> talked about a moment ago and so we still feel good about our 60% plus gross margin target longer term, but in the shorter term we are taking on some business some of that in large part is international.

And as long as it's profitable business address gross profits back into the business, we like that business and we're happy to take it on as long as it pulls through flex segment over time.

Got it okay. Thanks for taking my questions.

Thanks Terry.

Next we'll go to meta Marshall with Morgan Stanley . Your line is open.

Great. Thanks.

In the prepared remarks, you guys mentioned that you would not be immune from macro factors and just wanted to get a sense of how those are manifesting, thus far and how you're being proactive with customers, where you can help them optimize that spend.

Thanks.

Thanks Elena here.

We feel like in general companies are continuing to prioritize investments that are responsible for driving revenue and efficiency. We're super fortunate in that we have products in all of those spaces.

Haven't yet seen.

Any kind of significant degradation in demand, but we do have some exposure areas that I think are worth mentioning I think we have them in our prepared remarks as well, but in areas like SMB is consumer and digital natives.

No it could be impacted by a prolonged downturn.

But as that with that said, we also have some spaces that we think will will.

Operating and continue to perform quite well we've seen a couple of recent isolated areas of softness more specifically in areas like crypto consumer on demand, social, but again that impact not material.

Thanks.

But we also think our products fit in kind of a perfect space for continued investment and so we're continuing to watch it really really closely and we're continuing to watch top of funnel cycling and things like that and we will continue to be really diligent in our analysis and certainly as well.

Response to the <unk>.

With the addition of that does come to fruition, yeah, I'll just add to what Elena said that she mentioned that the business has been resilient and we while we've seen some isolated pockets, we haven't really seen anything materially that sir.

We're certainly not naive about the way that our many of our peers are talking the way that the macro environment appears to be playing out and so we are readying ourselves for a variety of scenarios and you've probably noted that we've taken some actions with respect to slowing down hiring except for some key areas.

No we're taking we guided based on having a real estate charge.

Which I think reflects our kind of remote first.

Approach too.

The way that we're going to work going forward and I think both of those things will drive.

Drive profitability into next year, and I think irrespective of the macro environment, we're intending to be profitable next year.

And no matter, whether it has an impact on growth or not.

Got it and then just was there any FX impact thats worth calling out.

Not really.

Hedging program and I think in general that kind of launch the impacts of any FX and so it tends not to be a material impact to our business.

Great Okay.

Next we'll go to will power with Baird. Your line is open.

Okay great.

Wanted to ask about the <unk>.

Hey figure Flex win you announced in the quarter that seemed like a really nice.

When for you I'd love to just kind of hear more.

The processes that are rip and replaces it.

One segment of the business, maybe thoughts on who youre competing with they're just kind of any learnings from that because it.

Seems like a nice potential litmus test for when it may be up.

Have a nice reference a cap going forward.

Yes, yes.

Oh.

You'll go down.

Okay.

Well, yes, we're really excited to have.

<unk>.

Just flex deal ever in Q2, I think it's a great sign of that.

Continued momentum that we're seeing with flex and broadly with our customer engagement solutions. The fortune 100 retailer that we mentioned was already a customer of our communications API.

So this also demonstrates the traction that we're making with our strategy.

Wishing relationships and moving them up from a record API into more broad.

Customer engagement solutions. So this is multinational.

And the connection between their brick and mortar stores and the virtual stores using twilio flex video chat and messaging.

Yes.

Solution that hits, a lot of different channels and their data driven cross channel.

Needs here are going to create a single view of the customer across the organization to provide a seamless personalized and just really a great number of our customer experience.

Starting with our marketing to their sales into their customer service and so they are really re imagining the customer lifecycle in this sort of high touch way from physical stores to virtual stores across all these channels and when you think about like how many solutions are out there.

Can really.

