Q2 2023 Twilio Inc Earnings Call
Please wait the conference will begin shortly.
[music].
Good day, everyone and welcome to the Chipotle go second quarter earnings Conference call. At this time I would like to hand, the call over to Mr. Brian Benjamin for opening remarks. Please go ahead Sir.
Thanks, Lisa good afternoon, everyone and thank you for joining us for Twilio second quarter 2023 earnings Conference call. Our prepared remarks earnings press release, Investor presentation, and SEC filings and a replay of today's call can be found on our IR website at investors that Twilio dot com.
Joining me today for Q&A are Jeff Lawson, <unk> co founder and CEO , Elena Donyell, President Twilio data and applications because they haven't shipped Chandler President Twilio Communications and Hayden Ms Yano Chief Financial Officer.
Due to an issue with our external website vendor. The prepared remarks were only recently posted to our IR website. Thus the team will be reading. These live at the outset of the call as a reminder, some of our commentary today will include non-GAAP financial measures and key metrics reconciliations between our GAAP and non-GAAP results and further information related to the guide.
<unk> definitions and key metrics can be found in our earnings press release, and the appendix of our prepared remarks, both of which can be found on our IR website.
The information provided and discussed today also will include forward looking statements, including statements about our future housing goals. These forward looking statements are subject to known and unknown risks uncertainties assumptions and other factors that are described in more detail in our most recent periodic reports filed with the SEC, including our annual report on form <unk>.
10-K, and our subsequent quarterly reports on Form 10-Q.
And have substantially increased the operating margin profile of our business and Q2, we were just gap loss from operations by over 50% year over year. We drove a continued reduction in stock based compensation and delivered $72 million of free cash flow in the corner, we are executing well against our commitments and as a result.
Out of our strong performance in the first half of the year, we're raising our full year non-GAAP income from operations guidance to $350 million to $400 million.
A business transformation as big as what Twilio is taking on it takes time.
<unk> tactical focus on the short term and a bold vision for what's possible in the one <unk>.
Total is at one communications has been a success in terms of scale and efficiency are communications business continues to deliver against the objectives reset driving efficient growth, while we target ongoing operating leverage in the coming years and now we're building out to based on our belief that totally OS data.
When combined with the power and reach of our communications platform and accelerated by a I can almost value for businesses that we are uniquely positioned to deliver to our innovative combination of product offers.
While I don't expect thrown ahead to be linear we've embarked on a massive market opportunity. One that has the ability to transform the status quo for customer engagement now.
Now to where we are today and communications, we deliberate a strong order and I'm encouraged by continued signs of stabilization across our customer base. The efficiency options, we have proven to be the right one and the business is delivering with a more streamlined operating profile.
Following our largest emailed deal in Q1, the team signed our largest ever messaging deal in queue to an exciting milestone for twilio at this scale.
As a part of our efforts to focus on doing fewer things better. We also recently completed the divestitures, a Toyota I O T and value first businesses.
Use the space nature of our communications business makes it sensitive to macro conditions. So the team continues to manage towards gross profit growth and driving leverage cause they will will share with the team is focused on driving further efficiencies, while capitalizing on our growth opportunities for the second half of the year and beyond.
In data and applications were continuing to focus on executing against our go to market rebuild efforts. We now have sales reps ramped in our most critical areas and we are optimistic that our bookings will improve towards the end of the year and the revenue growth will reaccelerate during 2024, El Nino will share more about our progress your response.
In June we previewed our vision for customer a I, which we have designed to later predictive in generative AI capabilities across our platform at every customer touch point is I shared last quarter I believe the real value unlocked for artificial intelligence will be pairing.
Large language models with first party datasets. We believe this is where twilio is most differentiate it through our data asset segments <unk>.
Segments customer profiles will become even more data rich with AI accelerating our data and communications flywheel by training large language bottles for customers with their data that lives inside segment, Twilio will help customers and to the AI race multiple steps ahead of their peers.
<unk> ability to try at that level of differentiated customer value proposition has the potential to be a significant telling purposes. We're also excited to be building, an ecosystem of partners and integration, including Google date of breaks frame AI and open a I so power some of customer a ice generative capabilities as well as eight.
Ws the power predictive aru's cases within seconds I can't wait just okay. Several of the products that would advance our customer AI vision at signal on August 23rd just a few weeks away.
I'm proud of the team for navigating through a lot of change as we re Orient the company over the last several quarters.
This is a team that is executed well against our plans as evidenced by the speed in which they have adapted to the new structure, the business driving greater efficiency and having delivered over $220 million of non-GAAP App non-GAAP operating income. So the first two quarters of 2023 exceeding our financial targets.
Building a foundation that sets us up to continue to achieve our goals and capitalized.
And this opportunity yet I.
I remain confident that we have the right T. The right plan and solutions to deliver meaningful value to our customers and look forward to sharing our progress today now I'm going to hand, it over to a bank.
<unk> truly O data and applications delivered $125 million in revenue E Q2 up 12% year over year with a non get gross margin at 81.7 per cent during the quarter. We continued to execute against our plan to make sure our sales organization and that's in new AI powered.
Products and capabilities and expand our pipeline.
