Q4 2023 Twilio Inc Earnings Call

Operator: Hello, and welcome to the Twilio fourth quarter 2023 earnings conference call. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to Brian Vanneman, Senior Vice President of Investor Relations. Please go ahead.

Hello, and welcome to the Twilio fourth quarter 2023 earnings conference call. After the Speakers' remarks, there will be a question and answer session and if he would like to ask a question. During this time simply press star one on your telephone keypad.

I will now turn the conference over to Brian Vandeman Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for joining us for <unk> fourth quarter 2023 earnings conference call.

Brian Vanneman: Good afternoon, everyone, and thank you for joining us for Twilio's fourth quarter 2023 Earnings Conference Call. Our prepared remarks, earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our Investor Relations website at investors.twilio.com. Joining me today are Khozema Shipchandler, Chief Executive Officer, and Aiden Vigiano, Chief Financial Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliation between our GAAP and non-GAAP results can be found in our earnings release and our prepared remarks posted on our IR website. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described.

Brian Vandeman: 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 Twilio Dot com.

Brian Vandeman: Joining me today are David Chandler, Chief Executive Officer, Mr Yano, Chief Financial Officer.

Brian Vandeman: As a reminder, we will disclose non-GAAP financial measures on this call definitions and reconciliation between our GAAP and non-GAAP results can be found in our earnings release and our prepared remarks posted on our IR website. We will also make forward looking statements on this call, including statements about our future helicon goals such statements are subject to known and.

Brian Vandeman: Unknown risks and uncertainties that could cause actual results to differ materially from those described many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-Q.

Brian Vanneman: Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements except as required by law. With that, I'll hand it over to Khozema and Aidan, who will discuss our Q4 and 4-year results, and then we'll open the call for Q&A. Thank you, Brian. Good afternoon, everyone, and thank you for joining us today.

Brian Vandeman: Forward looking statements represent our beliefs and assumptions only as of the date such statements are made we disclaim any obligation to update any forward looking statements, except as required by law.

Brian Vandeman: With that I'll hand, it over to the Zama <unk>, who will discuss our Q4 and full year results and then we will open the call for Q&A.

Zama: Thank you Brian Good afternoon, everyone and thank you for joining us today Twilio had a terrific fourth quarter to close out a strong 2023.

Khozema Z. Shipchandler: Twilio had a terrific fourth quarter to close out a strong 2020. We exceeded our revenue and non-GAAP income from operations targets for the quarter, delivering nearly $1.1 billion in revenue, $173 million in non-GAAP income from operations, and $211 million in free cash flow. Before jumping into the results of the quarter, I wanted to start this call, my first as Twilio CEO, by sharing that it is a privilege to be leading this company into its next chapter. I believe there is an incredible opportunity to unlock increased value for customers and shareholders. As we continue to innovate, we're focused on combining the power of communications, data, and AI to make every interaction more personalized and intelligent. Our vision to become the leading customer engagement platform is unchanged, and we are executing on this from a solid operational foundation and a fundamentally strong competitive and financial position.

Zama: We exceeded our revenue and non-GAAP income from operations targets for the quarter, delivering nearly $1 $1 billion in revenue.

Zama: 73 million and non-GAAP income from operations and $211 million in free cash flow.

Speaker Change: Before jumping into the results of the quarter I wanted to start this call my first as Twilio CEO by sharing that it is a privilege to be leading this company into its next chapter.

Speaker Change: I believe there is an incredible opportunity to unlock increased value for customers and shareholders. As we continue to innovate we're focused on combining the power of communications data and AI to make every interaction more personalized and intelligent.

Speaker Change: Our vision to become the leading customer engagement platform is unchanged and we are executing on this from a solid operational foundation in a fundamentally strong competitive and financial position we have at <unk>.

Khozema Z. Shipchandler: We have a great set of products and hundreds of thousands of customers who are committed to Twilio because we are bringing tremendous value to them. Over the last year, we took significant steps to enhance our focus and execution while optimizing our capital allocation strategy. We also took meaningful actions to streamline our cost structure, accelerate our path to profitability, and deliver durable growth. Our teams delivered on these objectives in 2023, and the numbers show it.

Speaker Change: Great set of products and hundreds of thousands of customers who are committed to twilio, because we are bringing tremendous value to their businesses.

Speaker Change: Over the last year.

Speaker Change: Significant steps to enhance our focus and execution, while optimizing our capital allocation strategy we.

Speaker Change: We also took meaningful actions to streamline our cost structure accelerate our path to profitability and deliver durable growth.

Speaker Change: Our teams delivered on these objectives in 2023 and the numbers underscore this.

Khozema Z. Shipchandler: During 2023, we generated $4.2 billion in revenue, improved our non-GAAP operating results from a non-GAAP operating loss of $4 million in 2022 to a non-GAAP operating income of $533 million, delivered $364 million in free cash flow, and reduced our stock-based compensation, excluding restructuring expense as a percent of revenue, by 450 basis points year-over-year. All of this hard work enabled us to take significant str Our product teams have worked to infuse AI capabilities into our customer AI solutions, enabling us to continue on our promise of more intelligent communications for our customers. Our Twilio communications business continues to demonstrate meaningful leverage, which helped to drive the impressive financial performance that Twilio delivered for the year, and we will build upon this momentum in 2020. At the same time, Twilio's segment is not performing at the level it needs to, and I've already begun to take a closer look at this business to see how we can deliver improved performance. I'll touch on that a bit later.

Speaker Change: During 2023, we generated $4 2 billion in revenue improved our non-GAAP operating results from our non-GAAP operating loss of $4 million.

Speaker Change: In 2020 to two non-GAAP operating income of $533 million delivered $364 million in free cash flow and reduced our stock based compensation, excluding restructuring expense as a percent of revenue at 450 basis points year over year.

Speaker Change: All of this hard work enabled us to take significant strides on our path to GAAP profitability. Our product teams have worked to infuse AI capabilities into our customer AI solutions, enabling us to continue on our promise, but more intelligent communications for our customers.

Speaker Change: Our Twilio communications business continues to demonstrate meaningful leverage which helped to drive the impressive financial performance that twilio delivered for the year.

Speaker Change: And we will build upon this momentum in 2024.

Speaker Change: At the same time I believe segment is not performing at the level it needs to and have already begun to take a closer look at this business to see how we can deliver improved performance I will touch on this a bit later.

Speaker Change: Archipelago communications business, which drove at 93% of Twilio as revenue in 2023 had a very strong fourth quarter with revenue of just over $1 billion.

Khozema Z. Shipchandler: Our Twilio Communications business, which drove 93% of Twilio's revenue in 2023, had a very strong fourth quarter with revenue of just over $1 billion. And for the full year, it generated revenue of $3.859 billion and grew 11% year-over-year organically. I had the privilege of leading Twilio Communications over the last year, and I am extremely proud of what the team accomplished in terms of increasing both operational efficiency and product innovation. Throughout the year, we undertook a number of actions to drive increased operating leverage and further streamline our go-to-market activities. We continued these efforts in Q4 by moving both flex and marketing campaigns into communication, and the results we are reporting today reflect this shift. With these changes, we're better aligning how our customers want to buy our products and are also taking advantage of natural upsell and cross-sell opportunities. We also delivered an aggressive product review, and saw early signs of success with customer AI. In Q4, Twilio Voice Intelligence, an AI-powered capability that enables our customers to extract data insights from their call recordings, was released in beta, and customers have already used it to analyze over 42 million calls.

Speaker Change: And for the full year and generated revenue of $3 $85 9 billion and grew 11% year over year on an organic basis.

Speaker Change: I had the privilege of leading Twilio communications over the last year and I am extremely proud of what the team accomplished in terms of increasing both operational efficiency and product innovation.

Speaker Change: Throughout the year, we undertook a number of actions to drive increased operating leverage and further streamline our go to market activity.

Speaker Change: We continued these efforts in Q4 by moving both flex and marketing campaigns and communications and the results. We are reporting today reflect the shifts.

Speaker Change: With these changes we are better aligning how our customers want to buy our products that are also taking advantage of natural upsell and cross sell opportunities.

Speaker Change: We also delivered on aggressive product Roadmaps and saw early signs of success with customer AI.

In Q4, Twilio voice intelligence and AI powered capability that enables our customers to extract data insights from their call recordings was released in beta and customers have already used it to analyze over $42 million call. It.

Khozema Z. Shipchandler: Our traffic optimization and the Traffic Shaping Algorithm are examples of innovations we introduced to drive greater flexibility and increase performance in our messaging products. Our products also set new records by sending over 4 billion messages and 64 billion emails during Cyber Week, with 100% uptime across core messaging and email, a testament to the scale and reliability of our platform. Our innovations are also getting recognized externally, as we maintain our position in the CPAS, as evidenced by the fact that Twilio is named a leader in the 2023 Gartner Magic Quadrant for CPaaS and a leader in the Omnia Universe customer engagement platforms from 2023 to 2024. We're continuing to deliver impressive customer wins. In Q4, we signed our largest messaging deal to date, a nine-figure commitment with a leading cloud communication software company. We're also leveraging our network of ISVs and partners to accelerate our ability to reach new customers and expand our geographic footprint. For example, we signed a three-year, eight-figure deal with Airship. Airship's mobile app experience platform powers trillions of interactions for thousands of global brands.

Speaker Change: Our traffic optimization actions and the traffic shaping algorithms are examples of innovations, we introduced to drive greater flexibility and increased performance in our messaging products.

Speaker Change: Our products also set new records by sending over 4 billion messages and 64 billion emails during cyber week with 100% uptime across core messaging and E Mail, a testament to the scale and reliability of our platform our.

Speaker Change: Our innovations are also getting a recognized externally as we maintained our position and the C pass industry as evidenced by the fact that Twilio has named a leader in the 2023 Gartner Magic quadrant for C pass and a leader in the <unk> universe customer engagement platforms 2023.

Speaker Change: 2024.

Speaker Change: We're continuing to deliver impressive customer wins in Q4, we signed our largest messaging deal to date, a nine figure commitment with a leading cloud communications software company.

Speaker Change: We're also leveraging our network of Isps and partners to accelerate our ability to reach new customers and expand our geographic footprint for.

Speaker Change: For example, we signed a three year eight figure deal with air ship.

Speaker Change: Air shifts mobile App experience platform powers trillions of interactions for thousands of global brands.

Khozema Z. Shipchandler: And they will become an important partner where our customers will be able to leverage a fully integrated cross-channel orchestration system for both messaging and email. Our partner channel is certainly proving to be an area of opportunity for us, and one we will continue to focus on. Our Twilio segment business, formerly Twilio Data and Applications, while still strategically important to Twilio, continues to underperform. Although we drove sequential bookings improvement in Q4, growth is not yet accelerating to our expectations. We need to execute better, and I believe that we can.

Speaker Change: And they will become an important partner for our customers will be able to leverage our fully integrated cross channel orchestration solution for both messaging and E mail channels. Our partner channel is certainly proving to be an area of opportunity for us and one we will continue to focus on this year.

Speaker Change: Our Twilio segment business, formerly Twilio data and applications, while still strategically important twilio continues to underperform.

Although we drove sequential bookings improvement in Q4.

Speaker Change: <unk> is not yet accelerating up to our expectations.

Speaker Change: We need to execute better and I believe that we can.