Really help power to these new emerging and novel customer engagement like full lifecycle solutions that really aren't that many out there. So we were in the competitive landscape with a bunch of other known players as you can imagine, but I think this is what reflects really shines in terms of being able to take a bunch of really interesting new and emerging requirement.

From a customer was really looking to reinvent how they engage with the customer not just when you need support but really across the full customer lifecycle and then do it in multiple channels across multiple different.

And use that they have.

This is more flex really shines. So we're really excited about this new customer I think it's a fantastic win for the platform and look forward to.

Continued customer success.

That's great I appreciate that maybe just to follow on real quickly on the macro.

Anything you can call out with respect.

Linearity kind of across the quarter or did you start to see more relative weakness late in the quarter and how is that maybe trended past that anything you'd call out just with respect to geographies.

Europe versus elsewhere.

Well this is because they have but not not really I mean, I think globally we.

I had a pretty good performance across the board I think we called out a couple of sectors, where we just feel it we called out some sectors, where we saw some ops as well and so I think so far at least as we've said it's been pretty balanced for us we haven't really seen any signs of anything material yet, we're obviously watching it closely.

As I said, a moment ago, we're certainly paying attention to what our peers are saying and what's happening in the macro environment more broadly.

But I wouldn't call out anything beyond what we did certainly not geographically.

Okay. Thank you.

Thanks.

Next we'll go to Samad Samana with Jefferies. Your line is open.

Hey, good afternoon, Thanks for getting me and maybe first just on the shifting of the selling capacity on the software side and looking to leverage more self service capability for customers that Donnie direct account coverage.

Maybe Atlanta could you help us understand better is that even for the application layer like engage and flax that youre kind of do that as well in the segment or is that more for their traditional messaging side just help us understand who that's directed at in your base and what that customer looks like and and how we should think about that going forward.

Yes, great questions, Matt. Thanks, I think that that motion can apply to all of our solutions, but I think it's most effective.

Our more transactional messaging deals and so you'll see us push on that harder is there, but we really believe that there is.

Ocean across all of our solution, where theyre discoverable by developers, where developers have a middleman, where they can experience the solution. They can play with it they can build around it and.

And that can lead to bigger and bigger and bigger and bigger.

Deals and and engagements with clients.

That said, we also know that with the solutions there.

Blending built in deals going down in the in the market every day and we want to make sure that we're meeting customers, where they are sales cycles, taking novel with with what their process looks like and so we'll have enterprise selling motion across all of that as well.

We believe that there is really sort of exciting opportunities for us to push harder on self service and messaging, but that doesn't mean that we won't also have those notions working really well across segment and engage as well as blacks.

Great and then maybe because I'm a follow up question for you just on the guidance.

Sure. It does the <unk> guidance include political messaging revenue contribution or is that going to be excluding anybody as you think about organic growth just trying to make sure that we are kind of keep all of our ducks in a row on the organic guidance and what's included in that.

Yes, it'll be included we're not excluding political from the organic guide, but I would say that it tends not to have much of an effect as much of an effect in Q3, it tends to be more of a Q4 phenomenon.

So I wouldn't expect much of an uplift relative to political in the overall guide.

I understood. Thanks, everybody I appreciate it.

Thank you.

Next we'll go to Michael <unk> with Wells Fargo Securities.

Hey, great. Thanks. Good afternoon I. Appreciate you taking the question I mean look there are clearly a number of moving pieces in the model.

And the macro currently we've been fielding a number of investor questions just around the 30% organic revenue growth level and even with all the moving pieces you did come in above that this quarter. The guidance suggests fairly close to or above those levels next quarter can we just spend some time on the organic profile of the business the puts and takes are.

Whats playing through currently and if some of the urgency and adoption patterns. You you were seeing normalizes or their points of focus for the sales team just to kind of drive towards or lean into and in the current backdrop.

<unk>.

Yes, let me, let me start and then I'll hand, it over to Linda to talk through it a bit more detail from a from a sales perspective in particular.

So I'd say just to start off with.

Mentioned that so.

