Q1 2023 Twilio Inc Earnings Call
On mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press start one on your telephone keypad.
I will now turn the conference over to Brian Vandeman Senior Vice President Investor Relations. Please go ahead.
Good afternoon, everyone.
First 2023.
<unk>.
Remarks earnings press release Investor presentation.
And a replay of today's call can be found on our website that investors are totally O dot com.
Me today for Q&A are Jeff Lawson co veterans Yo.
<unk>, President Twilio data and applications.
Name a ship Chandler President communications.
<unk> Chief Financial Officer.
As a reminder, some of our coverage area today will include non-GAAP financial measures key metrics reconcile.
Reconciliations between our gap and non-GAAP results and further information related guidance definitions and key metrics can be found on our earnings press release in the appendix or prepared remarks, both of which can be found on our I R website. The information provided in disgust. Today also include forward looking statements, including statements about our future outlet.
<unk>. These forward looking statements are subject that no no no risks uncertainties assumptions and other factors that are described in more detail in our most recent periodic reports filed with the SEC, including your most recent annual report on Form 10-K, and our forthcoming quarterly report on Form 10-Q, which are available on our website and it S.
E C dot Gov.
Forward looking statements represent our beliefs and assumptions only as of the date such statements are made actual results may vary significantly and we expressly assume no obligation to update any forward looking statement, except as required by law.
With that I'll hand, it over to Jeff for some opening remarks, and then we'll open the call for <unk>.
Thank you Brian Yeah, before we happen to the call I wanted to really take note of three things today first I.
I wanted to note that the substantial actions that we took in Q1 are working as you can see from our strong non-GAAP operating profit results.
One quarter, and we're really starting to show the profit potential for this business.
Also one quarter into our new structure and as you can see from our queue to guide we're looking into continued headwinds as we built a sales capacity of our data and apps business and doing that and I'm very tough macro environment as well, but the good news is I see our leadership role continuing and you've been expanding in this environment and I don't see things like change.
As in our church or is losing share in the market I see moderation in our consumer based on usage patterns as well as us laughing our peak crypto usage from last year and this is some of the headwinds that will that will talk about.
Through all of this when I really want to do is to take the totally O T. We've been navigating a lot of change over the last quarter and I see <unk> every day navigating these changes with grace with energy and understanding of the job that has to be done here and it's truly energizing for me for the rest of the leaders of the organization.
Escalate truly victorio magic inaction. So thank you.
Second I'm sure. This is on People's minds.
Platform shift is upon us like the P. C to web transition the web T. Mobile. This is the next major technology shift in our society working with customers, we see many ways to activate customer data in segment across the whole customer lifecycle using artificial.
<unk> now will have more to say about this during the course of this corner and of course at signal in August .
Terms of products in terms of partnerships and in terms of customer use cases really looking forward to that.
And the third thing I wanted to mention today and lastly is.
Now onto your questions.
Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue simply press start when again.
Your first question comes from the line of Mac messy with J P. Morgan. Please go ahead.
Oh. Thank you very much. So question for Elena you you mentioned being in a strong position to actually Reaccelerate.
Bookings later this year in Kazim I'm in there prepared remarks, you were mentioning optimism in being able to reaccelerate gross figure progressive.
I'm wondering if you can just shed a little light on what is underpinning that positive thought process and could it mean that Q2 might mark a bottom actually for the revenue growth rate or a local bottom for the revenue growth rate.
Hey, Mark and the Lady here I'll I'll start and then I'll pass it over his name at first and commentary on the communications with that first I. You know, let me just kind of walk you through the packet here to provide some contacts and groundwork for what's to come.
I first of all I joined the company a year ago exactly this <unk> at at the time, Jeff asked me to sort of re architected rebuild or go to market muscle and add motion and would that would that met with two things and one more substantively a pack of communications and one on the data and applications space. So we.
Be realigned rearchitected are sort of resource map and went through and after that they cost cutting initiatives that you've seen in your are starting to see the results of that and that with with primarily around our our go to market muscle and <unk> com space at the same time, we were sort of <unk>.
And the data and applications faith, and and the job there has been to rebuild and grow our talent base. There. So we had her you know early in 2022, we had some turnover or some nutrition some changes in it and how we set up a sales team.
Which we then unwound and began to rebuild from there and said that rebuilding effort has has taken off the last few quarters.
We're now only hired for the most part, but we're not fully rat. So we'll we're all over that over the next couple of quarters is getting that field organization. Both the a F. A E level the manager level fully route. So right now are being focus is not on enable man. It's on getting those wraps I'm kind of their first deal that there tends to be.
<unk> and really showing.
Really showing sort of what that team is capable of that I'm I'm just back several of US are just back from our delay itself kick off.
Where it was a very much a training focus advance and enable minute focus of that and having spent a bunch of time with our people across the last few weeks I feel really comfortable about the team that we have in place and that's a big reason for optimism.
As as you as you asked I think.
