Q1 2024 Twilio Inc Earnings Call

Okay.

Operator: Hello and welcome to the Twilio Inc. First Quarter 2024 Earnings Conference. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand has been picked. To withdraw your question, please press star 1 1 again.

Hello, and welcome to the Twilio, Inc. First quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Operator: After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.

Operator: You will then hear an automated message advising Mr. Han has been raised.

Operator: To withdraw your question. Please press star one again.

Bryan Vaniman: I advise that today's conference is being recorded. It is now my pleasure to introduce Senior Vice President of Investor Relations and Corporate Development, Bryan Vaniman. Good afternoon, everyone. And thank you for joining us for Twilio's first quarter 2024 earnings conference call. Joining me today are Khozema Shipchandler, Chief Executive Officer, and Aidan Viggiano, Chief Financial Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our Investor Relations website at investors.twilio.com.

Operator: Please be advised that today's conference is being recorded.

Bryan Vaniman: It is now my pleasure to introduce.

Bryan Vaniman: Senior Vice President of Investor Relations and corporate development, Brian Vandeman.

Bryan Vaniman: Yeah.

Bryan Vaniman: Good afternoon, everyone and thank you for joining us for Twilio as first quarter 2024 earnings Conference call. Joining me today are because they have a ship Chandler Chief Executive Officer, and <unk> Chief Financial Officer.

Bryan Vaniman: As a reminder, we will disclose non-GAAP financial measures on this call definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and earnings presentation posted on our IR website at investors that Twilio Dot com.

Bryan Vaniman: 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.

Bryan Vaniman: 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 many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-K and our forthcoming.

Bryan Vaniman: 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.

Bryan Vaniman: Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-K and our forthcoming 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 Q1 results, and then we'll open the call for Q&A. Thank you, Bryan. Good afternoon, everyone, and thank you for joining us today.

Speaker Change: I'll hand, it over to <unk>, who will discuss our Q1 results and then we will open the call for Q&A.

Speaker Change: Thank you Brian Good afternoon, everyone and thank you for joining us today.

Khozema Z. Shipchandler: Twilio had a solid start to the year, exceeding our Q1 guidance, delivering $1.047 billion in revenue and $160 million in non-GAAP income from operations. Our team executed well across the board in Q1, as evidenced by a record quarter of non-GAAP gross profit of $566 million, a 54% year-over-year increase in our non-GAAP income from operations, and another strong quarter of free cash flow of $1 We are in the early stages of reinvigorating the business and are optimistic about our progress thus far. In fact, we're executing with greater discipline, rigor, and focus on innovation than ever before.

Speaker Change: Leo had a solid start to the year exceeding our Q1 guidance delivering 1.0, $4 7 billion in revenue and $160 million and non-GAAP income from operations.

Khozema Z. Shipchandler: Our team has executed well across the board in Q1, as evidenced by a record quarter of non-GAAP gross profit of $566 million or 54% year over year increase in our non-GAAP income from operations and another strong quarter of free cash flow of $177 million.

Khozema Z. Shipchandler: We are in the early stages of reinvigorating the business and are optimistic about our progress thus far.

Khozema Z. Shipchandler: In fact, we are executing with greater discipline, and rigor and focus on innovation than ever before.

Khozema Z. Shipchandler: In the last five quarters, we've begun delivering significant non-gap operating profitability. In the last four quarters, that's been paired with significant free cash flow, and we are committed to delivering additional operating leverage and accompanying free cash flow. In the meantime, we are also making new targeted R&D investments that we expect to reaccelerate growth over time. In March, we announced an accelerated target for gap operating profitability to Q4 2025. And we also announced that the board authorized an additional $2 billion of share repurchases, bringing our total share of purchase authorization to $3 billion.

Khozema Z. Shipchandler: The last five quarters, we've begun delivering significant non-GAAP operating profitability in the last four quarters, that's been paired with significant free cash flow.

Khozema Z. Shipchandler: And we are committed to additional operating leverage and accompanying free cash flow in.

Khozema Z. Shipchandler: In the meantime, we are also making new targeted R&D investments that we expect to reaccelerate growth overtime.

Khozema Z. Shipchandler: In March we announced an accelerated target for GAAP operating profitability to Q4, 2025, and we also announced that the board authorized an additional $2 billion of share repurchases.

Khozema Z. Shipchandler: Bringing our total share repurchase authorization to $3 billion.

Khozema Z. Shipchandler: This is a reflection of the board's confidence in our strategy and the opportunity ahead. As of today, we've repurchased approximately a billion and a half of shares, and we're targeting to complete the remaining billion and a half of our purchases by the end of this year. At the same time, we also completed our operational review of Segment, and the team is focused on executing the plans we outlined, including more focused product innovation, embedding Segment's capabilities into communications products, and a commitment to getting Twilio Segment to break even on a non-GAAP operating income basis by Q2 2025.

Khozema Z. Shipchandler: This is a reflection of the board's confidence in our strategy and the opportunity ahead.

Khozema Z. Shipchandler: As of today, we have repurchased approximately one 1 billion and a half of shares and we're targeting to complete the remaining billion half of repurchases by the end of this year.

Khozema Z. Shipchandler: At that same time, we also completed our operational review of segment and the team is focused on executing the plans, we outlined including more focused product innovation embedding segments capabilities into communications products and the commitment to getting Twilio segment to breakeven on a non-GAAP operating income basis.

Khozema Z. Shipchandler: By Q2 2025.