So far at least like we're not really seeing any material impacts in our business relative to kind of the macro picture and obviously, we're watching that macro picture quite closely we monitor our business very closely it's usage based and so were getting signals day to day about that but as I said, so far we're not really feeling.

Anything material.

In terms of Q2 like we feel really good about the way that Q2 and frankly, the first half played out and we feel quite good about the set up in the second half as well we are guiding obviously to.

30% to 32 on a reported and then 29 to 30 orgs.

Organically, despite kind of a bleaker macro picture, perhaps than where we were six months ago.

I'd attribute that largely to the business remaining resilient and why we have seen some pockets of softness we're just not seeing that in kind of a broader broader brush yet in <unk>.

In his prepared remarks, what would she alluded to was that we are seeing some longer sales cycles.

But that's being offset in part by volume gains in some other areas and so I think sitting here today based on what we know what we see we feel pretty good about certainly our first half results and the setup for Q3 as well that said, there's a lot more work for us to do given the magnitude of the opportunity in front of us and so given that let me turn it.

Over to Elena to talk through that.

Yes, I mean, I think for US our focus is still very much on making sure that we are seeing the demand that's out there and just.

Making sure we are introducing the best of everything we have to offer into the market.

As I mentioned earlier, we are continuing.

Continuing to kind of move our focus at stock make sure that we're investing in those areas to drive long term growth with a high focus on profitability.

I think post that it while we're not seeing.

Any significant degradation of demand we've seen cycle length.

Adjusted a couple of very very small pockets.

Pushed out a little bit we're not hugely concerned and that it hasn't become a pattern. It's just something that we're watching really closely.

I feel good about the setup going forward I feel good about how the team is focused.

And moving in the right direction.

And.

We will continue to watch it and make sure that we're responding accordingly, and adjusting our message to out to the market Accordingly.

Again, we think that our solutions are really well suited to this point in time.

And so even if the budget gap for the short period of time scrutinized or held as people are sort of holding their breath.

Waiting for additional economic data.

We also feel really comfortable that when when the <unk> happens, where theyre waiting and we present, a really phenomenal opportunity.

Particularly in our solutions that allow people to know engaged sell to yourself through.

Their own customer base that.

But we stand to benefit from that in yet.

Okay.

Alright, well go to our next question next we'll go to Nick Altmann with Scotia Bank. Your line is now open.

Great Yes, thanks, guys.

Good to hear that you reaffirm your commitment to profitability in 2023, but just given there's a handful of onetime costs related to office closures and the sabbatical program that are sort of pressuring <unk>.

How should we be thinking about EBIT margins as we sort of exit this year, and then kind of going into 2023.

Yeah.

That's a fair question so.

Thanks for asking it I think the way that we're thinking about it is is that irrespective of kind of the macro environment that we intend to be profitable in 2023 and <unk>.

We've thought through a number of different scenarios.

That could play out that even if there were growth impacts we still intend to be profitable.

In the coming year and in addition to that we continue to see this massive opportunity as Elena.

<unk> been talking about with respect to the software.

Aspects of our business in particular segment flex in terms of the two dynamics that we called out in our prepared remarks, so one of them being the.

The real estate the real estate charge, that's a one time, it's noncash it will start to show up in our operating results next year and then in terms of the second one that's also a noncash charge and then there'll be some kind of carryover period to period there'll be relatively de minimis in the scheme of things.

What we're guiding to for the time being is profitability and next into the next year, we're not guarding guiding to a margin rate associated with that that EBIT number.

But what we're committed to doing is delivering profitability into the next year.

Okay. Okay. That's helpful and then.

It sounds like there is a.

Sort of a greater pivot to segment engage in flex and I'm I'm, just curious sort of what's driving that is there something youre seeing in the end market where.

Maybe maybe the end market for those products is becoming a little bit more attractive or sales productivity is selling those products.

Just picking up a bit or is it more sort of you guys are pivoting to selling those products with a higher gross margin profile than the overall business.