You know we're also doing all of this work during a pretty tough macro time as we also talked about or seeing evidence of that in a couple of areas. So we've talked in the past about things like cycle legs average selling price is conversion rates across the final and a little bit of contraction, we're definitely seeing all that at the seams.
Time that we're rebuilding Reengaging re energizing appealed organization. So with all that said I just want to close out with the things that give us real optimism number one that you have talked about I Miss kick off where start we're seeing some great customer wins amidst all of that I had a couple of my prepared remarks cricket wireless he was current William customer.
Became a segment and gauge customer web help at a large P. P O becoming a sizeable flex customer we've had a couple of other really he wins in the financial services space, a process Carter and lost and so we're seeing great strides there as well as great strides in our innovation agenda.
Our our product teams are are really taking down a lot of the redknapp uhm delivering a lot of new capabilities from segment unify to flax to unify which ties together flaxen segment with them customer wins across each of those as well so.
Team just our enablement journey is in full swing our product delivery is in full swing and bringing down some pretty exciting customer wins. Those are the things that they give me faith that will begin to see ourselves climbing out of the trough that I think was in part a self inflicted as we talked about throughout last year.
And in part driven by the <unk> the headwinds and the economy all that cause they might talk about the the choral area on the calm side.
What I would say is a first of all I totally echo arenas enthusiasm about the path ahead of you right I think there's a lot to be excited about art sales pick office at the same time, and we kind of get them together and so there's a lot of energy among <unk>. So just to make me go to that first first of all it feels real productivity remains quite high is Lena.
<unk> mentioned you know we did a lot of work on cost structure, but even in spite of that I think we feel very very good about rep productivity.
Second thing is is that we are maintaining sure and what is continues to be a tough kind of macro environment and you know we feel good about like a lot of our most recent customer wins you know we talked about two deals in the script, specifically, where you know there were our largest ever on an email and style of network authentication. So.
<unk> I think those are indicators that customers are continuing to where we're continuing to win with our customers, they're continuing to grow with us, albeit at a slower rates than than where they were in third and perhaps most importantly, especially as you look at our financials as like we haven't really tough cop relative to last year, you know crypto was really outsized and the way that that part.
Of you know the impact on our business grew and we're kind of hitting the peak points in as we're laughing that and so I think just naturally as we come out of the next couple of quarters, you're gonna see just some natural acceleration in the grocery as a result of that I would hesitate to call. It bottom is very died.
<unk>, obviously, and so I don't think we're necessarily prepared to say that but I think we're very very excited about the setup for the back half of the year, and especially with our energy with customers.
Wonderful. Thank you so much.
Excellent.
Your next question comes from the line of meta Marshall with Morgan Stanley . Please go ahead.
Great. Thanks, I appreciate it I just wanted to <unk>.
Amber screen crypto, but if you could just give a sense of what vertical just seen amongst headwinds and then just on the communication side like what does reduced marketing budgets mean is that we cut certain use cases do we just kind of spend fewer emails or you know is it just simply from.
A reduction that transaction.
We tried to kind of think about how to model and recovery just trying to get that sent the household use cases.
Or the bounce back with a Bob thanks.
Hi, This is Aidan I'll start and I'll hand, it over to the name of suggest to talk about some of the industry headwinds caused some of them out in the past and we can send you to sea headwinds persist on the social side consumer on demand <unk>.
E Commerce and in particular crypto send those continued in a quarter and as it relates to crypto again, because they miss at every stop all you pick on our platform kind of in a Q2 two three is timeframe last year and that's creating a few hundred basis points head when you're over here on the road.
So cause they won't.
Yeah, I mean, I would largely echo what 80 said I mean I I think is she mentioned crypto is pretty significant last year and so as we laugh that I think we feel pretty good about our ability to come out of that I think the marketing spend that we referred to was much more on kind of the customer side, if you will not necessarily.
On our side and so you know obviously some of our products and observing use cases that are marketing related.
So as customer marketing volumes of come down a little bit you know frankly that impacts both sides of our business to a degree but it it it honestly impacts probably the communications business a bit more significantly upfront.
Talked about the dynamics to me to you I mean, you know the company really well you know and on the way up like we react very very quickly and on the way down. Unfortunately, we wrecked and very very quickly. So as things kind of moderate I'm really optimistic that we'll be able to come out of it pretty fast and otherwise it's kind of business as usual I mean, even called out some of the industry's but otherwise we.
Continue winning we continue expanding and we continued to maintain our share and we're not seeing really any pricing pressure out there either so feel pretty good otherwise.
Great. Thanks.
Your next question comes from the line of Michael Taryn with Wells Fargo Securities. Please go ahead.
Hey, great. Thanks, I appreciate you taking the question just on on guidance and let's assume given there are a number of moving pieces mentioned in the prepared remarks can can you just made me walk through what you're assuming in terms of the macro and what you're seeing an expansion rates is this ah consist.