Khozema Z. Shipchandler: We are making progress in each area. Across the board, we're innovating and releasing new products, many of which are underpinned by customer AI, our predictive and generative AI layer. Finally, we welcomed a new group of leaders to Twilio who will play an important role in shaping the next chapter of our company as we operate with greater financial discipline, operational rigor, and focus on innovation. Now, let's turn to our business highlights. Our Twilio communications business had a strong first quarter with revenue of $972 million, up 7% on an organic basis year over year and representing 93% of our overall revenue.

Khozema Z. Shipchandler: We are making progress in each area.

Khozema Z. Shipchandler: Across the board, we're innovating and releasing new products, many of which are underpinned by customer AI, our predictive and generative AI layer.

Khozema Z. Shipchandler: Finally, we welcomed a new bench of leaders to Twilio, who will play an important role in shaping the next chapter of our company as we operate with greater financial discipline and operational rigor and focus on innovation.

Khozema Z. Shipchandler: And now, let's turn to our business highlights.

Khozema Z. Shipchandler: Our Twilio communications business had a strong first quarter with revenue of $972 million up 7% on an organic basis year over year.

Khozema Z. Shipchandler: And representing 93% of our overall revenue.

Khozema Z. Shipchandler: During the quarter, communications landed meaningful customer wins, released new products, and deepened our relationships with ISVs, partners, and resellers. With this disciplined approach, we're focused on growth levers that we believe will drive reacceleration in both the short and long term. In the short term, our growth will be fueled by expanding our network of ISVs and global partners, driving more self-service and cross-sell momentum, and extending the value that we're delivering to customers. In Q1, we signed a seven-figure partner agreement with China Unicom, one of China's wireless carriers who will resell a majority of our communications products for its enterprise customers across Singapore and Hong Kong.

Khozema Z. Shipchandler: During the quarter communications landed meaningful customer wins released new products and deepened our relationships with these partners and resellers.

Khozema Z. Shipchandler: With this disciplined approach we are focused on growth levers that we believe will drive reacceleration in both the short and long term.

Khozema Z. Shipchandler: In the short term our growth will be fueled by expanding our network of Isps and global partners driving more self service and cross sell momentum and extending the value that we're delivering to customers.

Khozema Z. Shipchandler: In Q1, we signed a seven figure partner agreement with China Unicom one.

Khozema Z. Shipchandler: Of China's wireless carriers, who will resell our majority of our communications products for its enterprise customers across Singapore and Hong Kong.

Khozema Z. Shipchandler: We also signed a partnership with Bloomreach, a leader in the marketing automation space, and we'll be working with them to co-sell Twilio products. Over the long term, our focus on innovation will unlock more value for customers, creating stickier relationships, and ultimately expand Twilio into new markets and larger deal sizes. We made progress on a number of our AI products and are driving better synergies with our communications and segment products. In Q1, we announced Agent CoPilot, our first of three launches in 2024, where Twilio will natively embed Segment into its communications products.

Khozema Z. Shipchandler: We also signed a partnership with Bloom reach a leader in the marketing automation space and we will be working with them to co sell twilio products.

Khozema Z. Shipchandler: Over the long term our focus on innovation will unlock more value for customers, creating stickier relationships and ultimately expand twilio into new markets and larger deal sizes.

Khozema Z. Shipchandler: We made progress on a number of our AI products and are driving better synergies with our communications and segment products.

Khozema Z. Shipchandler: In Q1, we announced agent co pilot our first of three launches in 2024, where Twilio will natively embedded segment into Twilio as communications products.

Khozema Z. Shipchandler: With Agent Copilot, we've embedded Unified Profiles, powered by Segment, within Flex, giving agents deeper insights into their customers' behaviors and preferences. By accessing the real-time data from Unified Profiles, Agent Copilot assists in intelligent routing to agents and provides them with actionable insights for each customer interaction, automating and enhancing agent productivity while reducing resolution times.

Khozema Z. Shipchandler: With agent co pilot, we've embedded unified profiles powered by segment within flex, giving agents deeper insights into their customers' behaviors and preferences.

Khozema Z. Shipchandler: By accessing the real time data from unified profiles agent co pilot assistant intelligent routing to agents and provides them with actionable insights for each customer interaction.

Khozema Z. Shipchandler: Automating and enhancing agent productivity, while reducing resolution times.

Khozema Z. Shipchandler: Agent Copilot and Unified Profiles are currently in public beta, and customers like Universidad UK are already leveraging these capabilities within their contact centers. As a result, they've driven a reduction in handle time by 30%, and by using our embedded AI automation tools, they've been able to deflect 70% of support cases in just two months. While it's still early, these results are impressive, as they illustrate how our customers are able to quickly realize tremendous business value at scale when combining segments within our communications capabilities.

Khozema Z. Shipchandler: Agent Copilot and unified profiles are currently in public data and customers like University of <unk> UK are already leveraging these capabilities within their contact centers.

Khozema Z. Shipchandler: As a result, they've driven a reduction in handle time by 30%.

Khozema Z. Shipchandler: By using our embedded AI automation tools, they've been able to deflect 70% of support cases in just two months.

Khozema Z. Shipchandler: While it's still early these results are impressive as it illustrates how our customers are able to quickly realize tremendous business value at scale when combining segment within our communications capabilities.

Khozema Z. Shipchandler: Our customers also continue to realize tangible benefits when using our other customer AI innovations, including voice intelligence, which has gotten a great response from our initial public beta customers. With voice intelligence, brands like PGA of America are leveraging transcriptions for their customer support interactions within their flex instance. Getting valuable data insights from call recordings, of the hundreds of customers that have deployed voice intelligence, over half are using language operators, which allows brands to trigger an action based on any keyword, allowing for better personalized communications.