Environment, where buyers are facing increased budget scrutiny I'm pleased with our progress to date, but we have more work ahead since last quarter, we've announced several exciting partnerships and new product capabilities that reflect our unique position in the market in July I D. C ranked segment as the number one C D P by worldwide.
Market share in 2022.
He recently announced a partnership with date of birth and develop a bidirectional integration that will help statement customers unlocked even more value from their data Additionally, or partnering with Google to bring generative AI and black and transform how brands personalised their customer interaction.
Finally, we unveiled customer AI, infusing infusing Saturday and predictive capabilities into segment.
Engage blacks and communication are signal conference is just two weeks away the plan to showcase new innovation and an exciting roadmap build around our customer AI vision.
Our software products are resonating in the market as evidenced by multiple notable customer wins in the order a longstanding communications customer that provides software solutions to health and wellness provider signed a deal and get you a segment C. D. P to deliver personalised customer experience it increased trying to pay a subscription rates and drive improve.
Patient outcomes.
Fall at a leading provider of education technology will leverage our entire Smith, a segment products, including connection protocol audiences journeys and unify we won this competitive deal because a segment faster time to value and the ease of use and leveraging segment API to connect two additional tools throughout their.
Future customer of ours.
Media, a multinational media company with a competitive when due to the flexibility segment connections and the power of our profile API, allowing fortunate media to obtain a single view of their end users furthering the ability to personalize and improve the overall engagement experience.
A large financial services company based in Israel committed to a comprehensive contact centre solution, leveraging slack and our conversation J P. I for a costume build a I chat bot with seamless agent hand, allowing them to scale, while improving the customer experience.
Unfortunately, 100 property and casualty insurance provider that'd be fine and eight figure deal with it in Q3 of 22 scale to over 15000 agents during the quarter by leveraging new capabilities and black, allowing for enterprise scale. This black scale initiative, which was launched in limited availability in February allows flex the support customers.
Killing up to 30000 agents concurrently and a single account.
As I mentioned last quarter, we've made good progress with our transition to a dedicated sales model per segment and blacks and we've rebuilt a specialized sales motion with highly skilled rap training enablement with a key focus breath or two two with me delivered increase in person training sessions and approved overall sales capacity across the board I'm excited that for the first.
Time in over a year the majority of our segment field team has been in feet for at least nine months.
We've seen early signs of attraction with these efforts, including a strong increase in pipeline generation within slacks and significant improvement in segment pipeline conversion from Q1.
While I'm encouraged by your progress and seventies early signals, we continue to navigate a challenging macro which has led to some instances of higher renewal contraction and lower expansion competitive term has remained low and stable, but we're seeing instances of greater price sensitivity with some some of our small and mid market size business customers to address this.
Implementing initiatives designed to give customers, particularly small and midsize businesses more flexibility to start small deploy quickly and expand to leverage more segment capabilities as their business grows.
We feel good about the steps we've made you approve execution, but there's more work ahead to get our data and applications performance back to where we believe it should be going forward will continue to focus on on boarding and ramping our team optimizing our marketing campaigns and driving more type of phone all activity will also focus on giving our customers more accessible and.
Entry points to our product and delivering faster time to value.
We believe we're laying a solid foundation for longterm girlfriend business and I'm confident this will lead to improved bookings turned the back end of this year.
With that I'm gonna turn it over to <unk>.
Thank you <unk> <unk>.
Communications delivered $930 million in revenue in queue to 10% year over year with a non-GAAP gross margin of 48.2%.
As a team we continue to focus on driving growth with a more streamlined cost structure and generating meaningful preference.
I'm pleased with our team's ability to quickly adapt to the organizational changes we made earlier this year, which is evidenced by the results we delivered and Q2.
Once again, Julia was named a leader and I D. C's resent 20, twenty-three surpass Marketscape report <unk>.
Leveraging this leadership position or go to market team has been focused on proactively driving cross-sell opportunities across a broad portfolio of communications products and we're seeing meaningful traction.
As an example last quarter, we highlighted our largest emailed deal and Twilio history.
In this quarter, we signed our largest messaging deal ever with the same leading marketing automation company, bringing their total commitment to twilio to more than $100 million.
Additionally, a fortune 500 entertainment customer that has been using our messaging account security and voice a P. I's recently chose Twilio two exclusively power a critical customer Onboarding initiative, increasing their ongoing messaging spend it with twilio by $1 million a month.
We continue to see an exciting runway for efficient Grosvenor communications business against a 50 plus billion dollar G M.
And we believe or innovations in the a I can help accelerated market share gains in the coming years. We're.
We are bringing a I M L capabilities to life, and our core communications products, including the release of fraud guard for verify.
And Q2, we sided expansion deal with a leading employment company to enhance their multichannel high touch customer relationship model via our messaging voice and email itchy eyes.
Fred Guard was an instrumental component of this deal.
We also piloted SMS pumping protection in the second quarter, which leverages, a I to automatically detect and block artificially inflated estimates traffic via our messaging API.
This product prevented meaningful losses on behalf of her pilot customers and a result, and as a result of the successful pilot, we've recently moved into private beta.
We also released truly your voice intelligence into public beta and Eh, I power and capability, allowing our customers to extract data insights from their call recordings unlocking process automation and data driven decision making at scale.