An environment that's assumed and then just also thinking through the progression of some of the go to market improvements that you're making is there a way for us just to think about the timeline and progression of wear expected benefits from those might start to play through thanks very much.
Yeah, I'll start with a bit on the second quarter and then.
Right away and then go a little a little bit into some of the tracks for the year. So it is largely macro as you think about the second quarter as the market continues to be pretty dynamic and.
And we're feeling the impact of a broader slow slowdown and so you'll see that reflected in our guide.
Other thing that's important to remember is that the majority of our revenue comes from our communications business about 85% of our revenue.
The same address just said that's a consumption model tied to consumer activity so in that business.
We are dealing with a combination of macro as well as the tough comparisons that we just talked about on freaked out.
And still getting that that's creating a headband year over year as it relates to the second quarter growth rate on the data and applications side Elena talked about it as well, but we are rebuilding Elena talk about our efforts there to ramp up the salesforce Billy enable the team further and we're also doing that in a tougher macrocycle. So I'd say.
On the communication side is combination of macro tough comparisons on the software side, it's a mix of our efforts to rebuild plus a macro and we factored all of this into our guide so.
I'd say some choppiness on growth in the short term, but despite that you know we're focused on what we can control, which is delivering profit in in any environment.
As we think about the rest of the year you know, we're not going to guide <unk>. We're gonna continue to guide for Dakota, We're not gonna die beyond the second quarter at this point again, given the fact that most of our revenue is communications and usage based makes it a little bit tougher to call.
In light of that will continue to plan conservatively guide quarter to quarter I think the other thing to consider as you know as the macro recovers and consumption base model comes back you know our growth will improve our D. D. Any will improve alongside it and will be well positioned on the other side with a much more efficient.
I appreciate the detailed answer thank you.
Your next question comes from the line of Ryan Mcwilliams with Barclays. Please go ahead.
Thanks for taking my question, just one housekeeping piece, how much <unk> essentially as a potential sale of your I O T. T business essentially taken out of the second quarter guide and are there any products or geographies, where you're currently deemphasizing revenue as part of these go to market.
<unk> <unk>.
So as it relates to this is aiden Brian . Thanks for the question. So as it relates to the sale of our I T business. It's a relatively small contributor on revenue, it's been kind of a mid to high single digit millions well provides some more of that as we go forward it will be adjusted out of our organic calculations.
Going forward as well, so you'll get an apples to apples comparison on revenue growth, but relatively small contributor overall.
As it relates to any specific regions no plans to de-emphasize revenue in certain G O.
Your next question comes from the line of <unk> with Oppenheimer and company. Please go ahead.
Oh. Thanks. So my question is for Elena.
I was wondering if you can kind of double click on the date of data and applications business and more specifically when you look at the girl from being able to come to quarter.
Help us understand what what products are growing fast surfaces below this average second my <unk>.
Marketing, which ones are growing faster than the 19% of delivered versus lower and then since we don't have the historical data on this maybe you could talk about what deteriorated the most over the last two or three quarters.
And and what part perhaps you expect to recover the fastest over the next two or three quarters. Thank you.
Sure. So we don't break out at a product by product and and just to remind you a couple of things one a number of these products or new so unified product engage like a lot of those things I've only been in market for from months to a handful of quarters and so we're excited about the <unk>.
<unk> and the progress, but where you you we shouldn't expect to see those meaningfully impact the the truly our data and applications business units revenue in the very near term Uhm again, we don't we won't be breaking not out product by product I would just say and reiterate something I said earlier that the the real.
<unk> the real path to Reacceleration in the real path out of this deceleration. It comes down to two things number one is making sure that our team is empty and enabled we're putting a lot of emphasis on that and number two is just playing through the tough macro environment and really making sure that we're setting our.
Sounds apart from what happened what's happening in the competitive landscape and ensuring customers that even in a time of belt tightening. This is a really good endorsement and it makes each of your marketing dollars work harder to me. This question earlier, that's really what we're planning for right now, but at the end of the day like I would say a lot of the same themes are hidden.
Both are flax and segment products, largely and we're working on wrapping and building the team to work through that.
When you look into the next quarter guide is there another significant step <unk> business for my ear for your growth standpoint, this business regarding impacted by more crypto. So I'm just trying to understand the drag on the next quarter how much of that is the communication business versus the applications business.
Yeah, Hi. This is day, then I'll I'll take that uhm. So we don't provide guidance five business unit AD revenue, but did you think about the second quarter you can generally assume that the slower growth is attributed both of those businesses.
So I would say given the much larger size of communications. It obviously has a bigger impact on our consolidated gross.
Thank you.
Your next question comes from the line of Taylor Mcinnes with you B S. Please go ahead.
Yeah, Hi, Thanks for taking my question just looking at the the one Q <unk> decline sequentially and the <unk> you Gotta think even if you strip out I O T. As in something similar I know you mentioned that there hasn't been much change and churn. So can you just provide more color on on the drivers there.