Khozema Z. Shipchandler: Our customers also continue to realize tangible benefits when using our other customer innovations, including voice intelligence, which has gotten a great response from our initial public beta customers with.

Khozema Z. Shipchandler: With voice intelligence brands like PGA of America are leveraging transcriptions for their customer support interactions within their flex instance.

Khozema Z. Shipchandler: Getting valuable data insights from call recordings.

Khozema Z. Shipchandler: Of the one hundreds of customers that have deployed voice intelligence.

Khozema Z. Shipchandler: Half are using language operators, which allows brands to trigger an action based on any keyword, allowing for better personalized communications.

Khozema Z. Shipchandler: We also recently introduced language operators that use generative AI and large language models to determine the best sentiment for the overall conversation, so brands can get a better sense of where escalations or customer churn may take place. And we're continuing to embed AI capabilities into our verification products. We currently have over 11,000 customers leveraging Verify FraudGuard, and in Q1 alone, FraudGuard blocked more than 62 million fraudulent messages.

Khozema Z. Shipchandler: We also recently introduced language operators that uses generative AI and large language models to determine the best sentiment for the overall conversation some brands can get a better sense of where escalations or customer churn may take place.

Khozema Z. Shipchandler: And we're continuing to embed AI capabilities into our verification products.

Khozema Z. Shipchandler: We currently have over 11000 customers leveraging verify fraud garden and in Q1 alone fraud guard blocked more than 62 million fraudulent messages.

Khozema Z. Shipchandler: We are not only saving our customers money, but we're also ensuring our customers' end users have a seamless experience. During the quarter, we signed a competitive deal with Blue Sky, a social media app that recently launched its app to the public. They chose Twilio's Verify API to ensure a seamless and secure signup process for new users.

Khozema Z. Shipchandler: We are not only saving our customers' money, but we're also ensuring our customers and users have a seamless experience.

Khozema Z. Shipchandler: During the quarter, we signed a competitive deal with Blue Sky, a social media App, which recently launched its app to the public.

Khozema Z. Shipchandler: They chose Twilio is verify API to ensure a seamless and secure sign up process for new users.

Khozema Z. Shipchandler: At launch, the company saw an impressive amount of signups, gaining almost 800,000 new users in one day. And FraudGuard not only helped save the company hundreds of thousands of dollars, but it ensured new users received secure authentication. Now, turning to our Twilio Segment business. For Q1, segment revenue was $75 million, up 2% year over year. It was a challenging quarter, but we came out of our segment operational review in March with greater clarity around a short list of priorities that we believe will address the underperformance of segments.

Khozema Z. Shipchandler: At launch the company saw an impressive amount of sign ups.

Khozema Z. Shipchandler: Winning almost 800000, new users in one day.

Khozema Z. Shipchandler: And fraud guard not only help save the company one hundreds of thousands of dollars, but it ensured new users received secure authentication.

Khozema Z. Shipchandler: Now turning to our Twilio segment business for Q1 segment revenue was $75 million up 2% year over year.

Khozema Z. Shipchandler: It was a challenging quarter, but we came out of our segment operational review in March with greater clarity around a short list of priorities that we believe will address the underperformance of segment.

Khozema Z. Shipchandler: We will continue to focus on rationalizing our investments to right-size our segments cost base, accelerating time to value for customers by using AI to automate onboarding and enhancing data warehouse interoperability, delivering three products in 2024 that natively embed segmentation into communications, and capitalizing on customer AI momentum. In the month following the review, we've already made meaningful progress against all of these areas, and we believe that we have the right set of plans in place to turn this business around, address churn and contraction, and improve its financial performance.

Khozema Z. Shipchandler: We will continue to focus on rationalizing our investments to right size segments cost base.

Khozema Z. Shipchandler: Accelerating time to value for customers by using AI to automate onboarding and enhancing data warehouse interoperability delivering three products in 2024 that natively embed segment, and the communications and capitalizing on customer AI momentum.

Khozema Z. Shipchandler: In the month following the review we've already made meaningful progress against all of these areas and we believe that we have the right set of plans in place to turn this business around addressed churning contraction and improve its financial performance.

Khozema Z. Shipchandler: We are also committed to getting Segment to breakeven on a non-GAAP operating income basis by Q2 2025. During the quarter, we deepened our partnerships with Databricks and Snowflake. With Databricks, we launched a new bi-directional integration that allows customers to seamlessly ingest and activate data.

Khozema Z. Shipchandler: We are also committed to getting segment to breakeven on a non-GAAP operating income basis by Q2 2025.

Khozema Z. Shipchandler: During the quarter, we deepened our partnerships with data bricks and snowflake.

Khozema Z. Shipchandler: With data bricks, we launched a new bidirectional integration that allows customers to seamlessly ingest and activate data.

Khozema Z. Shipchandler: We are on track to deliver further enhancements to our data warehouse interoperability offerings across partners in Q2. And, as mentioned earlier, we delivered focused product innovation like agent copilot that demonstrates segment value when it's natively embedded into communications. Customer AI Predictions is continuing to get adopted by new customers.

Khozema Z. Shipchandler: We are on track to deliver further enhancements to our data warehouse interoperability offerings across partners in Q2.

Khozema Z. Shipchandler: And as mentioned earlier, we delivered focused product innovation like agent co pilot that demonstrates segment's value when it's natively embedded into communications.