A global financial services institution, and a long standing programmable voice customer is one of our first major customers to adopt this product.
Leveraging voice intelligence has proven to continually increase the quality of their customer service and ensure robust compliance.
We're also continuing to focus on ourselves assisted product <unk> gross motion and and Q2, we made great strides and returning to our self service routes.
During the quarter, we rolled out several updates to drive greater pricing transparency. We also implemented a decentralized solutions engineering team remove layers of leadership and specialist teams and arranged or international go to market team to be centrally managed.
Awfully deploying or go to market resources to spend time on our largest existing and prospective customers to drive greater efficiencies and customer wins in the coming quarters.
We are encouraged by a grocery directory in queue too, but still see a choppy macro which also means we have less visibility in this environment. We're.
We're seeing volume growth across a number of our verticals, but we are still experiencing volume weakness in a few verticals, including social and messaging and crypto.
On balance we remain hopeful about two three and beyond and we believe we have a good set up to continue to drive operating leverage and growth moving forward with a much more efficient go to market model.
It is worth noting that we've made a commitment to our carrier partners to block unregistered U S. Bound 10 D. L. C. S M S and M M S traffic as of August 31st.
We expect this will have a modest negative impact on revenue broken Q3 of up to 100 basis points and it could yield a potential headwind two to 300 basis points on growth in queue for.
While the majority of our traffic is already registered we're actively working with customers who are not yet compliant together traffic registered in advance of the deadline.
I'm excited by the progress we've made during the first half of the year is the team successfully navigated the operational and organizational changes we implemented together.
Together with the challenging external environment.
We're executing well and it's volume stabilization continues we believe we are in a strong position to leverage our scale large customer base and leading set up communications products to continue to win new business everywhere, we can <unk>.
While driving further efficiencies, we're confident revenue growth will reaccelerate overtime.
With that I'll turn it over to a to discuss the financials.
<unk> ma'am.
We continue to execute on our plans to drive greater efficiencies across our business and establish an accelerated path to profitability.
Made solid progress against our targets delivering record quarterly non-GAAP income from operations and Q2 and continuing on her path towards the gap profitability.
All we have more to accomplish I'm pleased with the traction we've achieved to date and the results are team delivered in a corner.
Second quarter revenue was $1 billion 38, 910% year over year at a reported and organic basis.
Communications revenue with 930 million or 10% year over year.
Data and applications revenue with 125 million up 12% year over year and I O T. In value first Avenue was $25 million anything included in our communications revenue for Q2.
Adjusting for these recent divestitures total Q2 revenue would've been 1.013 billion up 11% year over year.
Well the market remains dynamic we saw continued stabilization of volumes across our usage based products throughout the corner, which helped drive on <unk>.
As the reference during a Q1 earnings call our queue to grocery with negatively impacted a headwind from customers into crypto industry.
Total Q4, Q2 organic revenue growth, excluding crypto customers, which 14% year over year.
We anticipate that seemed more headwind in Q3, after which the impactful start tomorrow right.
R Q2 dollar based <unk> with 103 per cent.
Directly correlated to the overall blue transfer experiencing across the business.
Dollar base next answer needs to the communications and data and application business units for 103% and 99 per cent respectively.
Q2, non-GAAP gross profit, 13% year over year, representing a non-GAAP gross margin of 52.2 per cent.
This is 130 basis points year over year, and down 10 basis points quarter over quarter, driven predominantly by product next.
<unk>, Chris Martin for communications, and data and applications businesses were 58.2% or 48.2% and 81.7 per cent respectively.
Q2, non-GAAP income from operations with 120 million, representing a non-GAAP operating margin of 11.6 per cent.
This is significantly ahead of expectations, primarily due to the revenue feet in our ongoing efforts to maintain cough discipline across the business.
Q2 gap loss from operations with 142 million, which includes expenses associated with the February restructuring action.
Loss associated with the value first divestiture.
Real estate impairment charge at all totally $55 million.
Stock based compensation as a percentage of revenue was 14.7% in Q2, excluding $300000 of restructuring cough.
Around 120 basis points quarter over quarter.
Lastly for Q2, we generated $72 million in free cash flow.
And this is an area of focus for us as we drive greater profitability into fitness.
We're delivering against the plans he outlines in February and the progress that we demonstrate in Q2 shows that the changes we made in the business are yielding the intended efficiency gains and profitability profitability resolved.
It's also continued to execute against 1 billion dollar share repurchase program that we commenced in February .
You completed the first $500 million repurchases in early July head of our original six months pregnant.
We intend to continue to make progress against the balance of our share repurchase authorization looking forward.
While we feel confident about the strength of our competitive positioning and market opportunity for continuing to plan and run the business prudently given the dynamic external environment.
Two three guidance, we're initiating a revenue target of 980 million to $990 million.
Representing year over year reported revenue growth of zero to 1% in 3% to 4% on an organic basis.
You're janick rosemead excludes our valued first at nine O T businesses, both of which were recently died after it.
Also as mentioned about these growth rates reflect a few hundred basis point headlines from crypto customers as well as a potential 100 bitcoin had been associated with it tend to ask your registration changes that cuisine are highlighted.