It seems like it might be some seasonality, but if that's the case as we look throughout the rest of the year any other seasonal patterns to keep in mind.
I'll I'll start here and then it's the waiting cause they might want to add they can you're right on I turn overall has been you know relatively consistent where we are seeing some impact is we are seeing a bit higher contraction again really we think to to just lower spending on the part of our customers.
We attribute that to.
<unk> on the expansion side, we are seeing that that lower rates than where we finished historically and again, we think that's got customers being budget conscious scrutinizing. Their spending you know that's really a function of the macros macro the one area, where we are seeing a little bit of an impact on new business Atlanta has already talked about it but is on our data and applications.
<unk> sighed as she has mentioned you know we expect to gain traction there over the years the ramp ourselves for Salesforce and we expect bookings to reaccelerate towards the end of the year. So it just gives you a little bit of color in terms of how to you know think about a revenue for the rest of the year. We're gonna continue the guy corner to corner, just give us a call dynamic some accurate with the only.
Think I'll pull out which we have already is that we do have some tough comparisons here on the second order.
I would just a little bit more color.
Uncontracted for for Toyota in an application.
The good news there is that when we see contraction. It is not that we're seeing competitive lots of competitive competitive take out and things like that it's really just customers belt-tightening uhm their marketing spend going down or their transaction usage for example on assignment or utilization on segment, just going down because their contract.
<unk> and so we take heart in the fact that you know the the product is extremely valuable actually usable, but there you know as customers are going through tough times their own when you see that show up in some of the contraction numbers that we're seeing so field competitively, but we we've.
Obviously, I could contraction happening that is a newer dynamic over the past few quarters.
I appreciate the the caller thanks.
Your next question comes from the line of Derek Lid with Cohen. Please go ahead.
Great. Thanks, <unk> you know one of the questions. We had was whether growth and consumption from the base would be impacted by the sales restructuring. Since you were you were taken so many reps out of that business with give it given the the net revenue retention rate down at 106, how much of that pressure.
Is coming from the macro versus how much is kind of pull back in your own growth investments and yeah.
How did you look at the a few months and your new low touch structure, you know, what's what do you feel like it's working well what do you feel like you'd like to see some improvements on.
Yeah. That's a good question Derek I would say in general I would attribute it almost all the macro I I think the the reduction of investments that we made on the sales and marketing side I think that they were difficult decisions. Obviously that we went through and obviously there was sent back to employees and you know we feel bad about.
But I do think that with the going into it and now with the benefit of hindsight that it was absolutely the right thing to do and that we're seeing the benefits of of the efficiency you can see those fall through the bottom line and I think in terms of any impact in D. B, a knee and or overall growth like we're just not seeing it.
Now so what I would say is working is that you know kind of in this b U structure, I think having <unk> to a certain set of products that are very tightly of lines to an economic buyer on the other side that matches the products that I think that has been hugely impactful for our business I know and it was.
The exact same thing about her business swell and so I think adopting this be you structure in that way is proving to be very very useful I think the two other things that I would call out specific communications is as a result of those reductions we still did much more towards a self service product line growth oriented.
If you go to market emotion and I think we're definitely seeing a lot of early successes. Their you know their various aspects of the experience like onboarding like compliance like cross selling like getting additional products into the bundle that we're just working on making a lot easier for customers. So that they can.
You know, it's really a really at a at a speed that they wanted to be able to operate at versus having.
Having to get any of that so I think that's been quite good I'd say, you know, we'd probably killed it a little bit more towards marketing dollars versus you know kind of rapid oriented dollars and so I think that's worked pretty.
Pretty well too. It's obviously all a work in progress still but I feel really good about where things are headed and then cautiously optimistic about where things are going for the back half of the year.
[noise] got it thanks for the color.
Thanks.
Your next question comes from the line as Nick Osman with Scotiabank. Please go ahead.
Yeah. Thanks, guys just building on Derek's question. It it sounds like you guys haven't seen much pressure on the grilled Saturday equation from the communication side from the headcount reduction.
And some of the go to market changes and so I'm I'm. Just wondering can you maybe parse out for us like <unk>.
How significant those changes were on the communication side I mean, I know you guys have talked about you know sort of is roberta to low touch model.
But is there any way to sorta give more granularity around you know what's the split up quota caring wraps focusing on you know data apps versus communications and then just add that sort of progressive throughout 2023, how would you guys sort of measure that impact and make changes so.
To speak like if the communication side sort of fees further growth vsel, where you start to sort of you know allocate more reps to that side of the business just any more granularity around that would be super helpful.
Sure. So this is because I am I can start the answer and then if late I want to add some additional color she will but I think what's important to remember as we went through the the restructurings that we did over the last six eight months is that they were almost entirely impacting the communications business there were impacts to other G&A category.
But otherwise they were almost entirely impact into communications business and so as you think about the cost that came out of the business. It was it was really largely out of communications in fact, you know the.