Khozema Z. Shipchandler: And since it's GA in Q3 2023, more customers are realizing the benefits and positive material impact on their businesses. For instance, XP Inc., a Brazilian investment management company, said that since implementing customer AI predictions and by using our out-of-the-box tools, they've been able to save their team four weeks of data science work and improve audience engagement and conversion rates. Looking ahead to Q2, we'll bring our second product that natively embeds segment data into communications into beta, which further demonstrates the value we can deliver to our customers by combining segment data with our communications product.

Khozema Z. Shipchandler: Customer AI predictions is continuing to get adopted by new customers and since it's GAA in Q3 2023 more customers are realizing the benefits and positive material impact to their businesses.

Khozema Z. Shipchandler: For instance, XP, Inc. A Brazilian investment management company said that since implementing customer AI predictions and by using our out of the box tools.

Khozema Z. Shipchandler: <unk> been able to save their team four weeks of data science work and improved audience engagement and conversion rates.

Khozema Z. Shipchandler: Looking ahead to Q2, we will bring our second product that natively embedded segment into communications into beta, which further demonstrates the value we can deliver to our customers by combining segment data with our communications products.

Khozema Z. Shipchandler: Before turning things over to Aidan, I want to take a moment to welcome the new leaders that have joined my management team. During the quarter, we welcomed Inbal Shani as our Chief Product Officer for Twilio Communications and Thomas Wyatt as our President of Segment.

Khozema Z. Shipchandler: Before turning things over to Aidan.

Khozema Z. Shipchandler: Want to take a moment to welcome the new leaders that have joined my management team during the quarter, we welcomed in ball shiny as our chief product officer for Twilio Communications, and Thomas Wyatt as our president of segment.

Khozema Z. Shipchandler: And yesterday, Chris Keller joined as our Chief Marketing Officer. We've also taken a thoughtful approach to evolving our governance practices. First, we welcome Andy Staffman, a partner at Sachem Head Capital Management, to Twilio's Board of Directors.

Khozema Z. Shipchandler: And yesterday, Kris Keller joined as our Chief marketing Officer.

Khozema Z. Shipchandler: We've also taken a thoughtful approach to evolving our governance practices.

Khozema Z. Shipchandler: We welcomed Andy staff men, a partner at <unk> capital management to Twilio as board of directors and.

Khozema Z. Shipchandler: And second, we announced in early April that we plan to hold an Investor Day within the next 12 months, at which time we'll share an updated medium-term financial framework and set of targets. And finally, we recently submitted a proposal for the declassification of our board, which will be voted upon at our annual shareholder meeting in June. In summary, we're making a lot of progress in a very short period of time, and we're continuing to drive significant change. We're maturing as a company and as a team. We're making deliberate decisions with discipline, rigor, and focus to deliver attractive levels of growth and profitability over the medium term.

Khozema Z. Shipchandler: And second we announced in early April that we plan to hold an investor day within the next 12 months at which time, we will share an updated medium term financial framework and set of targets.

Khozema Z. Shipchandler: And finally, we recently submitted a proposal for the declassification of our board, which will be voted upon at our annual shareholder meeting in June.

Khozema Z. Shipchandler: In summary, we're making a lot of progress in a very short period of time, and we're continuing to drive significant change.

Khozema Z. Shipchandler: We're maturing as a company and as a team we're making deliberate.

Khozema Z. Shipchandler: Deliberate decisions with discipline, and rigor and focus to deliver attractive levels of growth and profitability over the medium term.

Khozema Z. Shipchandler: Well, we've started to see positive impacts from some of these changes and our recent financial results. Others will take longer to bear fruit, but we are confident that the opportunities we pursue will create meaningful value for all of our stakeholders and allow us to deliver on our commitment to drive durable, profitable growth over the long term. And with that, I'll turn it over to Aidan. Thank you, Khozema.

Khozema Z. Shipchandler: While we have started to see positive impacts from some of these changes in our recent financial results.

Khozema Z. Shipchandler: <unk> will take longer to bear fruit, but.

Aidan: But we are confident that the opportunities we pursue will create meaningful value for all of our stakeholders and allow us to deliver on our commitment to drive durable profitable growth over the long term and.

Aidan: And with that I'll turn it over to <unk>.

Aidan Viggiano: In Q1, we exceeded our guidance on both revenue and non-GAAP income from operations and delivered our fourth consecutive quarter of solid free cash flow generation. Q1 revenue was $1.047 billion, up 4% reported and 7% organically year-over-year. Communications revenue was $972 million, up 4% reported and 7% organically year-over-year.

Aidan: Thank you.

Aidan: In Q1, we exceeded our guidance.

Aidan Viggiano: And non-GAAP income from operations and delivered our fourth consecutive quarter of solid free cash flow generation.

Aidan Viggiano: Q1 revenue was $1 7 billion up 4% reported and 7% organically year over year communications revenue with $972 million up 4% reported and 7% organically year over year.

Aidan Viggiano: And segment revenue was $75 million, up 2% year over year. Our Q1 revenue growth was impacted by the crypto headwinds that we've referenced the past several quarters, as well as the sunsetting of the software component of our Zipwit business that we discussed during our Q4 2023 earnings call. These represented a combined 210 basis point headwind to our organic resume growth in Q1. Excluding these items, Consolidated Q1 Organic Revenue Growth was 9%, and Communications Organic Revenue Growth was 10% year-over-year.

Aidan Viggiano: And segment revenue was $75 million up 2% year over year.

Aidan Viggiano: Our Q1 revenue growth was impacted by the crypto headwind that we've referenced in the past several quarters as well as the sunsetting of the software component of our business that we discussed during our Q4 2023 earnings call.