Khozema Z. Shipchandler: Over the past five weeks, I've been working with the team to conduct an extensive operational review of SEGMENT, and this work is ongoing. We plan to do a readout of these results in March, at which time I'll be ready to share our findings, path forward, and any changes to Twilio's financial framework as a result. That said, the segment product teams are laser focused on shipping updates to customers, and we're seeing a great response to our customer AI innovation. Since becoming publicly available on 2.3.2023, Customer AI Predictions has been adopted by over 150 customers.

Speaker Change: Over the past five weeks I've been working with the team to conduct an extensive operational review of segment and this work is ongoing.

Speaker Change: We plan to do a readout, but these results in March at which time I'll be ready to share our findings path forward and any changes to twilio as financial framework as a result.

Speaker Change: That said the segment product teams are laser focused on shipping updates to customers and we're seeing a great response to our customer AI innovations.

Speaker Change: Since becoming publicly available in Q3 2023 customer AI predictions has been adopted by over 150 customers.

Khozema Z. Shipchandler: And our Customer AI Recommendations tool, which helps determine the products that are most likely to drive purchases and engagement for each unique customer, went live in a private beta in Q4. Staples Canada, a leading provider of services, tech, and other merchandise solutions for work and school life, was able to leverage customer AI recommendations in its effort to provide more personalized recommendations to self-access inventory and improve their cross-selling, It's abundantly clear that Segment is a powerful product that is driving meaningful value for customers and demonstrating market leadership, as evidenced by IDC's most recent reports, where Twilio is in the leaders category, and the 2023 IDC Marketscape on Customer Data Platforms for the Financial Services and the number one CDP for 2022 market share.

Speaker Change: And our customer AI recommendations tool, which helps.

Speaker Change: Determined the products that are most likely to drive purchases and engagement for each unique customer went live in a private beta in Q4.

Staples, Canada, a leading provider of services Tech and other merchandise solutions for work and school life was able to leverage customer AI recommendations in its effort to provide more personalized recommendations to sell excess inventory and improve their cross selling efforts.

Speaker Change: It's abundantly clear that segment is a powerful product that is driving meaningful value for customers and demonstrating market leadership.

Speaker Change: As evidenced by Idc's. Most recent reports where twilio is in the leaders category in the 2023 IDC market scape on customer data platforms for the financial services industry and the number one CDP for 2022 market share.

Khozema Z. Shipchandler: We continue to see strong traction with customers recognizing the unique value proposition of combining our communications and data. In the fourth quarter, we signed a competitive, multi-year, eight-figure deal with a leading U.S. financial services company, whose usage of our platform spans both communications and financial services. They chose Twilio to meet their needs both internally and externally with their customers. Internally, they're deploying segments so they can get a real-time and personalized view of their end-users across multiple disciplines. They will leverage Segment's zero-copy architecture to query their data warehouse directly, to efficiently and securely enrich segment profiles. Externally, they're deploying Verify so that the millions of customers who rely on them get a seamless and secure authentication process when logging in.

Speaker Change: We continue to see strong traction with customers recognizing the unique value proposition of combining our communications and data capabilities.

Speaker Change: In the fourth quarter, we signed a competitive multi year eight figure deal with a leading U S financial services company, whose usage of our platform spans both communications and segment.

Speaker Change: They chose twilio to meet their needs, both internally and externally with their customers.

Speaker Change: Internally, they're deploying segments. So they can get a real time personalized view of their end users across multiple business units. They will leverage segments zero copy architecture to query their data warehouse directly to efficiently and securely in a rich segment profiles externally, they're deploying <unk>.

Speaker Change: <unk>, so that the millions of customers, who rely on them to get a seamless and secure authentication process when logging in.

Khozema Z. Shipchandler: We also signed a seven-figure deal with an international salon management software company. With Twilio, this company moved away from the incumbent providers and now relies solely on Twilio messaging for all of its one-to-one messaging with customers, and the company has already deployed segmentation for its B2B business, so that they're able to have a better customer view of those purchasing beauty products directly from them. These customers are leveraging Twilio to not just bring their communications and data together but to help them personalize and build lasting loyalty with their customers. Our team enters 2024 focused on making balanced and intentional decisions that will help us to deliver durable, profitable growth. Our priorities for the year are clear.

Speaker Change: We also signed a seven figure deal with an international Salon management software company.

Speaker Change: With Twilio. This company moved away from the incumbent providers and now relies solely on Twilio messaging for all of its one to one messaging with customers.

Speaker Change: And the company already deployed segment for its <unk> business. So that they are able to have a better customer view of those purchasing beauty products directly from them.

Speaker Change: These customers are leveraging twilio to not just bring their communications and data together, but to help them personalized and build lasting loyalty with their customers.

Speaker Change: Our team enters 2024 focused on making balanced and intentional decisions that will help us to deliver durable profitable growth.

Speaker Change: Our priorities for the year are clear.

Khozema Z. Shipchandler: First, we need to continue running our business with better sales execution, and we will continue to look for areas where we can accelerate growth. Second, we need to wrap up our business review of Segment and determine the best path forward that will position Twilio for long-term success while advancing our objective of optimizing profitable growth. And third, we remain extremely bullish on AI and our ability to innovate across our portfolio, with several incredible examples in both our product roadmaps and in private beta. For the past 15 years, our co-founder, Jeff Lawson, did a remarkable job of leading this company from a disruptive startup to the admired company that it is today. I truly believe that we're set up for success to build for the next phase of our journey, and I'm grateful to follow in Jeff's footsteps. I also want to express my gratitude to the thousands of Twilions who make this company such a special place.

Speaker Change: First we need to continue running our business with better sales execution, and we will continue to look for areas, where we can accelerate growth.

Speaker Change: Second we need to wrap up our business review of segment and determine the best path forward that will position twilio for long term success, while advancing our objective of optimizing profitable for us.

Speaker Change: And third we remain extremely bullish on AI and our ability to innovate across our portfolio with several incredible examples in both of our product roadmaps and in private beta.

Speaker Change: For the past 15 years, our co founder, Jeff Lawson did a remarkable job of leading this company from a disruptive start ups to the admired company that it is today.

Speaker Change: I truly believe that we're set up for success to build for the next phase of our journey and I am grateful to follow and just footsteps.

Speaker Change: I also want to express my gratitude for the thousands of truly honest, who make this company has such a special place.

Khozema Z. Shipchandler: Our employees have undergone a lot of change this past year. Yet, through it all, they've remained committed to building a great company that's focused on delivering for our customers. We will continue to run a financially sound and extremely innovative business. I'm continually impressed with the progress the team has made and how we've positioned the business to optimize for profitable growth moving forward. That said, we have more work to do, and I look forward to leading Twilio in this next phase. And with that, I'll turn it over to Abe. Thank you, Khozema.

Speaker Change: Our employees have undergone a lot of sheets. This past year get through it all they have remained committed to building a great company, that's focused on delivering for our customers.

We will continue to run a financially sound and extremely innovative business.

Speaker Change: I'm continually impressed with the progress the team has made and how we position the business to optimize for profitable growth moving forward.

Speaker Change: That said, we have more work to do and I look forward to leading Twilio in this next phase and with that I'll turn it over to Ed.

Ed: Thank you Christina Twilio finished the year with a strong fourth quarter, we exceeded our guidance and delivered another record quarter of revenue non-GAAP income from operations and free cash flow for.

Aiden Vigiano: Twilio finished the year with a strong fourth quarter. We exceeded our guidance and delivered another record quarter of revenue, non-gap income from operations, and free cash flow. For the full year, we generated four point one five billion dollars in revenue, 10 percent organic revenue growth, five hundred and thirty three million in non-GAAP income from operations, and three hundred and sixty four million in free cash flow. These results demonstrate the significant progress we've made over the last year from a business that was roughly break-even on a non-GAAP basis and generated negative free cash flow in 2022 to one that is now generating meaningful levels of We came into 2023 committed to this outcome, and we exceeded what we said we were going to do. Fourth quarter revenue was $1.076 billion, up 5% reported and 8% organic year-over-year. Communications revenue was $1 billion, up 5% reported and 8% organic year-over-year.

Ed: For the full year, we generated $4 $154 billion in revenue, 10% organic revenue growth $533 million and non-GAAP income from operations and $364 million in free cash flow.

These results demonstrate the significant progress we've made over the last year from a business that was roughly breakeven on a non-GAAP basis and generated negative free cash flow. In 2020, Q1 that is now generating meaningful levels of non-GAAP income from operations and free cash flow, while delivering double digit organic growth.

Ed: Came into 2023 committed to this outcome and we've seen it what we said and youre going to do.

Ed: Fourth quarter revenue was one point <unk>, seven 6 billion up 5% reported and 8% organic year over year.

Ed: Communications revenue was $1 billion up 5% reported and 8% organic year over year segment revenue was $75 million up 4% year over year.

Aiden Vigiano: Segment revenue was $75 million, up 4% year-over-year. As a result of the operational changes Khozema highlighted regarding FLEX and marketing campaigns, these products are now reported as part of our communications business. For Q4, this represented $54 million of revenue that would have previously been allocated to dated applications. We have also renamed data and applications to Twilio Segment, which includes both our Segment and Engage products.

Ed: As a result of the operational changes zama highlighted regarding slack and marketing campaign. These products are now reported as part of our communications business for.

Ed: For Q4, and this represented $54 million of revenue that would have previously been allocated to Dana and application.

Ed: We have also renamed data and applications to Twilio segment, which includes both our segment and engage product.

Aiden Vigiano: As a result of these changes, all segment-level results and metrics have been recast accordingly. We continue to see stabilization in volumes across our usage-based products throughout the quarter, as well as strong seasonal activity around the holidays, which help to drive our revenue needs in Q4. Similar to the last two quarters, our Q4 revenue growth rate was negatively impacted by headwinds from customers in the crypto industry. Total Q4 organic revenue growth excluding crypto customers was 10% year over year, and for the full year 2023, total organic revenue growth excluding crypto customers was 13% year over. We expect Q1 headwinds from crypto to be roughly in line with Q4, after which we will have lapped the vast majority of the crypto impact. Our Q4 dollar-based net expansion rate was 102%.

Ed: As a result of these changes all segment level results and metrics have been recast accordingly.

Ed: We continue to see stabilization in volumes across our usage based products throughout the quarter as well as strong seasonal activity around the holiday, which helped to drive our revenue in Q4.

Ed: Similar to the last two quarters, our Q4 revenue growth rate was negatively impacted by headwinds from customers.

Ed: Free.

Ed: Total Q4 organic revenue growth, excluding crypto customers was 10% year over year and for the full year 2023, total organic revenue growth, excluding crypto customers with 13% year over year.

Ed: We expect Q1 headwinds from crypto to be roughly in line with Q4, after which we will have lapped the vast majority of the crypto impact.

Ed: Our Q4 dollar based net expansion rate was 118% our dollar based net expansion rate for communications was 102% or 104% excluding crypto customers.

Aiden Vigiano: Our dollar-based net expansion rate for communications was 102% or 104% excluding crypto. The dollar-based net expansion rate for Segment was 96%, driven primarily by elevated churn and contraction, though we did see a modest improvement in churn and contraction versus Q3. We delivered Q4 non-GAAP gross profit of $564 million, growing 9% year over year and representing a non-GAAP gross margin of 52.4%. This was up 180 basis points year over year and down 110 basis points quarter over quarter. The decline quarter-over-quarter was primarily driven by lower 10-DLC campaign registration fees and international messaging.