Say, it a little bit differently, and the and the data and applications business is Elena mentioned in some of her remarks earlier and fax and what we're trying to do is make good investments right now because we see a really big opportunity going forward and we think we'd be remiss quite frankly, if we weren't investing through the cycle and so you know in a way like we're.
Trying to optimize for profit on the communication side, while continuing to optimize for growth on on the date of application site. We haven't historically, given a split of of rep, count or or anything like that like between businesses or or how that splits necessarily between products, what I would say about that though.
<unk> is we did definitely make reductions and <unk> is it related to our communications business I mean that that was part of kind of getting ourselves much more towards a saucer oriented motion we retain rubs on strategic accounts, obviously, those that are kind of larger spenders more enterprise like.
And then we continue to grow a rough count and the data and applications business. So hopefully that provides you with some additional color I I can't go exactly there in terms of erupted.
Well I would just add because we you know because I'm in a partner dot net together and and and when you started orchestrating. This move when I was stolen had to go to market <unk> like I would say we looked at what is the <unk> of each cohort sellers and and supporting roles.
Within a better market organization and really took a close look at where you know a wrap in was yielding discontinue is growth and where it was the N b cut that out and be made a concerted effort to make sure that sort of everywhere. We are add injecting human capital, we're seeing a return.
For it and that's how I think about the fitness level that we've created a crossbow to market now and both communications and data and applications, Yeah, and I guess, just what the last thing I would add Nick is that you know in spite of all these changes that we've kind of undergone communications business, we've maintained share customers or stand on the platform.
We haven't seen any elevated chern and we continue winning with some really material account so.
That to me is a significant number of fruit points that things are moving in the right direction. There's obviously more work to do but starting off the year with strong profitability, which is kind of where we were oriented as was really important for us and you don't know the rest of his execution.
Great. Thank you.
Your next question comes from the line <unk> with Jeffries. Please go ahead.
Hi, good evening. Thanks for taking my question. So yeah I wanted to ask maybe.
On the suffers out of the business and and it was a little bit late so I apologize. If this has already been asked but just as you think about the I know you're investing forget, but if you think about the bookings trends even as maybe customer spent on marketing is a little bit last just how should we think about the the changes in how that's driving maybe leads into the pipeline the type of conversation that you're having.
Is it is it changing the nature of of where customers reviewing U for suggest maybe the near term financial results, which had been impacted by about changes and then I have a follow up.
Great I'll take that it's only me here uhm, so we don't disclose or booking matrix.
And we didn't say and prepared remarks and probably throughout the first question that we are seeing headwinds of a couple of different flavors I think the first thing for you to take away is that of the of the sort of work or do you aim to rebuild reorient and specialised. The organization like that works still in progress and so while we're making great strides there'll be.
Hired the team we've got dedicated.
<unk> I'm in place for both segments Lax and that's what makes up the total of your data and applications business software business that you called it Uhm 100, and heat, but they're not fully ramped and that's what we're working on over the next couple of quarters is making sure that needs wraps her a rant instantly productive and have what they need to be successful. So we're working through.
That and we expect to hit that stride over the next couple of quarters, but that we're also doing not during at Hotmail for a time period, you mentioned marketing send and things like that and that is exactly the sort of customer messaging breakthrough that we're seeking have and making sure that our customers continue to allocate budget to these kinds of things because we think that they are particularly helpful.
And that's kind of a time, where were where were producing things like a return on ads then that's higher than it would be without segment and so that message is really important right now but at the same time, we do see <unk> you know like we we do see headwinds from macro perspective, so customers you know, adding people to the sales cycle, adding.
Approval levels, which <unk> cycles, B C. An <unk>, an average selling price and things like that.
And so we're we're playing through that period of time, but we feel good about the wins that we're seeing an innovation that where where laying down in order to number one playthrough. This time that number to prepare ourselves really well for I spend it comes back online you hit were first in line to go take it.
Okay, Great and then maybe just a follow up there's been some scuttlebutt Google <unk> recently was talking about rolling out something called pass keys, which is meant to kind of limit the amount of two F. A that you need and or changing just the nature of passwords in general and maybe accessing different apps and web sites I'm curious if you guys have any thoughts on maybe.
What the opportunity is for toy I know two of his bed a revenue driver in the past and just how you guys are thinking about that and maybe what you're doing as to how we get authenticated evolves over time and if you have any thoughts on that that'd be great.
Yeah, absolutely. It's about this is Jeff all into that one so you know the way I think about authentication. These days is basically you and you know there's there's typically multiple forums or something you know there's something you have et cetera, that's what we've come to understand his best practices for her to authenticate yourself.
And pass keys are really involving the evolution of password right and they're easier to use their more secure you can't reuse them, there's a lot of advantages.
To using this for instead of a password, but it's like almost like as if you know the computer is generating the password for you is it for.
You having to type it in and remember it as a way to make you simplify the notion there well what it doesn't do is provide you any information about who is this customer.
It's sort of identify.
How do I know, who they are and.