<unk> Q3, non-GAAP income from operations at 75 to 85 million.
It takes into account approximately $10 million in expenses for signal conference, which will take place. This ma'am.
Given our strong first half performance, we're raising our full year non-GAAP income from operations guidance to $350 million to $400 million.
We've made meaningful progress over the first half of the year, but there's still more work to be done I'm confident that we're taking the right set of actions that will enable us to continue to drive focused execution and deliver increased value for shareholders and the corners to calm.
That are handed back to Jefferson final remark for we transition to Q&A.
<unk> I just wanted to close by reminding folks if you haven't already heard enough to our prepared remarks that indeed, our annual signal confidence is coming up on August 23rd and customer a I wish we presume June it's gonna be taking center stage and I'm really excited to be sharing the product details behind customer a I at signal and.
Customer I, just wanna capabilities bring.
Bring will help bring together are leaving communications platform and are leaving customer data platform with a I in the middle So I can't wait to see what customers build on top of customer AI and with that why don't we turn it over to your questions.
Thank you Sir and once again, everyone. It is Dar one if you have a question today, we'll go first to murder Marshall Morgan Stanley .
Great. Thanks, Some draft fee may have just alluded to that's what we'll hear more at signal, but I just wanted to get a sense of you know how kind of the increase in a high visibility or capability. You know has changed the roadmap for Twilio and just you know where our customers and the knowledge of how they want to actually approach.
Some of these AI projects and how are they to the point, where they know what they want to implement or is it still kind of an education <unk>. Thanks.
Yeah. Thanks for the question <unk>, you know I talked to a lot of customers. When I defy is that customers are still very much in a learning mode and planning for the future Mo, but not necessarily gonna make your playing things actively mode and so I think it's a really constructive conversation when I look at customer a I and what we can do with artificial intelligence I think.
This is the glue that brings together segments and Julio communications into this one customer engagement platform that we've been talking about for quite a while and I think AI is arriving even sooner than we fought in terms of generative AI to be able to bring a lot of benefits to the table. We're already seeing the benefit of a bunch of AI, whether it's fair.
<unk> got a product in some of our compliance authentication products, but I think this is like.
This isn't even you know the first inning. This is like still doing warmup pitches in terms of the AI game here and so we're really excited though to bring some new products to market as well as to really speak too much more detail about the vision for customer a I F signal, but I think this is a massive accelerator and our ability to deliver value between <unk>.
Data and communications and can become a great <unk>.
Great. Thanks.
Next question is Taylor Mcginnis.
Yeah. Thanks, so much for taking my question, maybe it took on the data and apps part of the story. So if I'm trying to bridge you know the gross margins were down 250 basis points here over here and then you were reported in N. R 99 per cent in that segment. So I know you talked about some greater renewal contraction and some pricing.
<unk>, but just asked me look I had like did you see I guess more risks to the gross margins in that segment and then just in terms of the top line.
Let me think about the 12 per cent growth you just reported that's still you know <unk> like the 99 per cent and are are so any you know direction or color. You can just give in terms of you know how you see that business progressing throughout the year and if there could be you know a chap in the level of growth that we could see thanks so much.
Sure why don't I start Taylor. This is eight and I'll go through gross margins and then I'll hand, it over the latest to talk about T V. Any in revenue growth. So.
You're right that T D N a margins were down to your ear does actually primarily driven by accounting in particular accounting for capitalized software. So the initial capitalize software balance following the acquisition of segment with Red Dog and that's typical posting acquisition that boosted the gross margins in the 2021 and 2020th.
Period, and as product development and innovation has been ongoing post acquisition that balance is building back up to a more normalised levels now that we're kind of three years are approaching three years. So its acquisition actually start to normalize, but that's really what's driving the year over year decline the businesses don't obviously very high margins at 82 per cent.
They were always the pluses and minuses you know period, a period, but we feel pretty good about that first mercury, we don't see everything materially in the future. So out of hand, it over to Atlanta with that sure I'll have a couple of comments on growth. Our current growth is really reflective of bookings that had happened in prior quarters and we talk to her.
The last couple of course about deceleration and looking for apartments, and which is now coming to bear in the revenue line, which we expect it in black and turned back off as Macy bookings in group. This year. So we've talked a lot I think historically about the work that we're doing to improve that bookings trajectory everything from.
Building out hiring enabling at preparing that team to go out and win in the market and also working to make sure that we're breaking through during tough economic climate. So.
A couple of other things impacting rose R. R training attraction numbers and happiness.
More than we'd like it in the near term.
Have some segment customers that are right sizing their son level, mostly at their own businesses have contracted over time, we see some instances that sensitivity, particularly after the space.
Where are those customers at times I've had some viability issue. So all of that taken together. So some good traction in our bookings performance and some increased customer contraction insurance, so not competitive, but it's sort of a signal of what's happening in the market.
Our growth has been sort of moderated here in the near term I want to reiterate that we do expect bookings to continue to improve at that team comes online and we break through the top macro and not revenue performance will follow it and next year.
Great. Thank thank the matching her house on the corner.
Your next question is Mark Murphy J P. Morgan.