Ed: Dollar based net expansion rate for segment was 96% driven primarily by elevated churn and contraction that we did see a modest improvement in churn and contraction versus Q3.

We delivered Q4 non-GAAP gross profit of 564 million growing 9% year over year, and representing a non-GAAP gross margin of 52, 4%.

Ed: This was up 180 basis points year over year, and down 110 basis points quarter over quarter the.

Ed: The decline quarter over quarter was primarily driven by lower can DLC campaign registration eat and international messaging.

Ed: Q4, non-GAAP gross margins for our communications segment business units were 57% and 74, 4% respectively.

Aiden Vigiano: Q4 non-GAAP gross margins for our communications and segment business units were 50.7% and 74.4%, respectively. Two for non-GAAP income from operations came in meaningfully ahead of expectations at $173 million, representing a non-GAAP operating margin of 16%. This was primarily driven by better-than-expected revenue and ongoing cost discipline, though we also benefited from savings related to our December restructuring and recognized a one-time $6 million gain for our settlement with the City of San Francisco. As we continue to evolve our disclosures in support of our commitment to provide greater transparency on business performance and response to investor feedback, going forward, we intend to report quarterly non-GAAP income and loss from operations by business. Q4 non-gap income from operations for our communications business was $248 million, and Q4 non-gap loss from operations for our segment business was $18 million.

Ed: Q4, non-GAAP income from operations came in meaningfully ahead of expectations at 173 million, representing a non-GAAP operating margin of 16%.

Ed: This is primarily driven by better than expected revenue and ongoing cost discipline.

Ed: Also benefited from savings related to our separate restructuring and recognized a one time $6 million gain for our settlement with the city of San Francisco.

Ed: As we continue to evolve our disclosures and supportive of our commitment to provide greater transparency on business performance and our response to investor feedback going forward, we intend to report quarterly non-GAAP income and loss from operations five business yet.

Ed: Q4, non-GAAP income from operations for our communications business was $248 million.

Ed: And Q4 non-GAAP loss from operations for our segment business was $18 million.

Aiden Vigiano: As Khozema mentioned, we are undergoing an operational review of the segment business in order to identify the appropriate path forward for improved execution and profitable growth. We will provide more details on the outcome of this review upon its completion in March. As a result of its business performance, we completed an impairment test on the intangible assets we acquired as part of our Segment acquisition. The test resulted in a $286 million impairment of our developed technology and customer relationships and tangible assets. However, no impairment of our Segment reporting unit goodwill was identified.

Because as I mentioned, we are undergoing an operational review of the segment business in order to identify the appropriate path forward for <unk>.

Ed: <unk> execution and profitable growth.

Ed: We will provide more details on the outcome of this review upon its completion in March.

Ed: As a result of segment business performance, we completed an impairment test on the intangible assets, we acquired as part of our segment acquisition.

The test resulted in a $286 million impairment of our developed technology and customer relationship intangible asset.

Ed: No impairment of our segment reporting unit goodwill with identified segment carried approximately $300 million in goodwill at year end.

Aiden Vigiano: Segment carried approximately $300 million in goodwill at URED. Due for non-GAAP loss of operations was $362 million, which includes $25 million of expenses associated with restructuring charges and the aforementioned $286 million in tangible asset impairment charge related to segments. Stock-based compensation as a percentage of revenue was 15.3% in Q4, excluding approximately $1.9 million of restructuring costs, down 260 basis points quarter over quarter and 360 basis points year over year. In Q4, we generated free cash flow of $211 million, driven primarily by strong non-GAAP profitability, as well as heightened collections and an $18 million one-time cash benefit related to our settlement with the City of San Francisco. While we expect free cash flow to vary quarter to quarter, free cash flow remains a focus for us as we drive greater profitability in the business. Lastly, we continue to execute against the $1 billion share repurchase program that we announced in February 2023 and have now completed over $730 million of repurchases. Moving on to guidance.

Ed: Q4, non-GAAP loss from operations was $362 million, which includes $25 million of expenses associated with restructuring charges and the aforementioned 286 million intangible asset impairment charge related to the segment.

Ed: Stock based compensation as a percentage of revenue was 15, 3% in Q4, excluding approximately $1 $9 million of restructuring costs down 260 basis points quarter over quarter, and 360 basis points year over year.

Ed: In Q4, we generated free cash flow of $211 million, driven primarily by strong non-GAAP profitability as well as heightened collections and an $18 million one time cash benefit related to our settlement with the city of San Francisco.

Ed: While we expect free cash flow to vary quarter to quarter free cash flow remains a focus for us as we drive greater profitability in the business.

Ed: Lastly, we continue to execute against the $1 billion share repurchase program that we announced in February 2023, and have now completed over $730 million of repurchases to date.

Ed: Moving to guidance for Q1 were initiating a revenue target of $1 <unk> 5 billion to one <unk> 5 billion representing year over year growth of 2% to 3% on a reported basis and 5% to 6% on an organic basis.

Aiden Vigiano: For Q1, we're initiating a revenue target of $1.025 billion to $1.035 billion, representing year-over-year growth of 2% to 3% on a reported basis and 5% to 6% on an organic basis. The expected sequential decline in revenue is due in part to elevated seasonal activity on our platform in Q4, which we do not expect to recur in Q1. This is a similar dynamic to what we saw last year.

Ed: The expected sequential decline in revenue is due in part to elevated seasonal activity on our platform in Q4, which we do not expect to recur in Q1. This.

Ed: This is a similar dynamic what we saw last year.

Aiden Vigiano: We continue to see volume stabilization across our communications products, which we're planning prudently given the usage-based nature of our business. We do expect year-over-year growth through the balance of the year. Turning to our profitability outlook for Q1, we expect non-GAAP income from operations of $120 to $130 million, down sequentially quarter over quarter, primarily due to our lower revenue guidance and an estimated $20 million of incremental expenses associated with a new cash bonus program. This new program will allow us to reduce go-forward equity grants as a proportion of total compensation and is part of our continued efforts to transition employee compensation from equity to cash in order to reduce stock-based compensation. We're continuing to focus on driving operating leverage, and we remain committed to reducing stock-based compensation on our path to gap profitability.

Ed: We continue to see volume stabilization across our communications products that we're planning prudently given the usage based nature of our business, we do expect year over year growth through the balance of the year.

Ed: Turning to our profitability outlook for Q1, we expect non-GAAP income from operations of $120 million to $130 million down sequentially quarter over quarter, primarily due to our lower revenue guide and an estimated $20 million of incremental expenses associated with our new cash bonus program.

Ed: This new program will allow us to reduce go forward equity grants as a proportion of total compensation and as part of our continued efforts to transition employee compensation from equity towards cash in order to reduce stock based compensation expenses.

Ed: We're continuing to focus on driving operating leverage and we remain committed to reducing stock based compensation on our path to GAAP profitability.

Aiden Vigiano: Given the segment operational review currently underway, it's premature to provide full-year 2024 non-gap income from operations guidance at this stage, but at a minimum, we expect to exceed our 2023 non-gap income from operations, even after taking into account an estimated $90 million of incremental annual expenses for the new cash bonus program. We intend to provide a full year 2024 non-gap income from operations outlook and any updates to our financial framework following the completion of the segment operational review in March. We've made significant strides over the last year in driving meaningful non-gap profitability and free cash flow generation in our business. We have strengthened our financial foundation and set ourselves up well to deliver durable, efficient growth in 2024 and beyond. I'm proud of everything our teams have accomplished in 2023, and I'm excited for the opportunities ahead. With that, we'll open it up for questions. Thank you. If you have a question, please press star one on your telephone keypad. To withdraw your question, simply press star one again.

Ed: Given the segment operational review currently underway, it's premature to provide full year 2024, and non-GAAP income from operations guidance at this stage, but at a minimum we expect to exceed our 2023 non-GAAP income from operations, even after taking into account an estimated $90 million of incremental annual expenses for the new cash.

Ed: Bonus program.

Ed: We intend to provide our full year 2024, non-GAAP income from operations outlook and any updates to our financial framework. Following the completion of the segment operational review in March.

We've made significant strides over the last year and driving meaningful non-GAAP profitability and free cash flow generation in our business. We have strengthened our financial foundation et cetera sales up well to deliver durable efficient growth in 2024, MBR I'm proud of everything our teams have accomplished in 2023 and I'm excited for the opportunities ahead.

Speaker Change: With that we'll open it up for questions.

Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.

Meta A. Marshall: Your first question comes from the line of Meta Marshall with Morgan Stanley. Your line is open. Great, thanks. Maybe the first question: just what are you looking at to see traction in the segment business? You know, was there, I know in the past you had said kind of improving pipelines or sales efficiency growing, but you didn't kind of give some of those same statistics. So just what can we use to kind of benchmark improving performance there?

Speaker Change: Our first question comes from the line of meta Marshall with Morgan Stanley. Your line is open.

Meta A. Marshall: Great. Thanks, maybe first question.

Meta A. Marshall: Just what are you looking at them to see traction in this segment business.

Meta A. Marshall: I know in the past you had said kind of improving pipelines our sales efficiency growing you didn't kind of give some of those same statistics. So just what can we use to kind of benchmark it.

Meta A. Marshall: Improving performance there.

Khozema Z. Shipchandler: And then maybe a second question on, generally, we see a pickup in gross margins in Q4 on the communication side of the business, just given that a little bit more of that traffic ends up being North America focused, notice the kind of step down sequentially. So just any commentary on gross margins would be helpful. Thanks. Sure. Hey Meta.

Meta A. Marshall: And then just maybe a second question on <unk>.

Meta A. Marshall: Generally we see a pickup in gross margins in Q4 on the communications side of the business just given a little bit more of that traffic ends up being North America focus you know noticed kind of a step down sequentially. So just any commentary on gross margins would be helpful. Thanks.

Speaker Change: Yes, sure I'll start with the segment part of the cadence can answer the gross margin part of it. So on segment I mean, some of the indicators that we're looking at is.

Khozema Z. Shipchandler: I'll start with the segment part of it, and then Aiden can answer the gross margin part of it. So on segment, I mean, some of the indicators that we're looking at are sequential bookings, and we did see improvement in Q4, but, as we alluded to, it's not exactly where we'd like it to be. And I think just the overall pace of the improvements that we were anticipating and that we would expect of ourselves, they're just kind of not meeting our expectations. I think we've also seen consistent win rates over the course of the year.

Speaker Change: So sequential bookings and we did see improvement in Q4, but as we alluded to it's not exactly where we'd like it to be.

Speaker Change: And I think just the overall pace of the improvements that we were anticipating that we would expect of ourselves there just kind of not meeting our expectations. I think we've also seen consistent win rates over the course of the year and again, we did see a modest improvement in the win rate in Q4, and notably Q4 was sort of our best new.

Khozema Z. Shipchandler: And again, we did see a modest improvement in the win rate in Q4. And notably, Q4 was sort of our best new logo bookings performance as well, actually, since 2021. And so we feel pretty good about that, at least in terms of trajectory, but again, we have work to do. And then, just finally, you know, it's the number one CDP, at least based on the most recent report by market share, as determined by IDC. And we think that just based on what we've been able to do with it and customer AI and how we can expand it across our segment product portfolio, there's just more that we can do there. But, you know, as we said, it's strategically important, but we definitely do think we can do a better job in terms of running that part of it. Amita, I'll take the gross margin question on comm. So it was down quarter over quarter.