And that's things were like an email address or your phone number actually provide a notion of a person and their identity as opposed to just a way to have a seat a shared secret for some way to to re authenticate yourself until these things typically work together and if you think about her verify product <unk> verify is actually.
It does the identity verification of saying you are <unk>.
Saying you are <unk> are proving you are who you say you are but it also does the work of saying and this customer has this phone number and therefore like I know who that is I can talk to them at that phone number when they come back to me I know, who they are and so I think the <unk> and which your pesky is basically.
<unk> you know for all intents and purposes. The same thing it's a way of essentially presenting a password that is more secure but it doesn't provide a sense of identity, who is this person here's an email address or phone number. So that you can use to actually contact them and uniquely identify them in the world. That's what we offer so these things actually work well together.
Rather than we've been evolving are offering in terms of you know things like verify that that offer sorry.
With network authentication as well as other forms of identity verification like <unk>, all wrapped up into one really nice product that product is selling really well if you'll see we had a very large unfortunately <unk> entertainment company that we sold the largest verify deal too as well as.
A very large hey, I companies that we use old verify too in this past quarter and so the product is selling very nicely, even in an environment, where phyto and web off and I've been getting a lot more traction for a number of years.
<unk> that's very helpful. Thank you so much.
Slowly.
Your next question comes from the line of Matt Sadler with William Blair. Please go ahead.
Hey, guys. This is Alex <unk>. Thanks for taking my question just wanted to speak about the partner channel. If you could talk to any updates you might have there, especially with the G. S eyes and regional that size How're you, enabling those partners do you have any thoughts on expanding the <unk> partner contribution going forward. Thanks.
I will take that line is Atlanta here on the data and applications side <unk>.
They were all of our partners advil and going forward to meet that if I were an ecosystem of partners, particularly partners on that on the outside so I'm not just blow the last night, but regional as well and so I I'd say that as a community is performing well in the state of an ecosystem as well as black those tend to be different partners. We.
Also have a couple of others that I wouldn't necessarily put in the eye bucket, but are I think pretty interesting for us today Uhm segment. The top partner within a W. S. I T accelerated program and which connect AWS sellers in our sales process, we're seeing some good deals or not and then on.
<unk> on the Black side, we've got several partners that sort of span just the the F. I world, but also build product uhm side by side with flax as well and and so I you know I would say that we are I I've said over the past couple of calls actually that that this is an area focus an investment for us.
We're seeing some great green shoots there lots lots more to do I don't know cause they might have anything to add on the calm side now forget.
Thanks.
Your next question comes from the line of Fred <unk> with Mcquarrie capital. Please go ahead.
Alright. Thank you I wanted to ask about some of the segment. When you were talking about there I think the selection of customers was actually quite interesting you have health care company you have a database company yoga wireless company that is more expensive relationship with.
With Twilio so.
Could you talk about perhaps some of the use cases that these companies are are using segment for and where those those companies are finding value right now with segment.
You know <unk> Super interesting, we talk a lot about D C and there's definitely fantastic brand that are direct to consumer or have a big consumer element to what they do that are really out there working too I find identify engage acquire.
Here and and just better nurture those kinds of relationships in a way that is cost effective really fast and pythian and and gives them the ability to do things that they that they can't do with their traditional kind of cobbled together C. R N infrastructure that's sad.
That we do have a percentage of our segment customer populations. That's also be to be and some people that play in both be to be N. B C. That are that are finding ways to just sort of cross pollinate their own channels and their own customer identity is using the power of excitement and so we see customers do everything from.
Sort of the the core sort of data platform you escape isn't really using ask for things that are that are quite simple that hard to pull off and then we have we have customers and a growing kind of customers that are uhm, adding on capabilities. So engaged for example in in our new unifying capability that we talked about and are prepared remarks. So.
Those are a couple of things if we're doing I think long game, we expect the customer data platform is starting to be at the center for.
For there to be a lot that we do with that and so for me and get you from the from engaged for example, actually engaging your customers getting out via our different communications channels too utilizing segment information to have better experiences with blacks in the call center or in a digital sort of in.
Communication mechanism that customer might be using with black. So we see a ton of extension capability here without G. D. P. S.
Thank you I think it's a follow up question I was noticing the top 10 customer accounts are now down to about 10% of the total revenue.
I wanted to ask is that a function of just diversification of twilio as revenue base or is there anything to read in there in terms of how your top customers are also trending their own use of drips William.
And I'll take that yeah. It is largely a function of continued diversification, we were well diversified across industries across customers.
So that continued I'd I'd say in terms of lower usage I've, yeah, I've seen that generally across.
The indications and the city of DNA business, and that's largely a function of the macro but as it relates to the top 10, it's it's continued diversification.
Thank you know Fred this is job. This is Justin you know you asked about some use cases for <unk>.
<unk> I think it was a few that are that are you interested in that I I thought I'd be with Sharon because one of the really cool things about segment and having this customer data is like a great platform once the customer puts it in I think they find that there are multiple like many benefits of having the customer data M a spot.