Yeah. Thank you very much so because they are just given that the messaging businesses usage based and therefore it is macro sensitive as you noted can you just comment on the stability.
Stability that you're seeing there I'm, specifically I'm just wondering should we read that as.
Stabilizing around 10% a year over year growth or.
Stabilising around $900 million in quarterly revenue or would you be in something else. There and then can can you just comment on whether that that trending continued to improve it all in June and July .
Yeah, Hey, Mark a question. So maybe just start off with getting the first part so what we see overall is volumes have stabilized and we're not trying to imply really either of the things that you said either that you know, we're gonna turn in kind of regular 10% revenue growth quarters, nor the.
We're going to see the business kind of flat line I'd say, it's probably kind of closer to being in the middle of that somewhere while we've seen volume stabilised, we haven't necessarily seen them.
But obviously, we're encouraged by the quarter that we just put up in Q2, I'd say across the board. We've generally seen that most of the sectors in which we operate obscene pretty good revenue and volume growth. There have been a couple of downes, which could cold out in in the prepared remarks, notably we have.
Seen some contracting activity in messaging and social meeting social mystery and I think that had it not been for some of those items like we would have seen obviously pretty decent growth of the quarter beyond where we where we ended up landing I think we also cold out. So that's N D O C dynamics that are coming up.
Two three Q for or we think that's kind of a good thing obviously for the industry over the longterm, but but that's kind of the way that I would characterize it as the volume stabilized or not seeing them inflict quite up yet, but based on our execution against <unk>. We're very encouraged about how that translates substantial results for <unk>.
And cause they might just super quick follow up because you mentioned it does does that headwind from blocking unregistered traffic continue at two 300 basis points into 2024, I'm just trying to understand it seems like it widens from Q3 Q4, and then the ZIP presumably kind of moderate a little bit in 2024.
<unk>. Another good question Mark So the way to think about it is is that basically the way that we have made the agreement with the carriers is that 831. It just the deadline and so you're just not gonna see the impact in Q3 in the same way that you would in queue for that's kind of the discrepancy between 100 bps in quarter versus two to 300 <unk>.
And the next quarter I think the other dynamics that you want to think about is that the vast majority of this traffic is already registered.
Register it in compliance and so I think as we get into 2024 like we're not really talking about the impacts, but we think it'll kind of more or less normalized.
Thank you.
The next question comes from Michael turn Wells Fargo Security.
Hey, great. Thanks, I appreciate you taking the question. If we just look at the revenue upside you delivered and you too it's more pronounced than we've seen in a number of quarters. I'm wondering is most of that just tied to the stabilization commentary you're making on the usage side of the phones that are coming in or out of what you were expecting and and then just.
So if there's any <unk> you can add around if the <unk> change that's the quarter progress cleaning.
Did we start at a lower point and potentially build back up or is that stabilization holding somewhat consistent I think that that colors with you, but we also try to parse through what's a heavier.
Yeah. Thanks, Michael So to answer your first question in terms of you know the the the larger bee. So we came in about five per cent ahead at the mid point of the guidance range that is as you say, it's largely as a result of the volume stabilization that we noted.
So we saw that we called it out may we saw that volume stabilization continue to the rest of the corner and that's really what drove the outperformance and we're pretty encouraged by that I mean, the market is still very dynamic. It's still you know usage based business for the vast majority of our business. So.
Our susceptible to changes and will continue to plan currently as a result.
In terms of the volume trend so what I would say is <unk>.
<unk> constant throughout the second quarter, but a different trend and we saw kind of coming out of 2022 and in the early stages of 22 one.
That's helpful. Thank you.
The next question comes from Ryan <unk> Needham and company.
That's actually a question and have one for <unk> on the communication side as you think about kind of the journey into more and more automation could you give us an idea kind of where you are today in terms of automation, where you expect to be say a year from now in terms of deals.
Screening onboarding delivery execution color on that journey be helpful. Thank you.
Yeah, Hey, right I, just want to clarify one part of your questions. You mean automation visa be the kind of description that we gave back to kind of our product led road kind of self serve routes yes.
Yes.
Okay.
Yeah. So I I would say you know for the most part like we obviously took a number of like really significant headcount actions right in the latter part of 2022 and then the beginning part of 2023 and so the way that we think about the business going forward is is that we continue to see like a lot of growth potential for the business in the future.
And we want it basically you know kind of Stabiliser cost and I think the way to do that is largely going to be throw automation. You know just talked about AI and the promise of a lot of the things that we can do from a customer perspective I also think there's a lot of those things that we could do internal to the company as well in terms of eating with some of the automation third number there.
He is that we're starting to explore in currently and I think that that can be really interesting you know for the most part I would say that we've seen a really good profit generation in terms of the business I think we continue to see additional profit generation as we move forward and I think a large part that's gonna come through some combination of.
Additional growth and then just being able to hold the cost line and probably generate some productivity and the cross the line and the bulk of that will largely come through automotive automation efforts.
Sure a couple of quick clarification or would you say, maybe you're halfway there in terms of what you Wanna see operationally or for the for the most part you're either.
I wouldn't say, we're there I mean, I I'd be a little bit careful about qualifying exactly where we are on the journey personally I mean, I do see a lot more opportunity for us to drive volume leverage and so I think we'll just kind of play through and see where we go in the next year.