Speaker Change: Bookings performance as well actually since 2021, and so we feel pretty good about that at least in terms of trajectory, but again.

Speaker Change: Have work to do and then just finally.

Speaker Change: Number one is GDP.

Speaker Change: At least based on the most recent report by market share.

Speaker Change: As determined by IDC and <unk>.

Speaker Change: We think that just based on what we've been able to do with it and customer AI and how we can expand it across our segment product portfolio that theres just more that we can do there, but you know as we said it's strategically important but we definitely do think we can do a better job in terms of.

Speaker Change: Running that part of the business.

Speaker Change: And meta I'll take the gross margin question on costs. So it was down quarter over quarter. We did see Q3 bump up quite a bit. So Q4 is still higher than what we saw in the first half of the year.

Aiden Vigiano: We did see Q3 bump up quite a bit, so Q4 is still higher than what we saw the first half of the year. The drop quarter over quarter was driven by lower U.S. 10 DLC registration fees quarter over quarter.

Meta A. Marshall: Drop quarter over quarter was driven by lower U S 10, DLC registration free quarter over quarter.

Aiden Vigiano: If you remember last quarter, we made a push to get customers using 10 DLC in the U.S. registered, and that resulted in additional fees, and we are seeing some of that margin pressure kind of quarter over quarter driven by that. And in addition to that, within international messaging, we saw a little bit of margin pressure as well, primarily a function of just where messages are going within different countries in the international bucket.

Meta A. Marshall: If you remember last quarter, we made a push to get customers using <unk> registered that resulted in additional fees and we are seeing some of that out.

Meta A. Marshall: Margin pressure kind of quarter over quarter, driven by that and in addition to that within Internet National messaging, we saw a little bit of margin pressure as well.

Meta A. Marshall: Similarly, a function of just where message you start going with within different countries in the international bucket. So those are the two big drivers, but when you look at margins overall for the business I'm pretty good performance year over year communications does that too.

Mark R. Murphy: So those are the two big drivers. But when you look at margins overall for the business, pretty good performance year over year. Communications was up 230 basis points, quarter over quarter, in Q4 for the year, up 190 basis points. So, generally, a positive margin trend for the year, although down a bit versus Q3. Great, thanks. Your next question comes from the line of Mark Murphy with J.P. Morgan. Your line is open. Thank you, Khozema.

Meta A. Marshall: 230 basis points quarter over quarter in Q4 for the year up 190 basis points. So generally a positive margin trend in the year, although down a bit versus Q3.

Speaker Change: Great. Thanks.

Speaker Change: Your next question comes from the line of Mark Murphy with Jpmorgan. Your line is open.

Mark R. Murphy: Thank you Jim I believe you mentioned, a nine figure messaging win and largest messaging deal that you've wanted to date can you just shed any light on.

Khozema Z. Shipchandler: I believe you mentioned a nine-figure messaging win and the largest messaging deal that you've won to date. Can you just shed any light on how that came together, any information on contract duration so we can annualize it, and then just perhaps when you think that might start contributing revenue? It's not clear to me whether that could click in immediately or perhaps sometime later in the year.

Mark R. Murphy: How that came together.

Mark R. Murphy: On contract durations, so we can annualize it and then just perhaps.

When you think that might start contributing revenue not clear to me whether that could quickly it immediately or perhaps sometime later in the year then I have a quick follow up.

Khozema Z. Shipchandler: Then I have a quick follow-up. Yeah, I mean, I can't get too far into it because we can't disclose the customer names. But we're certainly proud of the fact that we were able to score both of those deals. You know, they're each a little bit unique, just based on the kind of customer type that's involved in each one. I think that those are both kind of multi-year arrangements.

Mark R. Murphy: Yes.

Speaker Change: Yes, I mean I think.

Speaker Change: Get too far into it because we can't disclose the customer names, but we're certainly proud of the fact that we're able to score both of those deals.

Speaker Change: Each is a little bit unique.

Speaker Change: Just based on kind of the customer type that's involved in each one I think that those are both kind of multiyear arrangements. So there's an opportunity for that revenue to continue over a period of time like that's kind of the typical contract duration links that we typically see and we should we should see that revenue over the next.

Khozema Z. Shipchandler: And so there's an opportunity for that revenue to continue over a period of time, like that's kind of the typical contract duration length that we typically see. And, you know, we should should see that revenue in the next quarter. Okay.

Speaker Change: Or is it.

Speaker Change: Okay got it.

Aiden Vigiano: Aiden, as a quick follow-up, what is it that drives a little different spread for Q1, where I believe you're guiding fairly consistently, or even a little better on the organic growth compared to how you guided Q4, but it translates to slightly less in the, you know, the kind of revenue growth rate that we actually have to model? Is it possible to step us through that? Is it something relating to crypto impact or something? Yeah. Okay. Let me take it, Mark, here.

Speaker Change: And as a quick follow up what is it that drives a little different spread for Q1 were.

Speaker Change: I believe you're guiding fairly consistently or even a little better on the organic growth.

Speaker Change: As to how you guided Q4, and then but it translates to slightly less in the.

Speaker Change: Kind of the revenue growth rate that we actually have to model. It is it possible to step us through that is it something relating to crypto impact or something else.

Speaker Change: Got it let me.

Speaker Change: Let's take it out Mark here. So there's a couple of things that are happening. So we're guiding to 5% to 6% organic growth we were 8% in Q4.

Aiden Vigiano: So there's a couple things that are happening. So we're going to have 5 to 6% organic growth. We were 8% in Q4.

Aiden Vigiano: And so there are a couple of things to consider. So, on the growth side, we did talk about crypto, right? That was a 200 basis point headwind in Q4.

Mark R. Murphy: And so there is a couple of things to consider so on.

Mark R. Murphy: On the growth side, we did talk about crypto right that was 200 basis point headwind in Q4, we expect it to be a similar headwind in Q1.

Aiden Vigiano: We expect it to be a similar headwind in Q1. When you look at the rest of the business, the other thing to remember is, and we didn't mention this in our prepared remarks, so I'll mention it here, we continue to streamline our product portfolio, really to focus on doing fewer things better. We are deprecating our video product as well as the software component of our Zipwhip business this year.

Mark R. Murphy: When you look at the rest of the business the other things.

Speaker Change: Remember it is and we didn't mentioned this in our prepared remarks, so I'll mention it here.

Speaker Change: Continue to streamline our product portfolio are really to focus on doing fewer things better.

Speaker Change: Our deprecating, our video product as well as our software component of our business. This year, both our planned wind downs of those products, but they will result in a roughly 150 basis point headwind to growth in Q1, and I'd say roughly similar impact on total year of 2020 for growth. So you have about 200 basis.

Aiden Vigiano: Both are planned wind-downs of those products, but they will result in a roughly 150 basis point headwind to growth in Q1, and I would say roughly a similar impact on total year 2024 growth. So you have about 200 basis points from crypto, and you have about another 150 basis points from the end of life of the video and the software business within Zipwhip. And then the last thing I'll just say is, again, we'll continue to plan prudently, just given the usage-based nature of our business, much different than a subscription business, which is more predictable. So we'll plan prudently. We do expect year-over-year revenue growth throughout the balance of the year. Okay, understood. Very clear. Your next question comes from the line with Jim Fish and Piper Sandler. Your line is open. Hey guys, this is Quinton on behalf of Jim Fish.

Speaker Change: Points from crypto you'd have about another 150 basis points from the end of life of the video and the software business within Sip Web and then the last thing I'll just say it again.

Speaker Change: We'll continue to plan prudently.

Speaker Change: Prudently just given the usage based nature of our business much different than a subscription business, which is more predictable. So we'll plan prudently, we do expect year over year revenue growth throughout the balance of the year.

Speaker Change: Okay understood very clear thank you.

Speaker Change: Your next question comes from the line of Jim Fish with Piper Sandler Your line is open.

Speaker Change: Hey, guys. This is clinton on for Jim Thanks for taking my question.

Clinton: Maybe first a narrative that's been out in the market has been competitors potentially getting more aggressive from a pricing standpoint, specifically in the core messaging segment is that something you're seeing already here in Q1 or anything you saw in Q4, and then anything you can point to in terms of changes from a competitive landscape. This thing. Thank you.

Quinton: Thanks for taking our question. Maybe first, you know, a narrative that's been out in the market has been competitors potentially getting more aggressive from a pricing standpoint, specifically in the core messaging segment. Is that something you're seeing already here in Q1 or anything you saw in Q4? And then anything you can point to in terms of changes in the competitive landscape positioning? Thank you. Yeah, this is Khozema.

Speaker Change: Yes. This is <unk> I'll take the question in short no.

Speaker Change: The way that I would characterize it as that the success of the company is really built on our innovation and quality of our offering and so.

Speaker Change: Im aware of what Youre kind of referring to and you know we never really comment on any specific competitor.

Speaker Change: I think the reality of what we do is that we deliver a really broad and innovative set of solutions for our communications customers and we charge a fair price for it and so whether it's the breadth of our channels the reliability of our Super network or the global scale. All of those factors are in the mix in terms of the way that we.

Khozema Z. Shipchandler: I'll take the question. In short, no. You know, the way that I would characterize it is that the success of the company is really built on the innovation and quality of our offering. And so I'm aware of what you're kind of referring to. And, you know, we never really comment on any specific competitor.

Speaker Change: We serve customers and serve them very very well, we've made a lot of investments in compliance and fraud mitigation as well to ensure users arent stuck paying for fraudulent messages either.

Khozema Z. Shipchandler: I think the reality of what we do is that we deliver a really broad and innovative set of solutions for our communications customers, and we charge a fair price for it. And so, whether it's the breadth of our channels, the reliability of our super network, or the global scale, all of those factors are in the mix in terms of the way that we serve customers and serve them very, very well. We've made a lot of investments in compliance and fraud mitigation as well, to ensure users aren't stuck paying for fraudulent messages either.

And we just want to ensure that we deliver great experiences and fundamentally we think that that's a better.

Speaker Change: Setup for Twilio and our customers.

Speaker Change: We've had a long history really of maintaining price discipline and so we've been able to compete very very successfully with folks that are on the lower end of the market and maintain if not grow our market share over time.

Khozema Z. Shipchandler: And we just want to ensure that we deliver great experiences. And fundamentally, we think that that's a better setup for Twilio and our customers. And you know, we've had a long history of maintaining price discipline. And so we've been able to compete very, very successfully with folks that are on the lower end of the market and maintain, if not grow, our market share over time. Makes sense. Thank you.

Speaker Change: Okay.

Speaker Change: Makes sense. Thank you and then maybe just as a quick follow up.

Speaker Change: Understand the crypto headwinds here, but I think one interesting point and if you've seen kind of a rebound in kind of a crypto pricing and so maybe.

Speaker Change: Are you seeing any sort of improvement from a quarter over quarter basis of the crypto specific activity and how do you expect that to trend in 2024, as we see a potential kind of increase in the pricing landscape do we still see that relationship of crypto.

Quinton: And then maybe just as a quick follow-up, you know, understand the crypto headwinds here. But I think one interesting point is you've seen kind of a rebound in crypto pricing. And so maybe are you seeing any sort of improvement from a quarter over quarter basis in the crypto specific activity? And how do you expect that to trend in 2024?