As in Queen having it.
Good governance over it and then ways in which you can activate it across many different parts of the customer lifecycle and so you know I was talking to a get a global Fortune 100. This morning about you know a segment opportunity and they rattled off like you know five.
Five different use cases from CRM two personalization across property is two tracking their customers across multiple acquisitions. They had done and knowing if a customer in one customer base was the same as the <unk> for another part of the customer base. So they could do more effective cross selling and more effective returns.
One of those customers <unk> I think you know an M&A pieces. For example, if there are great opportunities because you have different identifiers for customers. You have is one customer that I think is a great meet use case that I really like which is they brought in segments.
So that they could personalized as yours.
And the idea was the thing they had seen was if you are trying to log in Saint to the website or a mobile app and you consistently can't log in like you know your password is not working.
They can see that in real time music segment and flag your profile of someone who is lately.
Having a password problem and when you call in which probably at the scale of this customer <unk> you know I don't know 100000 times, a day or whatever they will put the first thing that idea is having issues logging in press one.
He was ordinarily you have to go to <unk> to get into that one probably look for you because they saw your behavior on the website is clearly you having trouble logging in they dynamically program at I mean like these are the kinds of use cases, we see customers building across many different parts of their customer lifecycle marketing sales products or.
Of a support that allow customers to serve their customers better and that's why I think data as a platform segment.
Segment is such a great product.
And just thank you.
Your next question comes from the line of Alec second with wealth Research. Please go ahead.
Hey, guys. Thanks for taking the question I guess, maybe just the first question is.
The gross margins in the quarter, we're actually better I think than we anticipated and I think that's the best performance in the last since Q1 of last year.
You know it is.
<unk> International didn't go down as a percentage of the total revenue. It was there something else that you know you're maybe walking away from from business more of that that had a lower gross margin in the quarter I know that we're not guiding to it but at least from a trim lining perspective, how should we think about that that I've got a quick follow up project.
Yeah, Hi, Alex is aiden, yeah, so with 52.3 per cent in a corner and that was up sequentially about 170 basis point, so that with positive. Although I would say you know will continue to see variability on this fine and so is largely a function of the mix of products and also within the mess.
<unk> business the mix of geography, where the traffic terminate so just a little bit different than the international percent of revenue that you're looking at which is based on customer headquarters and what we saw this quarter relatives last quarter's there was a different mix in terms of where traffic was terminating and that drove that that the better gross margin overall.
As we think about you know going forward and and had to think about this really orienting the business border gross profit dollars gross margin rates are given <unk> economics in particular on the messaging business.
And so that will continue to be our focus as as we move forward Israeli orienting the team to gross profit <unk> dollar generation and as long as we can do that with the right cost structure. We think that's good business to keep keep doing.
Got it and then maybe just one for you you talked about AI and generally I with respect to <unk> C. P. I guess one common question. We get is the notion of by directional messaging conversational messaging seems like that.
That trend is having a massive moment right now in the marketplace could you maybe talk about you know the puts and takes in the potential tailwinds to the communications side of the business from Jeremy I, what you're seeing in customer conversations that you're having existing or new around that.
Yeah. So just to give you a quick backdrop as I mentioned at the beginning of the call that generate a I as the next platform shifts in technology and my latest in technology, It's it's actually in society.
And if you think about the.
When these shifts occur like the P C or the arrival of a P. C. P C to the web and the web T. Mobile right you can see that kind of disruption that occurs market aftermarket. When these transformations happen in fact, it's interesting there was a wall Street journal headline today that says is this the iPhone moment and I think absolute.
Lee I would answer yes, yes. It is now there's an interesting question, though you know if you remember the early days, though.
The web where companies were trying to figure out what do we what do we do we have a brochure on the site February companies used to say like we're not allowed to week off of our site because there's a legal problem with that if it was like was so if people to figure out how to use these new technologies in the corporate setting and I think that's what the conversation I'm, having with customers now are exactly that.
Is this ready for an enterprise use case or is about that I put in for my customer they're going to start like talking saying stuff that I don't want to say is it gonna start having a dialogue with my customers about God knows what are they going to stay on topic and talk about my products. So my services and all that kind of stuff. So I think that's where a lot of.
Work is going right now.
And I think those really good questions that are getting answered every day that would work. We are doing work others are doing in terms of like how to keep these these large language models on topic <unk> boundaries for them. So that they are useful in a corporate context and that stuff is getting resolved I think pretty quick.
And so the Congress I'll I'll I'll I'll tell you when it comes right now with a customer recently, which I think is indicative of what I think is going to happen. It was I was talking to a customer a very large financial services company.
And they were telling me how they had spent the last seven years building out all of the intense to have a bot for their service use cases that could contain customer calls for containment is b didn't after you've reached a person. They say well. This containment was you know after seven years of work or whatever it was about 40 per cent.