Sir.
Much.
Catherine Gang Goldman Sachs has the next question.
Hi, Thank you very much I'm curious to get your take on how would you characterize.
Characteristic outlook for.
Four potentially accelerating bookings go through <unk> for.
The talk about the domestic notes if you've seen at the front end of the pipeline.
When I started perspective, and some of the things that you're you're feeling better from in a better perspective of course with the realignment of the organization you better footing with Ya.
What is it.
<unk> <unk> encourage you to see the domestic those outside.
In conjunction with the operation of prove is that you've made it totally.
You feel better about secondhand book and could potentially a better <unk>. Thank you so much.
Gotcha. So we're clear was that a question for one of the business units in particular.
You can take it that you get tickets for both Unix or an aggregate. Thank you Elena <unk>, Okay, great. Yeah sure why don't I had it to cause I'm in Atlanta, they can cover their their respective <unk> yeah.
Yeah, I would say you know cash like the the way that you know kind of answered. The prior question like we've done a lot obviously to make the sales motion a lot more efficient communications part of the business. We obviously took some material headcount actions and I I think on balance like we're seeing really really strong profitability, which is what we committed to investors and.
I think we are at least encouraged by some of the growth that we've seen particularly in queue too I think the the signal in particular that were watching inside the company to kind of more precisely answer. Your question is that we are heading our sales targets sales started it's obviously take some time to show up into revenue based on our ability to continue hitting <unk>.
Yeah, it's it based on what we've seen him I'm certainly more encourage that that that translates into financial results into 2024, I think ends up being a pretty good set up you know as in alluded to like it's obviously like kind of a choppy environment and you know this being kind of the usage side of the business like we're gonna plan prudently in terms of that certainly not gonna.
Had any cause back into the business, but we feel pretty good about the setup based on the way that we've had sales targets the way that we stabilize the team the way that we have generated profit through a pretty tough external environment and I'd say, that's a that's a pretty good set up going forward would that when I turn it over to <unk> to talk about <unk>.
Sure Let me hit a couple of high points and then if there's my ear question, how <unk>, we must be thing. Please.
Please do feel free to circle back, but you know, we're really focused on the application side of the business on the implants. The things, we can control and more focused on making sure that we've got the right folks and see the right process right methodology and the right enable man and I feel really good about our progress there we are starting to see some improvement in.
The pipeline as well top of panel continues to be really strong. So we think there's a robust demand environment out there we are starting to see some improvement in things like at conversion through the pipe itself lots of work left to do it's not exactly where we'd like it but again I've I've talked to historical corners about this being in a bit of a rebuild.
And we feel good about our progress against that rebuild node.
And again, we will see Buckings continue for this year, which will will translate into revenue next year. In 2024. So I think you know there's reason to be optimistic here, but there's also a long road ahead as we continue to work toward that improvement in that new business acquisition at the same time.
I'm working on making sure we're managing through training contraction and then we've got a lottery for customers to embrace has to play a quickly and stay at a long time, if it were doubling down on our efforts there as well.
Got it would you consider hiring to meet the wood could be proven demand environment as you go with the 44.
Where's My <unk>, because they may talk about how do you feel about that question from a <unk> perspective, we have just gotten to the point, where our reps are largely onboard and ramped I really wanna see those productivity matrix getting up to where we'd like Dan before we layer on.
The next degree of head count at Gmail expand into new markets and things like that.
Yeah, and I basically agree with the way that I might not have communication. So I think we're gonna spot, where we like the way that we've size the team the efficiencies that we've gotten out of it as I alluded to earlier I don't think there's additional volume leverage to be to begin there. If we saw a really accelerated market opportunity, it's not off the table, but it's not the plan.
Thank you so much.
Your next question is Nick Ultimate Scotiabank.
Awesome. Thank thanks, guys, maybe one for for Jafar Alina you guys had called out this 100 million dollar customer, which is a pretty monumental deal and.
A big theme. This year is sort of around this notion of vendor consolidation and historically some of your larger customers had maybe multisource see pat's vendors and so I wanted to ask you know two parts or around the specific deal. One was this sort of a deal where you know the the customer sort of consolidated see past relationships and.
And kind of went all in on 12 Yo and then maybe it's the second part is this sort of a strategy that you're leaning into this year and could you just provide maybe any color around you know, what's the sort of level of customer appetite for for these sort of consolidation deals I think that'd be really interesting.
Yeah, Hey, <unk> it was actually a communications customer so I'll I'll answer your question I think the short answer to the first question is yes.
It was an opportunity for us to help one of our really important customers consolidate their spend all unto twilio across a number of channels I think what was particularly differentiating feature of this deal was our ability to kind of optimize traffic patterns like I think that's a really important aspect.
The way that some of these like really sophisticated customers want to do business. They want to make sure that the right signals are reaching their customers at the right times and that effectively ends up being like a kind of prioritization and queuing process that were really good I think in terms of strategy going forward.
We're certainly looking at any opportunity, where we have it the ability to consolidate spend in and constantly takes sure I think we do have a lot of those opportunities across the board frankly, whether it's with different customer segments or even internationally and so I think that is gonna be a part of the strategy that you'll see from us going forward.