Speaker Change: Crypto pricing increases we see activity increase on Twilio. Thank you.

Speaker Change: Yes, so from a personnel perspective.

Speaker Change: A couple of things last year in the second and third quarter, we talked about those curious kind of being the peak of our crypto volume on our platform. So we play through the last several quarters with that headwind, we expect the headwind in Q1 to be roughly in line with the headwind that we saw in Q4, after which we expect crypto.

Aiden Vigiano: As we see a potential kind of increase in the pricing landscape? Do we still see that relationship where as crypto pricing increases, we see activity increase on Twilio? Thank you.

Speaker Change: What.

Aiden Vigiano: Yeah, so from a crypto perspective, a couple of things. Last year, in the second and third quarters, we talked about those periods kind of being the peak of our crypto volume on our platform. So we played through the last several quarters with that headwind.

Speaker Change: Kind of pressures or headwinds on growth to kind of abate a little bit.

Speaker Change: Beyond that I'm, not going to provide any kind of outlook in terms of the specific industry, but we are kind of starting to lap those.

Aiden Vigiano: We expect the headwind in Q1 to be roughly in line with the headwind that we saw in. We are in phase four, after which we expect crypto kind of pressures or headwinds on growth to kind of abate a little bit. Beyond that, I'm not going to provide any kind of outlook in terms of a specific industry, but we are kind of starting to lap those higher periods of crypto volume. Your next question comes from the line of Michael Turrin with Wells Fargo Securities. Your line is open.

Speaker Change: Higher periods of crypto volume.

Okay.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Michael <unk> with Wells Fargo Securities. Your line is open.

Michael: Great. Thanks.

Michael: Taking the questions.

Michael: But just on the I understand there is a number of moving pieces as you fine tuning the organization and.

Michael: Just the underlying customer profile, but when we're looking at the customer metrics that they can be.

Michael: Indications segment is not where are you seeing.

Michael Turrin: Great, thanks. I appreciate you taking the time to answer the questions. I understand there are a number of moving pieces as you're fine-tuning the organization and just the underlying customer profile. But when we're looking at the customer metrics, I think the communication segment is not where we've seen that metric go down. So maybe you can just add some detail on what's driving the customer metrics currently. And then, in terms of the segment evaluation as just the second part, I think we've often viewed that as maybe a strategic opportunity to add more data-driven intelligence to the communications portfolio, if at all possible. Is that something you can address independently or segment to go a different route? I'm just wondering if you can just add more on kind of the data enablement piece of what Twilio has in its portfolio across the communications segment as it's currently built as well. Thank you. Why don't I start?

Michael: That metric down so maybe you can just add some detail on what's driving the customer metrics. Currently and then in terms of this segment evaluation is just the second part I think we've often viewed that as maybe a strategic opportunity to add.

Michael: More data driven.

Michael: <unk> to the communications portfolio if at all possible is that something you can address them.

Michael: Independently we're segment too.

Michael: Go a different route I'm just wondering if you can just add more on kind of the data enablement piece of what Twilio has in its portfolio.

Michael: Across the communications segment as it's currently built as well thank you.

Speaker Change: Why don't I start I'll start on the customer question, and then I'll hand, it over to Jose Mas. So just to start with the numbers show a customer.

Speaker Change: Customer count was 305000.

At the company level down 30 basis points quarter over quarter up 5% year over year.

Jose Mas: Really what we're seeing is on the communications side, we saw a reduction in customer count are really driven by smaller dollar self serve customers.

Aiden Vigiano: I'll start on the customer question, then I'll hand it over to Khozema. So just to start with the numbers, so customer count was 305,000 at the company level, down 30 basis points quarter over quarter, and up 5% year over year. Really, what we're seeing is on the communication side, we saw a reduction in customer count, really driven by smaller dollar self-serve customers. And maybe just to take a step back and a reminder on the metric itself, customers are only included in our customer account if they generated at least $5 of revenue in the final month of a quarter. And so what we saw were customers that might have been slightly above $5, or they had slipped below $5.

Jose Mas: And maybe just to take a step back and a reminder, on the metric itself customers are only included in our customer counts if they generated at least $5 of revenue in the final months of a quarter and so what we saw was customers that might have been slightly above $5 like slipped below $5 and so that's really what drove the change kind of quarter over quarter import.

Jose Mas: This is Lee when we look at revenue churn, which is kind of how we look at that metric. That's the more relevant metric that remains very well and we're seeing.

Jose Mas: Customer account growth.

Jose Mas: In our largest spending cohorts and <unk> actually increased quarter over quarter with revenue up for customer count that you can see that that metric would actually go up. So overall, it's really driven by just small dollar self serve customers on the communication side, but revenue churn remains low as it has historically been in this business.

Aiden Vigiano: And so that's really what drove the change, kind of quarter over quarter. Importantly, when we look at revenue churn, which is kind of how we look at that metric, that's the more relevant metric, that remains very low. And we're seeing...

Speaker Change: Yeah as it relates to the segments and kind of CDP more broadly and I think your question was really towards.

Speaker Change: Its connection with communications I think that we do see a lot of opportunity there in terms of our ability to combine our data offerings are communications offering and we've started to launch a handful of products that do exactly that bring together.

Khozema Z. Shipchandler: Customer Account Growth in our largest spending cohorts, and ARPU actually increased quarter over quarter with revenue up, but customer count down. You can see that that metric would naturally go up. So overall, it's really driven by just small dollar self-serve customers on the communication side, but revenue churn remains low as it has historically been in the system. Yeah, as it relates to segment and kind of CDP more broadly, and I think your question was really about its connection to communications. I think that we do see a lot of opportunity there in terms of our ability to combine our data offering with our communications offering, and we've started to launch a handful of products that do exactly that, bring together kind of all of the best capabilities of Twilio within single offerings.

Speaker Change: All of the best capabilities.

Speaker Change: Twilio within single offerings, you see that today for example in our flex unify offering.

Speaker Change: Which has been announced relatively recently I think as it relates to the.

Speaker Change: The need and value of us GDP like we're certainly open minded about the way that we want to create value for the company I think first and foremost we're very very focused on durable and profitable growth. We alluded to the fact that we are undergoing an operational review of segment and with an eye towards value creation.

Speaker Change: Asian.

Speaker Change: Again demonstrated through durable profitable growth I think the segment happens to be a pretty unique asset that we think remains strategically important.

Khozema Z. Shipchandler: You see that today, for example, in our FlexUnify offering, which was announced relatively recently. I think as it relates to the need and value of a CDP, we're certainly open-minded about the way that we want to create value for the company. I think first and foremost, we're very, very focused on durable and profitable growth. We alluded to the fact that we are undergoing an operational review of the segment and with an eye towards value creation, again, demonstrated through durable, profitable growth. I think that segment happens to be a pretty unique asset that we think remains strategically important. We do think that having first-party data combined with communications has a lot more inherent value than just a standalone CDP. All that said, I think there are a lot of opportunities for us to be able to improve the way in which we're doing things. And, you know, we talked about some of the executional things that we want to get better at.

Speaker Change: We do think that having first party data combined with communications.

Speaker Change: <unk> has a lot more inherent value than just the standalone CDP.

Speaker Change: All that said I think there are a lot of opportunities.

Speaker Change: For us to be able to improve the way in which we're doing things and we talked about some of the execution things that we want to we want to get better on but I think having segment deeply embedded with others in the data ecosystem, we have opportunities to do that.

Speaker Change: And then also pursuing partnerships with other Isps I think theres <unk> theres, an opportunity there too and so we're not taking anything off the table per se.

Speaker Change: But we do think that we haven't really interesting asset will have a lot more to share in March when we complete our operational review.

Speaker Change: Yeah.

Speaker Change: All helpful. Thank you.

Speaker Change: Your next question comes from the line of Ryan Koontz with Needham <unk> Company. Your line is open.

Khozema Z. Shipchandler: But I think having Segment deeply embedded with others in the data ecosystem gives us opportunities to do that. And then also pursuing partnerships with other ISVs, I think there's an opportunity there too. And so we're not taking anything off the table per se.

Thanks for the question I appreciate it.

Ryan Koontz: And unpack kind of the revenue guide down sequentially here with some compares.

Ryan Koontz: I Wonder if you could do the same thing on the operating income guide, which seems even a bigger move down.

Ryan Koontz: Percentage wise is that mainly the new comp plan are there any other kind of impacts on the on the operating income line, we should think about it I have one follow up.

Khozema Z. Shipchandler: But we do think that we have a really interesting asset. We'll have a lot more to share in March when we complete our operations. Very helpful, thank you.

Speaker Change: Sure Yeah I'll start so.

Speaker Change: You're right, we're stepping down on profit of $173 million in Q4, Q1 guide of 120 to 130, So there's really three things that come into play right.

Ryan Kuntz: Your next question comes from the line of Ryan Kuntz with Needham & Company. Your line is open. Thanks for the question. I appreciate how you unpacked kind of a revenue guide down sequentially here with some comparisons. I wonder if you could do the same thing on the operating income guide, which seems even like a bigger move down. Percentage-wise, is that mainly the new comp plan? Are there any other kinds of impacts on the operating income line we should think about? Sure. Yeah, I'll start.

Speaker Change: First level revenue up and stepped down it's really primarily driven to our buy revenue seasonality in Q4, right. We talked about in our prepared remarks, we had a record volumes during cyber week, we had a very strong holiday season.

Speaker Change: We expect revenue to kind of step down quarter over quarter as a result of that so that's a driver. The other drivers are on the Opex line. The first is as you mentioned in your new bonus program will.

Aiden Vigiano: So you're right, we're stepping down on profit, $173 million in Q4, and a Q1 guide of $120 to $130. So there are really three things that come into play, right? So first level revenue, and the step down, is really primarily driven by revenue seasonality in Q4, right? We talked about in our prepared remarks that we had record volumes during Cyber Week, and we had a very strong holiday season. We expect revenue to kind of step down quarter over quarter as a result of that. So that's a driver.

Speaker Change: We will begin accruing expenses in Q1 associated with that program.

We noted in the prepared remarks that it's roughly $20 million in Q1 and $90 million for the full year of 24, those are net new incremental expenses.

Speaker Change: That will hit the non-GAAP line.

Speaker Change: Fortunately this new cash bonus program will allow us to reduce our stock based compensation expenses over time. So that's good.

Speaker Change: One item on the Opex side, and then the second is actually related to payroll taxes.

Aiden Vigiano: The other drivers are on the OpEx line. The first is, as you mentioned, the new bonus program. We'll begin accruing expenses in Q1 associated with that program. We noted in the prepared remarks that it would be roughly $20 million in Q1 and $90 million for the full year of 24. Those are net new incremental expenses that will hit the non-GAAP line. Importantly, this new cash bonus program will allow us to reduce our stock-based compensation expenses over time. So that's one item on the OPEC line. And then the second is actually related to payroll taxes that are just higher in Q1 than they are in Q4, really due to the resetting of tax contributions.

Speaker Change: That are just higher in Q1 than they are in Q4 really due to resetting of tax contribution that's about a $10 million to $12 million headwind in Q1, so as that starts to abate as you move throughout the year just based on how payroll taxes work.