So I'll say a couple of things and then just might want to weigh in as well.

On that one since it's such a large circuit strategic question, but I would say a couple of things first.

Messaging and communications and that sort of being the last mile of the things that originate up in the marketing space.

Customer care space etcetera. So we think it's a very very natural progression that where we started with fantastic business in communications that we then help customers make sure that those communications are the right communications at the right time see the right channels to the right individuals.

Make the whole flywheel churn better and faster and so it happens to have the characteristics as helping us create a better economic profile from a margin perspective for the business long term, but we also think it's just a really really natural move from a customer perspective, Jeff I don't know if you have any.

Anything you'd like to add to that.

Well, Thanks, Helane I think you said it really well maybe I'll just add two bits of color to your answer.

First is customers come to us, whether they want voice or messaging or email <unk> com.

Turning to us for our communications channels, because they have some business school. They are trying to achieve right and typically it's there.

We're trying to do better marketing, we're trying to improve their sales process, they're trying to make their products more engaging theyre trying to provide better service and support right they're trying to.

One of these areas in the customer journey is where that are focused and so they're using communications to achieve that goal, but when we talk to customers and we learn what it is they're trying to do we always see these opportunities to say well how can I help you achieve that goal faster better.

We're doing a bunch of heavy lifting the customers may be trying to do on their own and so when we see these trends emerge lots of customers coming to us for better contact center or a lot of customers coming to us for.

The verification are coming to us for.

Better marketing.

Cross channels.

They are all opportunities for us to go help our customers and get our customers to success faster and to bring them a higher value product and so that's a win win and so when you think about what we've been doing we started with the sort of bottom most layers of like the channel API and as we learn about customer needs a broad base.

These customer problems. We can then go into solving those problems for our customers and everybody wins and as Alain mentioned, obviously that increases our gross margin profile could be solving software problems, but also accelerates our customers' time to value in their success.

Second thing I'll say from a strategic standpoint is as we grow our business we grow our revenue we want to make money because we help our customers.

Craft concerned and engage with better communications with our customers not just more communications and I think we all would look at our phone and our inbox or all.

All of that and say, we've got a lot of messages, we got a lot of email.

But really what business is one there's more engaging communications more engaging customer journeys and so we see that as a really big opportunity to really get at what our customers truly want with a real aim is.

We have more engaged customers not just more communication. So I think it really hits, our strategic goals I think it achieves our customers' strategic goals and I think it's what end users one as well and so I think everybody wins as we continue to drive into more software solutions to drive smarter outcomes and better customer relationships for our customers.

Got it that makes a lot of sense. Thank you.

Next we'll go to Mark Murphy with J P. Morgan Your line is open.

Yes, thank you very much.

I am curious maybe for you because they know how would you assess the response to the SMS pricing increase.

Wondering if customers view it is reasonable and to be to be expected in an inflationary environment or do you think that volume growth would degrade.

Lately as you as you roll that price increase through and I have a quick follow up.

Yeah, Hey, Mark we haven't really seen much of a detrimental impact to the business I think volume is broadly held up we havent seen a lot of resistance to it I think it's pretty reasonable in an inflationary environment.

As we've talked about in the past, we feel really really good about our technology and we do feel like it deserves a premium relative to the competition.

Okay, and then as a quick follow up could you describe the trend on the video portion of the business I think Geoff you've had several innovations there.

It included an application for hosting conferences and virtual events, you've I think you've had.

<unk> video.

Could you help us understand.

What kind of experimentation or are you seeing and maybe any any help on just the trajectory of their prioritization of video.

Yeah, absolutely Mark So we've got our video platform. We started off the first several use cases, where more or small group conferences. The big group conferences in the last year, we launched a toy alive, which provides for.

Live streaming experiences interactive streaming experiences I think this is still an area for us of experimentation.

To be honest I think the video market is still sorting out I think there was sort of the market that existed and then Covid came along and there was a flurry of activity.