Aidan Viggiano: These represented a combined 210 basis point headwind to our organic revenue growth in Q1.

Aidan Viggiano: Excluding these items consolidated Q1 organic revenue growth was 9% and communications organic revenue growth was 10% year over year.

Aidan Viggiano: We have now lapped the crypto headwinds and do not expect a material negative impact on revenue growth from these customers moving forward. We continue to expect modest headwinds throughout 2024 from sunsetting the software component of our Ziploc business, which we estimate to be roughly 100 basis points in Q2 and 80 basis points for the whole year. We also previously announced the sunsetting of our video product. However, based on customer feedback, we've extended the transition support timeline through 2026. As a result, we no longer expect any notable headwinds from video in 2024.

Aidan Viggiano: We have now lapped the crypto headwind and do not expect a material negative impact to revenue growth from these customers moving forward.

Aidan Viggiano: To expect modest headwinds throughout 2024 from sunsetting, the software component of our Zip.

Aidan Viggiano: Which we estimate to be roughly 100 basis points in Q2, and 80 basis points for the whole year.

Aidan Viggiano: We also previously announced the sunsetting of our video product however, based on customer feedback you've extended the transition support timeline through 2026.

Aidan Viggiano: As a result, we no longer expect notable headwinds from video in 2024.

Aidan Viggiano: In Q1, our dollar-based net expansion rate was 102 percent. Our dollar-based net expansion rate for communications was 103%, a modest improvement quarter over quarter. Our dollar-based net expansion for communications was 105%, excluding crypto and Zip Zipwik software customers. Our dollar-based net expansion rate per segment was 92%, driven primarily by elevated churn and contraction. As discussed during our operational review in early March, we are focused on improving customer time-to-value, and we're also investing in data warehouse interoperability, both of which we believe will improve segments' churn and contraction over time.

Aidan Viggiano: Our Q1 dollar based net expansion rate was 102%.

Aidan Viggiano: Our dollar based net expansion rate for communication by the 103%.

Aidan Viggiano: Modest improvement quarter over quarter.

Aidan Viggiano: Our dollar based net expansion for communications was 105%, excluding quick doubt and software customers.

Aidan Viggiano: Our dollar based net expansion rate per segment was 92% driven primarily by elevated churn and contraction as.

Aidan Viggiano: As discussed during our operational review in early March we are focused on improving customer tied to value and we're also investing in data warehouse interoperability both of which we believe will improve segments churning contraction over time.

Aidan Viggiano: We delivered a record non-GAAP gross profit of $566 million, up 8% year-over-year. This represented a non-GAAP gross margin of 54.1%. This was up 180 basis points year over year and 170 basis points quarter over quarter. The margin improvement quarter-over-quarter was primarily driven by lower international messaging mix and lower hosting fees as a result of larger credits on our cloud spend, which benefited both communications and stagnant gross margins. As a reminder, we continue to manage the business towards gross profit dollar growth. Q1 non-GAAP gross margins for our communications and segment business units were 52.2% and 77.6%, respectively.

Aidan Viggiano: We delivered record non-GAAP gross profit of $566 million up 8% year over year.

Aidan Viggiano: This represented a non-GAAP gross margin of 54, 1%.

Aidan Viggiano: This was up 180 basis points year over year, and 170 basis points quarter over quarter.

Aidan Viggiano: The margin improvement quarter over quarter was primarily driven by lower international messaging deck.

Aidan Viggiano: Lower hosting fees as a result of larger credits on our cloud spend which benefited both communications and segment gross margins.

Aidan Viggiano: As a reminder, we continue to manage the business towards gross profit dollar growth.

Aidan Viggiano: Q1, non-GAAP gross margins for our communications segment business units were 52, 2% and 77, 6% respectively.

Aidan Viggiano: As a reminder, we are migrating part of the segments architecture to new infrastructure providers this year to recognize greater, During this transition, we will incur some overlapping vendor expenses. As a result, we expect Segment's gross margin rate to decline throughout the year until the migration is completed. Q1 non-gas income from operations was $160 million, up 54% year-over-year.

Aidan Viggiano: As a reminder, we are migrating our segments architecture to new infrastructure providers this year to recognize greater efficiencies.

Aidan Viggiano: During this transition we will incur some overlapping vendor expenses as.

Aidan Viggiano: As a result, we expect segment gross margin rate to decline throughout the year until the migration is complete.

Aidan Viggiano: Q1, non-GAAP income from operations was $160 million up 54% year over year.

Aidan Viggiano: As we mentioned last quarter, this included $19 million of sequential incremental expenses associated with our new employee cash bonus program, which we initiated to reduce stock-based compensation expenses over time. Our Q1 non-GAAP operating margin of 15.2% was up almost 500 basis points year-over-year and down 80 basis points versus the prior quarter, driven by a 180 basis point impact from the new employee cash bonus program. Q1 non-GAAP income from operations for our communications business was $249 million, and the Q1 non-GAAP loss from operations for our segment business unit was $21 million. Q1 gap loss from operations was $44 million, which included $10 million of expenses associated with restructuring charges.

Aidan Viggiano: As we mentioned last quarter. This included $19 million of sequential incremental expenses associated with our new employee cash bonus program, which we initiated to reduce stock based compensation expense over time.

Aidan Viggiano: Our Q1 non-GAAP operating margin of 15, 2% was up almost 500 basis points year over year and down 80 basis points.

Aidan Viggiano: Versus the prior quarter, driven by a 180 basis point impact from the new employee cash bonus program.