Okay, Let me add one other point actually.
But not at the risk of price like I think that's one thing that we've done a pretty good job of holding firm is making sure that we don't take price down just making sure that we showed discipline in terms of gross profit. So that we're always hurdling. So that we generate a profit you can kind of see that in in our gross margins and I think you'd you'd find.
That were generally pry sorry.
Right.
<unk>.
We will now hear from Derek Wood T D counting.
Great. Thanks, <unk> I'll I'll stay with you and maybe kind of on that last topic around gross margins.
Just wondering if kind of within your restructuring efforts if you've made any notable changes around.
Kind of incentives for sales teams or other business leaders to focus on driving gross margins in I guess, whether you have or not or are there levers you can lean on to to help drive more improvements gross margins in the in the near to medium term.
Yeah, Hey, Derek the way that we've reoriented our sales com is basically to pay on a gross profit basis now there's one caveat to that we're only gonna take your gross profit deal. If we can see that it hurdles.
And generates a profit so we're clearly not gonna take margin that ends up resulting ultimately you know bottom line loss and so that is an important change that we made in the compensation plan for our reps.
I wouldn't say necessarily that revising the business, especially the communication side too.
Generally generate higher gross margin like I think we do have opportunities in terms of cross sell for example, I mean I think there's a lot that we can do for example in terms of selling more voice or email as just as examples into messaging customers will continue with that as part of the strategy I think the idea to really is you know insuring.
<unk> economics of every one of these customers to solid than those of the business. Overall are all over all are solid and as long as we can go into sufficiently get incremental gross profit dollars will will do that.
Alright, thank you.
Thank you Sir.
Next is not Stotler William Blair.
Hey, guys. This is Alex <unk>. Thanks for taking my questions. One for me on the international strategy with the new SAS first strategy, what if any implications are there for the international business and how do you expect international revenue to trend as a percentage of total revenue going forward.
Explain what you mean by <unk>.
Yeah, just the the software to.
Split other business in the software focused strategy.
So I'll take your practices.
And if anyone else wants to check an account.
I hope the first to our I T.
And we and we operate in a number of international markets, we haven't seen market change and the balance between you aspirin International bookings growth for example, and and and we're we're committed to the markets that we serve we're not necessarily looking too.
Open up into new markets in the very near term do you think there's an enormous cam right here in our core markets.
And and if they're gonna visit if there's demand across all of our international market, Let me see improvement in performance and across sort of each of those at each of those at theaters and so and we're able to service those markets as well for a software.
Perspective.
In terms of sort of everything from functionality capability to our standards on privacy and data protection and things like that I don't know how or anyone else did you have anything else at all just add on the communication side of minutes cause we continue to see a lot of opportunity internationally I mean, that's his.
Darkly bin.
A set of markets that we'd been underpenetrated in from a communications perspective, and so there's a lot of additional growth and I think what we found is is that a lot of the customers in those markets are actually nothing service by anybody and so I think there's a lot of open field running there. In addition to that as you may remember from our Investor day last year the.
Unit economics are actually quite good as well as internationally. So we think there's a lot of gross profit dollars out there to go with consume and so I think similar to Atlanta and like it's not like we have to open up a necessarily intend more markets, we wanna be very cost efficient about the way that we do it but we do see a lot of opportunity out there and we're gonna continue winning it.
I'll just add one more thing to state and if you're if you're asking because you see me international per cent of revenue come down slightly quarter over quarter. You know, that's just really largely a function of crypto S. You know dynamics that a lot of that uhm volume concentrated internationally, so I wouldn't be too much into it if that's where you're going.
Got it perfect. Thanks, guys for example.
Next question is Alec Zukin, both research.
Hey, guys. Thanks for taking the question.
I guess maybe.
Jeff Erlana for you you you called up Reacceleration in revenue for next year.
Is that attributable to.
First of all it says is that aspirational is that you know a comment on a particular quarter that you see that happening next year and if we look at the data and apps business like things too is that business <unk>. Thank you for giving the bookings commentary from.
From before and you see that Reaccelerating in in the early part of next year.
And how much if any would you expect that a b I driven revenue or products or initiatives to kind of contribute to that next year.
Paul.
Let me <unk>, let me take a as in.
Appointment here and then it's just want to add anything on that.
I see that as well two and we're not committing to specific time lines on that real reacceleration in terms of when in 2024, it happens and that what I will say Oh and gross it's always aspirational. We we definitely are looking forward to that happening, but I'll say that.
Coming up the curb them with those individuals that are newly N C and so uhm the bookings are happening now happening towards back half of this year as well that will translate in 2024. So.
But we're not doing a four by four of you.
And then I can speak today AI part of your question <unk> is the centerpiece of our customer AI strategy Uhm, because that is where the proprietary data sets of our customers live is the sum of what they know about the customer and therefore, how's it gonna unlock the value in that data to go personal.
Why it's like every touch for example, your customers and now a generative AI you can do it so much more efficiently so much more individualized.
Individualized basis, but it opens up tremendous opportunities now that said I think that a I as a monetization like doctor for the company I think it falls right I think that's probably what you're saying and most companies out there which is a I is it. It's earliest stages now buyers are interested in hearing what you have to say they are interested in the product.