And theres been some experimentation by entrepreneurs by bigger companies.

But it's really small for us in the Grand scheme of things and I think it's a really interesting investment area, because I do think that.

Video is ripe for some more disruption more in some applications, whether it's live shopping whether it's live interactive conferences et cetera.

But it is small for us in the Grand scheme of things and it's one of those loans Thats, what we have.

Thank you.

Next we'll go to Brent bracelet with Piper Sandler.

Your line is open hey, thanks for taking my question.

Thank you and thanks for taking the question here.

I appreciate you haven't really seen any sort of kind of macro headwinds the business, but we are absolutely seeing churn pop up in other customers, particularly customers vendors that have exposure to kind of that SMB smaller customer cohort I know yourself for free right. So you only pay for what you can see.

Soon but as you think about the environment shifting here have you seen any sort of change in in the consumption patterns of messaging patterns at the smaller customer set obviously the return to travel is is something that Israel lots of people are traveling and so it is Scott.

It would be some offsets, but I'm just wondering as you think about <unk>.

Maybe the the smaller customer cohort are you starting to see any sort of change in volume or messaging patterns that might be maybe offset by larger customers. Thanks.

Yes, it's a good question. This is <unk>, let me start and then.

Elena comment as well.

So maybe just to take a step back I think one of the things that we've been doing quite actively is analyzing the business among along the lines of a number of dimensions as we alluded to in our prepared remarks, and we have been looking at it based on customer size. That's one of them. We've been looking at verticals, we've been looking at use cases.

And at least so far.

Not seeing much of an impact based on those cuts now we did call out a couple of pockets of softness.

And Alain is section of the prepared remarks, where we commented that for example in crypto or social or.

On demand related activities that we're seeing a little bit of a slowdown but on the flip we are seeing some strength as well in financial services.

In it related spending that said as you alluded to in your question.

We do have a usage based business, where we get paid based effect effectively on the basis of every event and we are looking at it very closely and we're certainly planning for a variety of different scenarios that could unfold.

We just haven't seen them in our business, just yet and irrespective of how those things play out we're still planning to be profitable into the next year and that's kind of how we're.

Running the business day to day, but let me, let Elena comment more on SMB is because I think that was kind of the basis of your questions to begin with.

Yes, I think so I don't have a time to add I would just say, it's very natural this youre going to see on that.

As economic difficulty.

Uh huh.

Craig This is kind of a moment that the.

The investments that Smbs are making those down some of them may not be around over the next number of quarters or years.

We're also excited about the fact that it's all felt window for new innovation to kick back up a new company starts.

To get involved and to send messages and utilize software. So we're definitely watching it.

But I will tell you we don't break this out but I would say in my organization, we call. The group that looks after smbs are routine.

We're pretty pleased with their performance, thus far so I guess.

So I guess, the only thing I'll add is that definitely still watching.

I heard about the progress that team is making but really sort of where we've seen softness has been much more started to use case or vertical oriented in the areas that you'd expect in that we talked about in our prepared comments.

Perfect. That's helpful color. Thank you.

Okay next we'll go to Ryan Koontz with Needham <unk> company.

Your line is open.

Yes. Thanks for the question I want to reflect on zipper, if we could and I really appreciate it as an innovative and unique products can you tell me is it fully integrated to the company now.

How do you see it performing to the ADP fees and what are your expectations for the business going forward in terms of any synergies with that thank you.

Yes, I mean, we're not breaking it out per se, but I think we feel great about the Sip with product I think we feel even better about the zip with team.

I think they have integrated it really nicely into the business I think a number of different thought leaders that that came with that team as well that are helping us innovate.

Business performance as I said is it's going really really well, obviously theres, an ADP fee component, there too, which we we breakout for you all but I really have nothing but very positive things to say about how is the book has been performing.

Got it thanks, Tim.