Aidan Viggiano: Q1, non-GAAP income from operations for our communications business with $249 million and the Q1 non-GAAP loss from operations of our segment business units was $21 million.

Aidan Viggiano: Q1, GAAP loss from operations was 44 million, which included $10 million of expenses associated with restructuring charges.

Aidan Viggiano: Stock-based compensation as a percentage of revenue was 14.9% in Q1, excluding approximately $2 million of restructuring costs, down 40 basis points quarter over quarter and 100 basis points year over year. We generated free cash flow of $177 million in Q1, inclusive of $23 million of restructuring payments. This is up $292 million year-over-year, and over the last 12 months, we've generated free cash flow of $655 million. I'm really pleased with our continued progress on free cash flow.

Aidan Viggiano: Stock based compensation as a percentage of revenue was 14, 9% in Q1, excluding approximately $2 million of restructuring costs down 40 basis points quarter over quarter, and 100 basis points year over year.

Aidan Viggiano: We generated free cash flow of $177 million in Q1 inclusive of $23 million of restructuring payments.

Aidan Viggiano: This is up $292 million year over year and over the last 12 months, we generated free cash flow of $655 million.

Aidan Viggiano: I'm really pleased with our continued progress on free cash flow, it's been a key area of focus for the team over the last several quarters.

Aidan Viggiano: It's been a key area of focus for the team over the last several quarters and reflects our ongoing work to drive efficiency in the business. As a reminder, in March, we provided fiscal year 2024 targets of 5 to 10% organic revenue growth and $550 million to $600 million of non-GAAP income from operations, inclusive of an estimated $90 million of incremental expenses associated with a new employee cash bonus program that was introduced to reduce stock-based compensation expenses over time. And as Khozema mentioned, we accelerated our target for GAP operating profitability from fiscal year 2027 to Q4 2025.

Aidan Viggiano: And reflects our ongoing work to drive efficiency in the business.

Aidan Viggiano: As a reminder, in March we provided fiscal year 2024 target of 5% to 10% organic revenue growth and $550 million to $600 million of non-GAAP income from operations inclusive of an estimated $90 million of incremental expenses associated with our new employee cash bonus.

Aidan Viggiano: Program that was introduced to reduce stock based compensation expenses over time.

Aidan Viggiano: And as Damon mentioned, we accelerated our target for GAAP operating profitability for fiscal year 2027 for Q4 2025.

Aidan Viggiano: We also committed to driving the segment to break even on a non-gap income from operations basis by Q2 2025. Finally, we're continuing to make good progress on our $3 billion share buyback program, having repurchased over $720 million since our last earnings call in February. This brings our total repurchases today to approximately $1.5 billion.

Aidan Viggiano: We also committed to driving segment to breakeven on a non-GAAP income from operations basis by Q2 2025.

Aidan Viggiano: Finally, we're continuing to make good progress on our $3 billion share buyback program, having repurchased over $720 million since our last earnings call in February.

Aidan Viggiano: This brings our total repurchases to date to approximately $1 5 billion.

Aidan Viggiano: We intend to complete the remaining $1 5 billion of authorized repurchases by year yen, which has meaningfully reduced our outstanding share count over the next few quarters.

Aidan Viggiano: We intend to complete the remaining $1.5 billion of authorized repurchases by year's end, which should meaningfully reduce our outstanding share count over the next few quarters. Moving on to guidance. For Q2, we're initiating a revenue target of $1.05 billion to $1.06 billion, representing year-over-year growth of 1% to 2% on a reported basis and 4% to 5% on an organic basis. We're also reiterating our full year organic revenue growth range of 5 to 10%. Turning to our profit outlook, for Q2, we expect non-GAAP income from operations of $135 million to $145 million.

Aidan Viggiano: Moving to guidance for Q2 were initiating a revenue target of $1 <unk> 5 billion to $1 <unk> 6 billion, representing year over year growth of 1% to 2% on a reported basis and 4% to 5% on an organic basis.

Aidan Viggiano: We're also reiterating our full year organic revenue growth range of 5% to 10%.

Aidan Viggiano: Turning to our profit outlook for Q2, we expect non-GAAP income from operations of $135 million $145 million.

Aidan Viggiano: This is down sequentially primarily due to incremental payroll expenses associated with our standard barrier increases that go into effect in Q2, consistent with prior years, as well as increased marketing and travel expenditures. However, given our outperformance in Q1, we're raising our full year non-GAAP income from operations guidance to $585 million to $635 million. Additionally, we are continuing to focus on improving our free cash flow profile, and we anticipate that full-year free cash flow generation will be in line with our full-year non-GAAP income from operations.

Aidan Viggiano: This is down sequentially, primarily due to incremental payroll expenses associated with our standard merit increases that go into effect in Q2, consistent with prior years as well as increased marketing and travel expenditures.

Aidan Viggiano: However, given our outperformance in Q1, we're raising our full year non-GAAP income from operations guidance to $585 billion to $635 million.

Aidan Viggiano: Additionally, we are continuing to focus on improving our free cash flow profile and we anticipate that full year free cash flow generation will be in line with our full year non-GAAP income from operations.

Aidan Viggiano: As we look ahead, we're investing in initiatives to reaccelerate growth. At the same time, we've accelerated our path to gap profitability, we're generating significant cash flow, and we have a Shared Buyback Program. I'm excited to continue to build on the progress we've made to deliver improved outcomes for both our customers and our shareholders over the coming quarter. And with that, we'll now open it up to questions. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our first question comes from the line of Jim Fish with PS. Hey, guys, this is Quinton on for Jim Fish.

Aidan Viggiano: As we look ahead, we are investing in initiatives to reaccelerate growth.