We're bringing to market, but obviously those products are brand new because gender may I really just started hitting a scribe of utility in the last six months right. So no one's got mature product sets really to speak of and so that speaks to her the whole market is in history, but from my conversations that I ever Cussed.
Customers. They are bare liking our vision and I think that can entered into sales are segments as companies start to get their data ready for what's coming AI future house for them and that will be a key part of our selling value proposition going forward.
Got it got it and then maybe for Ya just on free cash flow you guys are doing a great job on the operating income from you raise the number for the year, how could we think about that often comes with free cashflow conversion, but this year, but realizing this year has some one time issues, maybe even more so next year.
That would be super helpful.
Yeah. Thanks, Alex is it's a.
As soon as it relates to free cash flow so.
We have to talk a little bit about the farm.
And a quarter so we generated 72.
That never actually included $39, a restructuring payments are adjusting for those non recurrent payments, we generated about $109 and that's a record free cash flow quarter for us to really <unk> I really kind of punishing those results.
And it's really a function not like when you look at the drivers it's really the higher profitability.
F line as well as forward a restructuring cough.
Uhm as you think about going forward you, we're not gonna put out any new kind of framework in terms of how to think about it I will just say, there's always some level of timing and hearing ability and cash flow. So so I wouldn't expect that performance is necessarily linear.
But you know it's a huge focus for us and will continue to look for avenues to try and efficiency out from a cost perspective as well as good with free cash flow profile the business over time.
Perfect. Thank you I don't know why.
No no no worries.
The next question is Phillip related to health.
Hi.
This is <unk> from Mizuho. My question is ellyn. When you look at data an application you have this kind of products character to different kind of Lov's, you have <unk> customer support and and gaze more marketing are you seeing any demand specifically any particular segment.
Are you more optimistic about a particular segment and as you're executing on your go to market. How old are you rebuilding yourself <unk> folks is it more one.
The Samsung targeting all this products or are you building different vertical any color would be helpful.
Sure and so we <unk>.
Let me just start with like a little bit of history. We started talking I think four or five quarters ago about the need to sort of rebuild the sales team and a specialized manner and so that night, having individuals that were very very familiar with each customer and who they are what they need from us what day <unk>.
The software offerings, how they think how they buy and so we have a team specific to second and the C. V. P space that organization focuses predominantly on the.
The data buyer, which is often times part of a product organization and I and I can see more space.
And and the market and that's really sort of part and parcel to the second fire is in slack.
Thinking about a contact centre buyer, but more and more and more excited about how these two teams come together in a customer experience umbrella and how statement is really deficient so well to operate within the contact with blacks to provide for example world where an agent has access to the latest and greatest.
Customer information as they're doing their job. So while we have teams that are focused on those specific buyers, we think underneath the head where everything comes together in in front of that end user they're both really really useful and so we spent time over the last couple of hours, making sure that there.
Interoperable and connected and and we're starting to see that pay off in terms of customer interested demanded not capability.
I think it started off a little bit with what at rebuild has looks like and and so again, we started with the number of quarters ago, Uhm, essentially going out to the market and rehiring pretty specialized field organization 70 Chess for example in segment Uhm Cross the threshold, where the majority of those wraps are now uhm, what we consider.
<unk> and our sorta beginning to operate at four foot Apple quite a potential sale again. This is really the key that making sure that we reaccelerate bookings as we'll see here in the back half of the urine and again that will translate into revenue next year.
Thanks for the color.
Our final question today comes from received malaria RBC capital market.
Oh wonderful. Thanks, so much for for squeezing me and I wanted to go back to the the the topic of of AI and your opportunity. There maybe can you drill a little bit into how you feel you're more differentiated versus your appears to really capitalize on on the AI opportunity, but both when it comes to kind of have to replace.
Communications governors as well as others within kind of the broader C V P landscape when it when it comes to a second thanks.
I just think the combination of communications workloads and the data.
<unk> the C. D. P is the is the killer combination right when I think about communications alone.
Communications needs to get smarter.
Most of our customers do not want to just send up more communication they would've been more effective communications and so as we move the company from a company that sentence communications to one of the <unk> more effective communications that requires data and that requires personalization on our understanding of who the recipient of all those messages are now you go look at.
<unk> <unk> is the leading C D T in the market for I D. C. It has amazing real time technical capabilities. It is E. T. I'll reverse <unk> profile capabilities. It is really yoga composable CDP every part of that compose ability is right. There in the second product and so we can address.
<unk> a great many perks of that market.
Welcome well customers are building up their data assets that are gonna power and.
So we're bringing together. These these two hearts of the company in a way that is extraordinarily differentiate it I mean, I don't see any other communications company with a C. D P and I think to go forward to build value as a company communications asked to have data. It has to be I'm working better communications not just more communications and then the flip side and the C D.
Here, we have the most advanced you to Peel the market I'm, sorry, I think on both sides. We have a very differentiated products and then you bring them together and nobody has.
Alright wonderful thank you so much.
And everyone that does conclude today's twilio onions call, we would like to thank you all for your participation you may now disconnect.
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