Okay next we'll go to Ryan Macwilliams with Barclays. Your line is open.

Thanks for taking the question I noticed universe agreement has gone into effect would you expect any material benefit to gross margins in the next quarter and do you think there might be any better visibility into gross margins going forward. After this agreement.

Yes.

As you pointed out.

We concluded the <unk> transaction and we feel good about having them as one of our partners.

Business with them for a long time.

Strengthening that relationship through an active investment felt like a great next step for us.

The commercial agreement alongside the investment that we took and that provides some benefits to the business.

We're not guiding the gross margins into the out quarter, we're committed to our long term model of 60% plus over time, but I think rather than not necessarily happening just through a price increase for this universe arrangement.

It's largely going to come through the growth in our software business, which is in part one of the reasons that we're so excited about it. So <unk> is definitely accretive and will be helpful over time, but.

I wouldn't read too much into it having an impact in the next quarter or so.

Thanks to this quarterly fluctuations in deferred revenue might not be the best indicator of segment momentum, but is there any color you can give around how segment is doing at this point and also maybe any update where we are in regards to the engage rollout.

Thanks.

It was the first I missed the first part of the question did you say deferred.

I was just saying like deferred might not be the best metric to gauge segment momentum, but is there any color you can give around how segment is doing at this point.

Yes, the segment is doing really well and it's been performing well for a long time for us I mean, we're really really excited about the addition of that product and that team as well.

And to the company obviously it comes with a nice software attach as it gets very additive to what we're trying to do and have been doing for some time with our communications stack and I think we bring that altogether.

Engage and engage is still planned for.

Our later in year launch as we've been saying for some time and we're super excited about the way that that beta program has been going.

I think we've been oversubscribed, there for a while and it would probably know better than I, but I think we feel good about that momentum feel great about the way that segment has been performing.

Obviously that business is integrated.

<unk> and <unk>.

Yes, we're excited to launch engaged soon.

Okay next we'll go to a city panic Ronny with Mizuho. Your line is open.

Hi, This is robin on for Citi. Thanks for taking my question I guess my first question would be just with Google delaying recently at their deprecation of third party cookies now again from 2023 to 2024.

Are you seeing or maybe do you expect this has changed the demand environment, a little bit around cdp's customer engaging more broadly and maybe that transition away from third party.

Do you see some of the urgency kind of diminished for some of your customers that are coming in.

Okay.

Yes, Youre, absolutely I guess for Jeff.

Yeah.

Right.

Yeah.

We're talking over each other we're in different places if you haven't figured that out yet.

Thanks for the question I think what we see is the.

It's taking a little bit of pressure off of companies I mean, if you think about it like 2023 is not that far away. So in some ways, it's actually pretty reasonable that give a little more time for such a big change from the internet ecosystem to roll through that said I mean, we did a survey and it was like I think it was 70% some number like that.

Companies were not ready for this change now that creates demand for our products. We also can't imagine that that number of companies are going to magically like flip the switch completely flipped their technology stack in this month's time, and so I think its giving a little bit of pressure relief valves, but.

Still is a great environment for the CVP.

Given that customers actually do you have a little more time to actually make these thoughtful changes and we are already seeing some fantastic stories.

From the customer base emerged that really is giving our customers confidence that this first party data approach is not just going to be tenable, because it's a big change for folks, but actually it's going to be tremendously beneficial a couple of the stories that we've shared publicly is.

Oregon using segment was able to get a 41% reduction in their cost of customer acquisition, which is those are amazing numbers another great customer stories from Domino's.

And Mexico was using segment to build smarter customer audiences and as a result of that doing better AD buying and they saw their return on AD spend increased 700%.

700% that's pretty amazing.

Especially in a macro environment like this where every market or it doesn't have like the CMO. The CMO Wheeling over a wheelbarrow of cash to go spend on ads like people have to be incredibly efficient can provide ROI.