Speaker Change: That's great perfectly clear and I Wonder if you also kind of unpack the 10 DLC kind of where we are in that cycle I know, it's I'm sure. It's a complex issue, but maybe just a 32nd version of kind of where we are in this and you'll see registration fees and on boarding and churn you saw like it's been a benefit of journey. Thank you.

Speaker Change: Yes, I mean were expectedly over.

Speaker Change: Short answer.

Speaker Change: The fees are abating and didn't kind of alluded to that being one of the reasons for the margin step down in Q3 Q4. There were acute there were accelerated fees in Q3 as a result of an acceleration in registration to be able to meet the deadline.

Aiden Vigiano: That's about a $10 to $12 million headwind in Q1. So that starts to abate as you move throughout the year, just based on how payroll tax works. Great. Perfectly clear. And what if you also kind of unpack the 10 DLCs, kind of where we are in that cycle?

Speaker Change: That deadline since past I think we alluded to in prior remarks that 99% plus of our customers were able to get through that process.

Speaker Change: And so the balance of those.

Wouldn't anticipate ending up there.

Khozema Z. Shipchandler: I know it's, I'm sure it's a complex issue, but maybe just the 30 second version of kind of where we are in, The Bulletproof Executive 2013 Please see the complete disclaimer at https://sites.google.com. It's been a bit of a journey. Yeah, I mean, we're expectedly over is the short answer there. The fees are abating, and it kind of alluded to that being one of the reasons for the margin step down to three to four. There were two There were accelerated fees in Q3 as a result of an acceleration and registrations to be able to meet the deadline. That deadline has since passed, I think we alluded to in prior remarks that ninety nine percent plus of our customers were able to get through that process.

Speaker Change: For a variety of reasons and there is no. There is actually nothing to talk about it anymore about that so that's kind of where we are and it's behind us and those fees were like expedited type fees Youre Shannon.

Speaker Change: No. They were one time registration fees associated with that process and so they were a femoral in that regard.

Speaker Change: Perfect Alright, great. Thanks, a lot I'll pass it on.

Speaker Change: Your next question comes from the line of Pat Wall Ravens with citizens JMP. Your line is open.

Speaker Change: Oh, great. Thank you.

Speaker Change:

Speaker Change: And I'll just say because.

Speaker Change: Congrats on getting a lot done so far so I know, there's still a lot to do but so look twilio has over 4 billion in cash and less than 1 billion in debt. So I guess two questions. There why not increase the stock purchase and what are the.

Speaker Change: What are some of the possibilities in terms of what you can do with that cash.

Speaker Change: Yeah, Thanks, Matt I'll take the question because anyone can chime in if he'd like yes, we recognize we are sitting on a lot of cash.

Khozema Z. Shipchandler: And so the balance of those, you know, we wouldn't anticipate ending up there for a variety of reasons. And there is no, there's actually nothing to talk about that. So that's kind of where we are. It's behind. And those fees were like expedite type fees, you're saying? No, they were one-time registration fees associated with that process, and so they were ephemeral in that regard.

Speaker Change: But the combination of our emerging free cash flow profile kind of afford us a lot of flexibility. We're focused right now on executing against the existing authorization of which we have about $270 million remaining and I would just say that any updates to our capital allocation strategy or our financial framework.

Ryan Kuntz: All right, great. Thanks a lot. Your next question comes from the line of Pat Walravens with Citizens JMP. Your line is open. Oh, great. Thank you. And I'll just say, because you're... Congratulations on getting a lot done so far.

Speaker Change: Upon the completion of our segment operational review in March.

Speaker Change: Your next question comes from the line of Taylor Mcginnis with UBS. Your line is open.

Taylor McGinnis: Yeah, Hi, thanks, so much for taking my question, maybe just to touch on what you saw in Portio.

Pat Walravens: So I know there's still a lot. But look, Twilio has over $4 billion in cash and less than $1 billion in debt. So I guess there are two questions. Why not increase the stock purchase? And what are they?

Taylor McGinnis: It looks like the sequential growth in the communications business was slightly softer than last year and the upside to total revenue growth compared to the guide and it was a bit softer as well. So can you maybe talk about what drove that or are there any areas that became more more challenged in the quarter and it's tough to disaggregate, what youre seeing with.

Aiden Vigiano: What are some of the possibilities in terms of what you could do with that cast? Yeah, thanks, Pat. I'll take a question, and Khozema can chime in if you'd like. Yes, we recognize we're sitting on a lot of cash. That plus the combination of our emerging pre-cash flow profile kind of affords us a lot of flexibility. We're focused right now on executing against the existing authorization, of which we have about $270 million remaining.

Taylor McGinnis: SMS and some of the core API businesses versus flex and others given the changed so maybe you can just talk about the difference between performance between us.

Aiden Vigiano: And I just say that any updates to our capital allocation strategy or our financial framework will come upon the completion of our segment operational review in March. Your next question comes from the line of Taylor McGinnis with UBS. Your line is open. Yeah, hi.

Taylor McGinnis: Okay.

Speaker Change: Yeah, I don't think there I think the one thing I'd call out is you know we came in about I don't know, 4% ahead of the midpoint of the guidance range that we provided for Q4. It was really just driven by record volumes during cyber week, we really saw elevated holiday traffic.

Taylor McGinnis: Thanks so much for taking my question. Maybe I could just touch on, you know, what you saw in 4Q. So it looks like the sequential growth in the communications business was slightly softer than last year. And, you know, the upside to total revenue growth compared to the guide was a bit softer as well. So can you maybe talk about, you know, what drove that? Were there any areas that, you know, became more challenged in the quarter?

Speaker Change: Throughout the quarter.

Speaker Change: Again, so I would say largely a seasonal lift relative Q.

Speaker Change: And kind of what drove that is that kind of your question I just want to make sure I'm understanding what you're asking Taylor.

Taylor: Yeah that and just when you look at sequential growth quarter over quarter in the communications business. It looks like last year might've been a stronger at the same time. So I'm just wondering if there was anything that maybe you know deteriorated in the macro or anything that maybe came in a little bit.

Aiden Vigiano: And it's tough, I guess, to disaggregate, you know, what you're seeing with, you know, SMS and some of the core API businesses versus, you know, Flex and others given the change. So maybe you can just talk about the difference in performance between those. Thanks.

Aiden Vigiano: Yeah, I don't think there's anything wrong with that. I think the one thing I'd call out is, you know, we came in about, I don't know, 4% ahead of the midpoint of the guidance range that we provided for Q4. It was really just driven by record volumes during Cyber Week. We really saw elevated holiday traffic throughout the quarter. Again, so I would say largely a seasonal lift relative to kind of the beat and kind of what drove that.

Taylor: A little bit softer just just to be mindful of.

Taylor: Well I mean, I think it was largely in line last year, we were up 45% in Q4 relative to Q3 and this year, we're up we're a little bit over 4%. So it's roughly similar to what we saw last year.

Speaker Change: Great. Thank you so much.

Speaker Change: Your next question comes from the line of William <unk> with Baird. Your line is open.

Aiden Vigiano: Is that kind of your question? I just want to make sure I'm understanding what you're asking, Taylor. Yeah, that and just when you look at, I guess, sequential growth, so quarter over quarter in the communications business, it looks like last year, you know, might have been a little bit stronger at the same time. So I'm just wondering if there was anything that maybe deteriorated in the macro or anything that maybe came in a little bit softer, just to be mindful of. I think it was largely in line. Last year we were up 4.5% in Q4 relative to Q3, and this year we're up a little bit over 4%, so it's roughly similar to what we saw last year. Great! Thank you so much.

Okay, great yeah. Thanks.

William: Maybe the first question. Your primary question for <unk> I know you were obviously already run into communications business, but I guess now that you weren't CEO hat.

William: So to speak maybe just update us on how youre thinking about kind of key strategic priorities for the communications business in 'twenty four kind of across revenue margins et cetera, and maybe just as kind of part of that.

William: Indications operating margins now approaching 25% any color on how to think about levers you can maybe still pool pool there.

William Verity Power: Your next question comes from the line of William Power with Baird. Your line is open. Okay, great. Yeah, thanks. Maybe the first question or primary question for Khozema, I know you're obviously already running the communications business, but I guess now that you're wearing the CEO hat, so to speak, maybe just update us on how you're thinking about kind of key strategic priorities for the communications business, you know, in 24, kind of across revenue, you know, margins, etc. And maybe just as kind of part of that, you know, the communications operating margin You know, any color on how to think about, you know, levers? You can maybe still pull and pull there.

Speaker Change: Yes, both good questions.

Speaker Change: I'd say just kind of just maybe start with like it's sort of the strategy and vision level like I wouldn't really anticipate a material diversion there.

Speaker Change: I think at the end of the day, we want to build out the world's leading customer engagement platform and I think that we pointed out a few opportunities in which we can improve our execution, but I think you've already seen like really really strong product progress on the communications side and we certainly intend to continue that I'd say secondly, we are.

Speaker Change: Very focused on profitable growth.

Speaker Change: And as you said I mean, we have made a lot of strides there the margin rates of uplifted quite a lot I think that we definitely do have an.

Khozema Z. Shipchandler: Yeah, both good questions. So I'd say just kind of to maybe start with, like, it's sort of the strategy and vision level. I wouldn't really anticipate a material diversion there. I think, at the end of the day, we want to build out the world's leading customer engagement platform, and I think that we have pointed out a few opportunities in which we can improve our execution. But I think you've already seen really, really strong product progress on the communication side, and we certainly intend to continue that.

Speaker Change: The opportunity to improve our sales execution across the business and grow the company faster.

Speaker Change: And I think we can do it from a structurally more profitable position I think we have an opportunity for example, with ISP relationships, we have an opportunity to improve and self serve and we can continue to build off of some of our cross sell opportunities as well in our product portfolio.

Speaker Change: To deliver faster growth.

Speaker Change: As well I mean, I think innovation is always kind of been at the heart of what we've tried to do is that Twilio and I think sticking just to communications I think that we have a number of.

Khozema Z. Shipchandler: I'd say, secondly, you know, we're very focused on profitable growth. And as you said, we have made a lot of strides there; the margin rates have increased quite a lot. I think that we definitely do have an opportunity to improve our sales execution across the business and grow the company faster.

Speaker Change: AI related products that we've been able to put into our roadmap examples being waste intelligence fraud Guard flex we've got a lot of other products and features still to come I would say there is a kind of close cousin to that which is inside the company. There is a lot of automation of internal processes.

Speaker Change: That I think are a big opportunity that will help us become more efficient also allow us to serve our customers better that could be in the back office that could be the resiliency of our platforms could be you know increasing developer productivity for example, with with co pilots and the like and so I do think that there is opportunity for us.

Khozema Z. Shipchandler: And I think we can do it from a structurally more profitable position. I think we have an opportunity, for example, with ISV relationships; we have an opportunity to improve self-serve. And we can continue to build off of, you know, some of our cross-sell opportunities, as well as in our product portfolio to deliver faster growth. And, as well, I think innovation's always kind of been at the heart of, you know, what we've tried to do at Twilio.

Speaker Change: Additional volume leverage in that business and it's.

Speaker Change: It's really a combination of both.

Speaker Change: Focusing on increased profits will slow ring increased growth.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Ryan Macwilliams with Barclays. Your line is open.