Aidan Viggiano: At the same time, we've accelerated our path to GAAP profitability, we're generating significant free cash flow and.

Quinton: The share buyback program.

Aidan Viggiano: I'm excited to continue to build on the progress we've made to deliver improved outcomes for both our customers and our shareholders over the coming quarters.

Speaker Change: And with that I will.

Quinton: I'll now open it up to questions.

Quinton: Thank you.

Quinton: As a reminder to ask a question. Please press star one one on your telephone.

Quinton: And week for your name to be announced to withdraw your question. Please press star one again.

Quinton: Our first question comes from the line of Jim Fish with PSC.

Aidan Viggiano: Okay.

Quinton: Thanks for taking our question. Maybe first, you know, how are you looking at kind of the bifurcation between budgets or demand strength across, you know, your mid market and commercial versus your more enterprise customers at this point? Is the willingness to spend, you know, very similar across those two verticals? Are you seeing significant strength or weaknesses across, you know, one or the other?

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

Quinton: Maybe first.

Quinton: How are you looking at kind of the bifurcation between budgets or demand strength across call. It mid market and commercial versus your more enterprise customers. At this point is the willingness to spend very similar across those two verticals are you seeing significant strength or weaknesses across one or the other.

Khozema Z. Shipchandler: Yeah, I would say that, in general, we're seeing demand volume kind of hang in there across the board. I think that the growth profile that we've seen with most customers continues to be pretty good. There are a couple of pockets, I'd say, especially with respect to internationally terminating traffic, where we're seeing a little bit more weakness. But I think that as you look at most of the industries that we end up serving, we are seeing year over year growth. Obviously, there's some noise in our business with respect to what we've got in terms of zip whip and the concept that it creates.

Speaker Change: Yes, I would say that.

Speaker Change: In general, we're seeing kind of demand volume kind of hanging there across the board I think that.

Khozema Z. Shipchandler: The growth profile that we've seen with most customers continues to be pretty good theres, a couple of pockets I'd say, especially with respect to internationally terminating traffic, where we're seeing a little bit more weakness.

Khozema Z. Shipchandler: But I think that as you look at most of the industries that we ended up serving we are seeing year over year growth. Obviously, there is some noise in our business with respect to what we've got in terms of ZIP with in the comp set that creates.

Khozema Z. Shipchandler: And I think in general like we've oriented our sales team around gross profit dollars as Steven mentioned in her remarks.

Khozema Z. Shipchandler: And we're trying to maintain the price discipline that we've always talked about in prior calls like these I think kind of the wrapper on the whole thing is is that we've seen volume stabilize for some period of time, we havent seen them quite inflect upwards and I'd say in particular that is a call out for for international I think on the flip side.

Khozema Z. Shipchandler: There is a number of things that we're working through.

Khozema Z. Shipchandler: Both short term and long term kind of growth initiatives and we feel pretty good about those but those are going to take some time to kind of play out I think in the short term cross sells an area that we're particularly focused as well as with Isps that should drive incremental growth over time in the meantime, we're really focused on cash flow and additional operating leverage.

Aidan Viggiano: And I think in general, like we've oriented our sales team around gross profit dollars, as Aidan mentioned in her remarks, and we're trying to maintain the price discipline that we've always talked about in prior calls like these. I think in the short term, cross sales, an area that we're particularly focused on as well as with ISPs, should drive incremental growth over time. And in the meantime, we're really focused on cash flow and additional operating leverage. Got it.

Aidan Viggiano: <unk>.

Aidan Viggiano: Yeah.

Aidan Viggiano: And then Aidan, maybe for you, gross margins here were a bright spot for sure. Can you talk about why this wouldn't be a kind of sustainable uplift, understanding, you know, some benefit from product mix? But, you know, why couldn't we see this kind of upside continue through the rest of the year? Thank you. Yeah, sure. So we saw gross margins up 170 points quarter over quarter, with both business units up as well.

Speaker Change: Got it and then maybe for you gross margins here was a bright spot for sure can you talk about why this wouldn't be a kind of a sustainable uplift understanding some benefit from product mix, but.

Aidan Viggiano: Why couldnt, we see this kind of upside continue through the rest of the year. Thank you.

Aidan Viggiano: Yes, sure. So we saw gross margins up 170 basis points quarter over quarter with both business units as well.

Aidan Viggiano: So a couple of dynamics. First, on the communication side, which is, you know, the business that carries Twilio at this point, they were up 150 points quarter over quarter. Part of that was what you said, which was the favorable mix between US and international. But, as Khozema just mentioned, we did see lower international terminating traffic.

Aidan Viggiano: So a couple of dynamics first on the communication side.

Aidan Viggiano: The business that carries Twilio at this point they were up 158 points quarter over quarter part of it was what you said, which was the favorable mix between U S and international ESCO. David Just mentioned, we did see lower international terminating traffic. So that has a benefit to gross margins because we know gross margins.

Aidan Viggiano: So that has a benefit to gross margins, because we know gross margins, as we've communicated in the past, are lower internationally than domestically. We also had, in this quarter, as I said in the prepared remarks, some benefit from credits related to hosting spend. That benefited Q1 by about 80 basis points. We don't expect that to continue.

Aidan Viggiano: Indicated in the past, but lower internationally than domestically.

Aidan Viggiano: We also had in this quarter as I said in the prepared remarks, some benefit from credits related to hosting spend that benefited Q1 by about 80 basis points. We don't expect that to continue and so I'd say the combination of those two things the hosting credits not continuing as well as the fact that mix isn't necessarily controllable by us.