On all of their AD spend so these types of stats even ahead of having to make these change companies who are getting ahead of the curve are already showing these amazing returns not just in getting back to parity with where they were before a lot of these privacy changes went in place.

But actually accelerating and going beyond.

Tremendous increases in the efficiency of their advice I think that is going to drive a lot of the of the demand. In addition to the kind of forcing function of the tailwind, which is Google, saying can you guys kind of get off this thing.

So the forcing function isn't bad, but I actually think even better driving forces just the high ROI customers see when they use our CDP.

To understand their customers create better profiles of their customers and use those profiles to build better smarter more accurate audiences to go then placed more effective ads on the likes of Google and Facebook and so I think it's a variety of factors that are driving it. It's not just the cookie thing quick thing certainly helps don't get me wrong.

But I think that especially in an environment like this where ROI is the name of the game.

And then has a fantastic story.

Yes, definitely that makes a lot of sense and I appreciate the color there and maybe just one quick follow up on kind of the political messaging volumes. This year have you seen any indication about how it's trending versus historically is whether youll see more volume this year based on maybe kind of the.

Just the political environment in general or maybe you kind of just waiting to see.

You know how that trends into Q3 or Q4.

Yes, David I think it's kind of a wait and see I mean, we haven't seen anything idiosyncratic yet I mean, we model some.

For Q3, and it has to pick up a little bit more in Q4, but nothing that I would call out.

Great. Thank you again for the questions.

Next we'll go to Patrick Wall Ravens with JMP Securities. Your line is open.

Pretty much.

So Jeff going back to to engage the October 21 press release that it would be GAA in Q1.

Q4.

Right.

Hi.

I'd Love to hear why and then just secondly on the engage topic.

With that youre going to be competing more at least that's the perspective from some investors against some of your your great customers.

Like our brands like the <unk> deal.

How do you how do you manage that.

Hey, Patrick Yeah happy to answer those questions. So first of all Jay why don't you still expected for the second half of this year.

We've got great customers on board with the data.

And as I think kosta earlier too many customers wanting into that data, which is a good problem to have.

And as often happens in the beta you learn about which are the most valuable parts of the product, which the parts that are most.

<unk> and direct your roadmap and Thats exactly whats happening here, we're learning great things from our customers and I think our customers are telling us that we are on a great path and it shows that there is real latent demand.

Our solution that engage is providing.

The second of your questions like how are you managing the partner ecosystem and that's a great question, because it's it's not a direct comp.

<unk> necessarily lead to those other solutions like this could be some areas of overlap for sure.

There's a lot of different ways to approach building omni channel marketing and our approach is to really start with the data.

And.

Our point of view is that the hardest part for a market or to get right is actually having the right data.

And best profiles to drive what they are going to do there are other solutions that are more focused on say the campaign or analytics and those are great areas to focus on.

But our starts to data and then activating that data and what's interesting is that we've seen actually in some of our early beta customers.

That's what they want to do is use twilio to drive.

Building that data and then activate it may activate it with a campaign of their own that they build on engage that's maybe E Mail campaign Eurotax campaign, but they may also want to trigger campaigns that are in other marketing tools and so we've seen opportunities to actually deepen our partnerships because like look we're here to help power our customers' tech stack and.

I think that bringing data in an activating that data is frankly really a net new area of the tech stack.

And so that's an area of investments I think marketers are going to increasingly spend money on having the best data and the.

The speed of that data, having real time event level data for all of our customers within the things they do with it sometimes will be activating those until they are directly sometimes will be activating them.

Internal tools, we have seen customers wanting to trigger like internal alerts or internal chat applications. We have also seen customers want to.

Trigger activations and in all the third party tools and that's part of the ecosystem that we're building with engaging engaged is a really really flexible engine to take customer data and in real time is that data is changing.

Activate that data to trigger flows and so theres a real partner opportunity there too that we continue to work with our partners to bring to life as we are taking the product could yet.

Okay. That's super helpful. Thanks, Jeff.

Okay.

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