Khozema Z. Shipchandler: And I think, sticking just to communications, I think that we have a number of AI-related products that we've been able to put on our roadmap, examples being voice intelligence, ProdGuard, and Flex. We've got a lot of other products and features still to come. I'd say there's a kind of close cousin to that, which is inside the company; there's a lot of automation of internal processes that I think are a big opportunity that'll help us become more efficient and also allow us to serve our customers better. That could be in the back office, that could be the resiliency of our platforms, could be, you know, increasing developer productivity, for example, with co-pilots and the like And so, I do think that there's opportunity for additional volume leverage in that business. And, you know, it's really a combination of both focusing on increased profits while also lowering increased growth. Thank you. Your next question comes from the line of Ryan McWilliams with Barclays. Your line is open.

Ryan Macwilliams: Thanks for taking the question first one for me please to see the stabilization. The dollar based net retention rate from both the communication segment pieces do you feel like you have a floor here from a net retention standpoint.

Ryan Macwilliams: Assuming like stable macro and you have more visibility from both of those divisions.

Speaker Change: Yeah, I think that's like another way of asking for a revenue guide.

Speaker Change: Next quarter, So we were not going to provide an outlook.

Speaker Change: Two DB any what I would say, it's a <unk>, 6% on a Q1 revenue.

Speaker Change: We are obviously working on a number of initiatives because they've been just mentioned cute or these businesses faster.

Speaker Change: The dynamic that we saw in the quarter, which I'm happy to talk about those I'm really on the communication side with regards to <unk>. It has kind of leveled off as you mentioned we.

Speaker Change: We are seeing low churn in that business, but relative to historical leverage levels kind of pre 2023.

Speaker Change: Higher contraction and expansion and then on the segment side again have leveled off.

Ryan McWilliams: Thanks for taking the question. First one for me: pleased to see the stabilization, the dollar-based net retention rate from both the communication and segment pieces. Do you feel like you have fast forward here from a net retention standpoint, assuming something like stable macro and you have more visibility from both of those divisions? Yeah, I think that's like another way of asking for a revenue guide beyond the next quarter. So we're not going to provide an outlook. 904-287-3300.

Speaker Change: You know.

Speaker Change: Points versus last quarter still.

Speaker Change: Still below a 100% and that's really just driven by the higher churn and contraction that we talked about.

Speaker Change: Period.

Speaker Change: Thanks, and then.

Speaker Change: I know Rcs messaging for a long time has been something that could be a thing, but it never really showed up but with Rcs messaging coming through the iPhone. In 2024 do you think this could change things at all for the communications business going forward or are customers who've been asking about it or is it still kind of wait and see.

Yeah. Good question I think it's an opportunity.

I think in the short term, we don't really see a significant impact from the adoption of Rcs on the business I think we see peer to peer messaging is having the greatest impact in terms of improving the messaging experience between iOS and Android.

Aiden Vigiano: We've added an additional 20% of our revenue back to DVNE. What I would say is we've added 5-6% on Q1 revenue. We are obviously working on a number of initiatives, as Khozema just mentioned, to grow these businesses faster. The dynamics that we saw in the quarter, I'm happy to talk about those. Really, on the communications side, with regard to DVNE, it has kind of leveled off. As you mentioned, we are seeing low churn in that business, but relative to historical 2023, just higher contraction and more muted expansion. And then on the segment side, again, it has leveled off, thanks. And then for Khozema, I know RCS messaging has been something that could be a thing, but it has never really shown up. But with RCS messaging coming to the iPhone in 2024, do you think this could change things at all for the communications business going forward? Or are customers even asking about it? Or, you know, is it still kind of wait and see?

Speaker Change: Less so in the near term on ADP.

Speaker Change: We do support Rcs and ADP business messaging and we do think it can ultimately help customers deliver richer more engaging messages.

Speaker Change: I don't think it's necessarily a near term dynamic, but I think over the medium to long term.

Speaker Change: It is an opportunity for the business.

Speaker Change: Particular, thank you.

Speaker Change: Thanks.

Speaker Change: Your next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

Speaker Change: Hey, guys. This is Ethan Roth on for Alex Zukin.

Ethan Roth: We think for 'twenty four I was just wondering if you could just decompose how we should think about what the main growth drivers are and kind of get back to that we're using to as kind of increasing the year over year growth through the back half or the remainder of the year after <unk>.

Ethan Roth: Then also just kind of.

Ethan Roth: Touching again on how we should think about the capital allocation strategy going forward.

Khozema Z. Shipchandler: Yeah, good question. I think it's an opportunity. I think in the short term, we don't really see a significant impact from the adoption of RCS on the business. I think we see peer-to-peer messaging as having the greatest impact in terms of improving the messaging experience between iOS and Android, probably less so in the near term on A2P.

Ethan Roth: Similar to the commentary around the FY 'twenty for upgrading margin or the operating income to be better than 'twenty two is.

Ethan Roth: Is it also fair to think that they should have would apply to your free cash flow as well.

Ethan Roth: Yes.

Speaker Change: Why don't I start on the last question academic and talk about some of the growth drivers in the businesses.

Ethan Roth: So.

Speaker Change: I would say just generally on free cash flow, we would expect that we're not going to provide like a specific guide on it I will say there will be variability quarter to quarter. We're really pleased with the performance that we've delivered in 2023.

Khozema Z. Shipchandler: I think we do support RCS and A2P business messaging, and we do think it can ultimately help customers deliver richer, more engaging messaging. I don't think it's necessarily a near-term dynamic, but I think over the medium to long term, it is an opportunity for the business. Appreciate it, Keller.

Speaker Change: In general I would expect that the op income become better that free cash flow.

Speaker Change: Follow ups.

Speaker Change: Yeah, and then in terms of the growth drivers, let me just kind of split it between communications and segment so in communications.

Khozema Z. Shipchandler: Thank you. Your next question comes from the line of Alex Zukin with Wolf Research. Your line is open. Hey guys, this is Ethan Braphon on behalf of Alex Zukin.

Speaker Change: We're really focused on is the use case based selling streamlining our customer self serve process and customer AI and we're obviously not providing guidance for 2024, but we do have a number of initiatives.

Ethan Braphon: I just, as we think for 24, I just want to, if you could just decompose how we should think about what the main growth drivers are and kind of get back to that, what you lead to as kind of the increase, the year-over-year growth through the back half, the remainder of the year after 1Q. And then also just kind of touching again on how we should think about the capital allocation strategy going forward, and just similar to the comment you made about the FY24 operating margin or the operating income being better than 23, is it also fair to think that this should, or would apply to your free cashflow as well? When I start on the last question, I can talk about some of the growth drivers in the businesses. So, I would say just generally on free cash flow; we would expect that we're not going to provide like a specific guide on it. I will say there will be variability quarter to quarter. We're really pleased with the performance that we delivered in 2023. In general, I would expect that as income becomes better, free cash flow would follow.

Speaker Change: The business and I think where we've really been focused is in partnering in those areas that I just alluded to a moment ago I think AI in particular allows us an opportunity to deliver really innovative solutions, we're already starting to see that and verify for example for Omnichannel authentication, we see it.

Speaker Change: And unified for more personalized customer engagement on the front lines and then also voiced intelligence for richer very actionable insights from customer conversations and then as well we're leaning into our ISP partnerships, where we are seeing strong growth as we help them scale their businesses and we think there's an opportunity to park.

Speaker Change: Better there and then finally, we're continuing to improve on our self serve capacity.

Speaker Change: Streamlining onboarding billing compliance stuff like that in terms of segment. Our first priority is really just in mitigating churn and contraction.

Speaker Change: In customer conversations what we're leading with is core use cases around personalization AD spend optimization and driving cross sell and we do think we have an opportunity to help our customers kind of streamline their implementations and enable faster time to value.

Aiden Vigiano: Yeah, in terms of the growth drivers, let me just kind of split it between communications and segments. So in communications, what we're really focused on is using case-based selling, streamlining a customer self-serve process, and customer AI. And we're obviously not providing guidance for 2024, but we do have a number of initiatives across the business. And I think where we've really been focused is on partnering in those areas that I just alluded to a moment ago. I think AI in particular allows us an opportunity to deliver really innovative solutions. We're already starting to see that in Verify, for example, for omni-channel authentication.

Speaker Change: And then just.

Speaker Change: <unk> just touching again on like how we should think.

Just capital allocation broadly going forward. Thank you.

Speaker Change: Yes, I can maybe just follow up again, I think even alluded to it earlier that we certainly do have some optionality.

Speaker Change: <unk>, given our balance sheet as well as the cash flow characteristics of the company, we're not providing any guidance as it relates to capital allocation, we're going to do.

Khozema Z. Shipchandler: We see it in Unify for more personalized customer engagement on the front lines, and then also in voice intelligence for richer, very actionable insights from customer conversations. And then, as well, we're leaning into our ISV partnerships, where we are seeing strong growth as we help them scale their businesses. And we think there's an opportunity to partner better there. And then finally, we're continuing to improve on our self-serve capacity, streamlining, onboarding, billing, compliance, stuff like that. In terms of segment, our first priority is really just mitigating churn and contraction.

Speaker Change: Do some work as part of our kind of ongoing operational review and in March we will provide any updates around capital allocation as well as the other elements of our financial framework.

Speaker Change: Yeah.

Speaker Change: Awesome.

Speaker Change: Your next question comes from the line of Michael Funk with Bank of America. Your line is open.

Michael J. Funk: Thank you for taking the question so.

Michael J. Funk: The first one for the comms business aside from creating the best possible product there.

Michael J. Funk: What should we expect what do you expect to drive better revenue growth is at the.

Khozema Z. Shipchandler: In customer conversations, what we're leading with are core use cases around personalization, ad spend optimization, and driving cross-sell. And we do think we have an opportunity to help our customers kind of streamline their implementations and enable faster time to value. And then just me versus, probably just touching again on how we should think about just capital allocation broadly going forward. And thank you. Yeah, I can maybe just follow up again. I think, you know, Aiden alluded to it earlier that, you know, we certainly do have some optionality given our balance sheet, as well as the cash flow characteristics of the company. We're not providing any guidance as it relates to capital allocation.

Michael J. Funk: The Olympics later in the year the election is it macro what are your expectations for revenue growth drivers.

Speaker Change: Yeah, I wouldn't point to any one of those events as being items that we're looking at too.

Speaker Change: Provide.

Speaker Change: A driver of growth I also wouldnt point to kind of macro dynamics.

Speaker Change: I would say, we're really in a position, which we want to be able to produce our own kind of durable growth as I mentioned earlier like some of the areas that we're really focused on is use case based selling self serving customer AI I think one of the ways in which we've really tried to approach our customers through the lens of the problems that they're trying to solve.

Speaker Change: Versus just necessarily the products that we have in our bag.

Khozema Z. Shipchandler: We're gonna do some work as a part of our kind of ongoing operational review. And in March, we'll provide any updates around capital allocation, as well as the other elements of our financial, Okay. Your next question comes from the line of Michael Funk with Bank of America. Your line is open.

Speaker Change: I mentioned a few examples of that a moment ago in terms of verify as it relates to omnichannel authentication unify for personalized customer engagement and then voice intelligence for richer.

Speaker Change: Customer conversations and so those are all areas, where we do anticipate that we'll be able to lift growth I think AI in particular is a really exciting opportunity in which we have an opportunity to enrich communications also combined data our data capabilities with communications and then finally.