And so 60 per cent of the calls me at three or two.
And I asked and we're talking about large language models and I said you know.
Do you think you're going to keep it that investment.
Or do you think you're gonna start from scratch and a large lake which model my customers I know, we'll keep that investment, but you know hopefully voters language bottles will help us.
Move it forward from 40% off <unk> and through the course of the conversation we talked a lot about what's possible. The architecture of these new language models and how they can work with segment customer data things like this.
At the end of the conversation I asked again do you think you're gonna keep that 40 per cent you know the investment you made up the last seven years. They got you to 40% containment and the the the the customer said now go ahead and get.
The garbage cans right like.
Every decision we make the last seven years about what's possible is now like a relic of the past it was <unk>.
For for real litigation, essentially new approaches new vendors are new ways of implementing it because the large language model world just up and what is possible.
And I think that is why it is a gift in terms of creating new opportunities for companies like Twilio, who was helping our customers to activate their customer data across the customer life cycle take CRM, which has historically been this like kind of sleepy area of like just the database activate it make it useful across.
Many different touch point large language models are an absolute gift and I'm very happy that we bought segment. When we did because the data that is in segment enables a company to customize these interactions based on who they're talking to the end user the customer of our customer and that is very powerful so anyway. This is.
<unk>, which models and you'll be hearing more from us in the course of this quarter, obviously, a signal in August and I would not be responsible technology beater assist a I wasn't permanently a part of what we're talking about a signal. So we'll have more coming and I hope everybody joins us up signal in August .
Perfect. Thank you yes.
Your next question comes from the line C T Penny Grouchy with me too. Please go ahead.
Hey, guys, it's still on for today, Thanks for taking my question.
And your prepared remarks, you guys noted a flex when with a major financial services company.
Loved to learn a bit more about this when was it soars through an outside partner and how well it works.
Position to compete with the other cast members.
Yeah. So a couple of things we I don't believe that one was partner so first but it just you know we've been working on for a few few quarters and they are it is a legacy take out and it is sort of a contact center specifics.
But I would say like you asked about blacks and that's really not our only you faith and we're starting to see sort of coalescing around three or four key things that would just be really playing on the market. So first they started this in digital communication and that digital concierge kind of capability.
And we see a lot of great direct to consumer brands.
Utilizing slacks and that way secondly is sort of a high touch contextual sales kind of moment and we see certain large retailers and.
Some other financial institutions, playing in that area and then lastly is sort of our our core contact center use cases in the service and support area. At this example that you mentioned habits to live right in that area and that's the one that within our prepared remarks today.
Okay. Thanks.
[noise] final question comes from the line of Michael Stunk with Bank of America. Please go ahead.
Thank you for squeezing me on your too if I could quickly so eight eight and one one for you if I if I currently operating margin guidance for for two Q I saw you called her a number of factors pressuring that sequentially. However, I would've thought a full quarter of the headcount reduction and potentially positive mix shift.
Off at the rehearsal for example that you called other things are there other factors go into that.
I would probably thanks for the question Michael So we try to be pretty transparent about this in the prepared remarks, because we are expecting profit to be down for a quarter. So I gave a lot of information there and I recognize it's a little bit counterintuitive given the topic of the restructuring in the first quarter.
So let me just like walk through some of the pieces.
And I'll I'll talk about you know what will continue beyond the second quarter as well so.
First the first quarter benefited from a 12 <unk> 12 million dollar one time, a cruel reversal related to the sun setting of <unk> employee.
Boy sabbatical program that won't repeat in the second quarter or beyond.
We got into lower quarter over quarter revenues, which directly impacts our our gross profit as well as our operating profit.
Then we expect a number of different cost items to be a headwind quarter over quarter.
First I've never goes into effect in the second quarter as it does every year and so that will obviously go into effect, two two and and.
For the rest of the year, we're moving some employees he talked about this in the prior earnings trouble, we're moving some employees to cash bonuses from equity based awards and this is for a subset of our employee base, but it'll help moderate stock based compensation.
<unk> was going forward in that room, but that in the period presents and Opex headwinds.
Also made some changes to our incentive compensation structures communication sales team to better our line to 20th financial goals and while that that the results in any difference in cash being paid to N. A specific sales executive there's a bit of a different <unk> different in accounting in terms of what is incurred in period versus what is deferred overtime. So that creates a little bit of a head.
<unk>.
And then lastly, we do expect more normalised levels of marketing of travel spend in the second quarter I'd say, we're pretty light in the first quarter just postal reorganization as teams were settling into the new structures. We just didn't spend as much as we had planned we would and so all of those items more more than offset the full benefit of the restructuring actions.
That we announced in February , but we're still guiding to 65 75.
The low end of our guide for your two 275 to 315 a M.
We're tracking really well.
You know today.
That's very helpful color I appreciate it thank you.
This concludes the conference call. Thank you for participating you may now disconnect your lines.
Please wait the conference will begin shortly [music].