Michael J. Funk: Yeah, thank you for taking the question. So the first one for the comms business, aside from creating the best possible product there, you know, what should we expect? What do you expect to drive better revenue growth? Is it the Olympics later in the year, the election? Is it macro?

Speaker Change: As it relates to segment is it.

Speaker Change: As I mentioned, a moment ago I think it's really the priority is to mitigate churn and contraction and I think if we can do all those things then it's really much more around our control and it doesn't actually have much to do with the election or the Olympics.

Khozema Z. Shipchandler: What are your expectations for revenue growth drivers? Yeah, I wouldn't point to any one of those events as being items that we're looking at to provide, you know, a driver of growth. I also wouldn't point to kind of macro dynamics.

Speaker Change: And then one more if I could cosma earlier, you said that nothing is off the table.

Speaker Change: The strategic review of segment does that include a sale and then you mentioned change in financial framework I apologize I'm not exactly sure what that means does that potentially mean mothballing that business until the market comes to you with demand for C. D. P. Maybe some more clarity would be helpful.

Khozema Z. Shipchandler: I would say, you know, we're really in a position in which we want to be able to produce our own kind of durable growth. As I mentioned earlier, some of the areas that we're really focused on are use case-based selling, and self-serving customer AI. I think one of the ways in which we've really tried to approach our customers through the lens of the problems that they're trying to solve versus just necessarily the products that we have in our bag. You know, I mentioned a few examples of that a moment ago in terms of verify as it relates to omni channel authentication, unify for personalized customer engagement, and then voice intelligence for richer customer conversations. And so those are all areas where we do anticipate that we'll be able to lift growth. I think AI, in particular, is a really exciting opportunity in which we have an opportunity to enrich communications and also combine data, our data capabilities with communications.

Speaker Change: Yes, I wouldn't necessarily read any of those things into it. However, what I will say is that on hand segment is strategically important to the company, but on the other hand, we are approaching the review that we talked about with an open mind.

Speaker Change: We know the business is underperforming we definitely do believe that we can execute better.

Speaker Change: And we're just approaching the operational review with an open mind, so that we can determine the best path forward.

Speaker Change: Our overall priority as a company whether it's comp store segment is durable profitable growth and as it relates to the March framework.

Speaker Change: What we said is that beyond the guidance that we obviously provided today any other elements of our financials, whether it be capital allocation or kind of medium term targets et cetera.

Khozema Z. Shipchandler: And then finally, as it relates to the segment, again, as I mentioned a moment ago, I think it's really the priority to mitigate churning contraction. And I think if we can do all those things, then it's really much more under our control and doesn't actually have much to do with the election or the. And then one more, if I could, Khozema, earlier you said that nothing is off the table for the strategic review of the segment. Does that include a sale?

Speaker Change: We would provide in March in addition to any operational changes that we would make with respect to segment.

Speaker Change: In March means app earnings or would that come out prior to earnings.

Speaker Change: We're kind of targeting early March.

Speaker Change: Earnings would be much later in April.

Michael J. Funk: And then you mentioned the change in financial framework. I apologize; I'm not exactly sure what that means. Does that potentially mean mothballing that business until the market comes to you with demands for CDP? Maybe some more clarity would be helpful. Yeah, I wouldn't necessarily read any of those things into it.

Speaker Change: I appreciate the clarity.

No I appreciate that I wasn't sure if you meant with the quarterly earnings. So thank you so much.

Speaker Change: Your next question comes from the line of Derrick Wood with TD Cowen Your line is open.

Khozema Z. Shipchandler: However, what I will say is that, on the one hand, the segment is strategically important to the company. But on the other hand, we are approaching the review that we talked about with an open mind. We know the business is underperforming.

Derrick Wood: Oh, great. Thanks.

Derrick Wood: Because then I just wanted to touch on the flex side of the business you guys made some some some cuts in Q4, you shifted that go to market to the to the communications side, just kind of curious how you're feeling about the level of growth capacity.

Khozema Z. Shipchandler: We definitely do believe that we can execute better, and we're just approaching the operational review with an open mind so that we can determine the best path forward. You know, our overall priority as a company, whether it's communications or segment, is durable, profitable growth. And as it relates to the March framework, what we said is that, beyond the guidance that we obviously provided today, any other elements of our financials, whether it be capital allocation or kind of medium-term targets, et cetera, we would provide in March in addition to any operational changes that we would make. Expect.

Derrick Wood: And flex and if theres potentially some disruption in the first half because of the changes and then just kind of what levers you are looking to lean into to drive more cross selling.

Derrick Wood: The new go to market structure.

Speaker Change: Yes, I mean, I think in more more broadly speaking I will take the second question, perhaps first I think that there is an opportunity to do more cross selling across the company. We've talked about the opportunity for example in the way that we can do.

Michael J. Funk: Great. And March means earnings, or would that come out prior to earnings? We're kind of targeting early March. Earnings would be, you know, much later in April, early May, I should assume.

Speaker Change: Immunizations deal and transform that for example into verify deal where we can do omnichannel authentication.

Derrick Wood: Yeah, I appreciate that. I wasn't sure if you meant the quarterly earnings. So thank you so much. Your next question comes from the line of Derrick Wood with T.D. Cowan.

Speaker Change: We talked a little bit about unify for example, which allows for personalized customer engagement on the frontline that combines the best of flex with sort of the best segment.

Khozema Z. Shipchandler: Your line is open. Oh, great. Thanks.

Khozema Z. Shipchandler: Khozema, I just wanted to touch on the flex side of the business. You guys made some cuts in Q4. You shifted that go-to-market to the communication side. Just kind of curious how you're feeling about it, and then just kind of what levers you're looking to lean into to drive more cross-selling with the new go-to-market structure. Yeah, I mean, more broadly speaking, I'll take the second question, perhaps first. I think that there is an opportunity to do more cross selling across the company. We've talked about the opportunity, for example, in the way that we can do, you know, a communications deal and transform that, for example, into a verify deal where we can do omnichannel authentication. You know, we talked a little bit about unify, for example, which allows for personalized customer engagement on the front lines that combines, you know, the best of flex with sort of the best of segment.

Speaker Change: And then with intelligence is sort of another area, where we've got a lot of existing voice customers. We have an opportunity to use AI as a means to added to their existing capabilities richer much more actionable insights and so we think those are all like really interesting ways in which sort of writ large we can add.

A lot of value in terms of the way that we cross sell into our existing business as it relates to flex I would say I mean, not a lot of changes honestly and in the first half or even the balance of the year.

Speaker Change: Excuse me.

Speaker Change: I don't think we've really seen much change I think when we made some of the actions in December.

It was clear to us was that the buying personas for voice <unk> and flex were pretty similar.

Speaker Change: Wanted to make sure that we were simplifying the experience for our customers our customers, while also being able to extract some efficiencies in the business. So we consolidated some of those capabilities and now.

Khozema Z. Shipchandler: And then voice intelligence is sort of another area where we've got a lot of existing voice customers; we have an opportunity to use AI as a means to add to their existing capabilities, richer, much more actionable insights. And so we think those are all really interesting ways in which, sort of, writ large, we can add a lot of value in terms of the way that we cross sell into our existing business. As it relates to flex, I would say, I mean, not a lot of changes in the first half or even the balance of the year. Excuse me.

Speaker Change: Our account executives in communications can sell Lex <unk> kind of the composedly offerings of contact center capabilities.

Speaker Change: To every one of our customers aligned in a way in which our customers actually want to buy and so no real negative impact as a result, I think that we see.

Khozema Z. Shipchandler: I don't think we've really seen much change. I think when we made some of the actions in December, what was clear to us was that the buying personas for voice, IVR, and Flex were pretty similar. We wanted to make sure that we were simplifying the experience for our customers while also being able to extract some efficiencies in the business. We consolidated some of those capabilities, and now our account executives in communications can sell Flex and or the composable offerings of contact center capabilities to every one of our customers aligned in a way that our customers actually want to buy. No real negative impacts have been reported as a result.

Speaker Change: Possibilities and opportunities in the future based upon that realignment.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Our final question will come from the line of Matt Vanvliet of BTG. Your line is open.

Matt VanVliet: Yeah, Hi, Thanks for taking the question maybe just following up on.

Matt VanVliet: Not only the effect the flex opportunity, but across communications I mean, how are you thinking about a partner engagement and sort of re engaging with the channel building that team back out and then using that as a leverage point in additional distribution.

Khozema Z. Shipchandler: I think that we see possibilities and opportunities in the future based upon that realignment. Great, thank you. Your final question will come from the line of Matt Van Vliet of BTIG. Your line is open.

Matt VanVliet: Into larger enterprises.

Speaker Change: Yes, so I think there's a few opportunities there and I wouldn't actually just limit it to flex necessarily I think that what we see sort of more broadly is that in flex well, maybe I'll start there reflects itself.

Matthew David VanVliet: Yeah, hi, thanks for taking the question. Maybe just following up on not only the Flex opportunity but across communications. I mean, how are you thinking about partner engagement and sort of re-engaging with the channel, building that team back out, and using that as a leverage point and additional distribution into larger enterprises? Yeah, so I think there's a few opportunities there. And I wouldn't actually just limit it to Flex necessarily. I think that what we see sort of more broadly is that in Flex, but maybe I'll start there with Flex itself.

Speaker Change: We do have a partner ecosystem. They built been building alongside us they've developed a number of innovative capabilities that sort of augment what we do inside of flex and provide the overall kind of enhanced experience to our customer.

Speaker Change: And we're very excited about continuing the progress there I think based on some of the changes that we've made inside the business and sort of echo the answer to the prior question as well, we do have an opportunity to both decompose or make <unk> the aspects of flex to be able to suit whatever the custom.

Khozema Z. Shipchandler: We do have a partner ecosystem. They've been building this alongside us. They've developed a number of innovative capabilities that sort of augment what we do inside of Flex and provide an overall kind of enhanced experience to a customer. And we're very excited about continuing the progress there. I think based on some of the changes that we've made inside the business and sort of to echo the answers to the prior question as well, we do have an opportunity to both decompose or make composable the aspects of Flex to be able to suit whatever the customer buying need is in a way that I think is a little bit different than just selling kind of a fully instantiated contact center solution. I think the other part of it is that for the overall business; we do see a really significant opportunity with our ISVs.

Speaker Change: Or buying need is in a way that I think is a little bit different than just selling kind of a fully instantiated contact center solution I think the other part of it is for the overall business, we do see a really significant opportunity with our Isps, we alluded to a large deal for example that we signed with a part.

Speaker Change: <unk>, we do see partners, becoming an increasingly more important part of the business and our ability to both help them grow with their own customers as well as partner with them to be able to bring solutions to market I do think presents a really interesting opportunity for the business and will certainly be an area of focus for us.

Khozema Z. Shipchandler: We alluded to a large deal, for example, that we signed with a partner. We do see partners becoming an increasingly important part of the business, and our ability to both help them grow with their own customers, as well as partner with them to be able to bring solutions to market, I do think presents a really interesting opportunity for the business and will certainly be an area of focus.

Speaker Change: Great. Thank you.

Speaker Change: Thanks. Thank you that will conclude today's conference call. We thank you for joining you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Yeah.

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Speaker Change: Yeah.

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Khozema Z. Shipchandler: Great, thank you. Thank you. That will conclude today's conference call. We thank you for joining us. You may now disconnect your lines. ,,,, www.globalonenessproject.org