Aidan Viggiano: And so I'd say the combination of those two things, the hosting credits not continuing, as well as the fact that this mix isn't necessarily controllable by us, is kind of how I think about gross margins going forward. Thank you.

Aidan Viggiano: Is kind of how I think about gross margins going forward.

Aidan Viggiano: Yeah.

Speaker Change: Thank you.

Speaker Change: Please for our next question.

Mark Murphy: And our next question comes from the line of Mark Murph... J.P. Morgan. Oh, thank you very much. Khozema, prior to the business review, our sense was that the Segment business could preserve some of the AI optionality because you can combine that with comms, as you mentioned, and then the broader customer AI vision, just recognizing it's sluggish overall in that business. Is Segment seeing some usage for pulling customer data into LLMs?

Aidan Viggiano: And our next question comes from the line of Mark Murphy with JP Morgan.

Mark Murphy: And I'm also wondering about that, because you did mention Databricks connectivity, and I was just trying to understand what kind of projects those are and if you're seeing more of that in the pipeline. And I do have a very quick follow-up. Yeah, good question, Mark.

Speaker Change: Alright, Thank you very much.

Mark Murphy: Because I was thinking back prior to the business review our census at the segments.

Speaker Change: Business could preserve some of the AI optionality because you can you can combine that with com you mentioned to them.

Mark Murphy: The broader customer AI vision, just recognizing it's sluggish overall in that business is segment seeing some usage for.

Speaker Change: Pulling customer data into Llm's and and I'm also wondering about that because you did mentioned the data bricks.

Mark Murphy: Activity.

Speaker Change: Just trying to understand what kind of projects those are and if you're seeing more of that in the pipeline and then do you have a very quick follow up.

Khozema Z. Shipchandler: So there's, there's kind of two dynamics there. So I think the first is that with respect to segment specifically, one of the things that we committed to as part of the operating review was to make sure that we were able to combine some of the data elements of segment with the communications capabilities that we have. We launched that product. It's called the Agent Co-Pilot.

Speaker Change: Yes. Good question marks so theres kind of two dynamics there. So I think the first is is that.

Khozema Z. Shipchandler: With respect to segment, specifically like one of the things that we committed to as part of the operating review.

Khozema Z. Shipchandler: To make sure that we were able to combine some of the data elements of segment with the communications capabilities that we have and we launched that product. It's called the agent co pilot that agent co pilot uses something that we referred to as unified profiles and so basically what that allows for.

Khozema Z. Shipchandler: That Agent Co-Pilot uses something that we refer to as unified profiles. And so basically, what that allows for is the ability for an agent to be able to absorb information during the context of a call, for that data to be stored subsequently, and then for us to be able to create a flywheel so that every subsequent interaction with that consumer, and then with consumers more broadly, for one of our customers, they're able to get value out of that, fundamentally reduce costs, have a better customer experience. And that If that data is then subsequently fit back into the copilot, and then that flywheel just kind of keeps on turning.

Khozema Z. Shipchandler: As is the ability for an agent to be able to absorb information during the context of a call for that data to be stored subsequently and then for us to be able to create a flywheel. So that every subsequent interaction with that consumer and then with consumers more broadly for one of our customers they are able to get value.

Khozema Z. Shipchandler: Out of that fundamentally reduce costs have a better customer experience and that kind of creates a degenerative flywheel. If you will where segment is continually used through the unified profile. If that data is that subsequently fed back into the co pilot and then that's why I will just kind of keeps on turning and so that's how I kind of think about the op.

Khozema Z. Shipchandler: And so that's how I kind of think about the optionality with respect to segment. We committed to three products actually during the course of the year. We've delivered one, and we kind of alluded to the second one being on track for the upcoming quarter. So we feel pretty good about our progress there too. And then, more broadly, like there's a number of generative AI elements, both within communications as well as across segments. And those things are happening nicely. The other part of the question that you asked about was Databricks.

Khozema Z. Shipchandler: <unk> with respect to segment, we committed to three products actually during the course of the year. We've delivered one we kind of alluded to the second one being on track for the upcoming quarters. So we feel pretty good about our progress there too and then I think more broadly like Theres, a number of generative AI elements, both within communications as well as.

Khozema Z. Shipchandler: Segment, and those things are happening nicely the.

Khozema Z. Shipchandler: The other part of the question that you asked about was Dana Brixton.

Khozema Z. Shipchandler: And, you know, with Databricks and Snowflake, actually, one of the priorities that we also laid out as part of the operating review was to establish greater data warehouse interoperability. With those folks, as well as the other big data warehouse players that are out in the market, and so the way that you should think about some of the announcements that we made as part of the release today is that, Fulfilling on that exact same roadmap that we articulated about a month and a half ago, we're making the progress that we intended to make. We're starting to see traction with those two players in particular. You asked about Databricks.

Khozema Z. Shipchandler: With the <unk> like actually one of the priorities that we also laid out as part of the operating review was to establish greater data warehouse interoperability.

Khozema Z. Shipchandler: When those folks as well as the other big data warehouse players that are out in the market and so the way that you should think about some of the announcements that we made as part of the release today is that.

Khozema Z. Shipchandler: Fulfilling on that exact same roadmap that we articulated about a month and a half ago, we're making the progress that we intended to make we're starting to see traction with those two players in particular, you asked about data bricks that allows us to basically seamlessly.

Khozema Z. Shipchandler: That allows us to basically seamlessly offer data back and forth on behalf of our customers who may be already Databricks users. And so we think that that's additive, not just to Segment but increasingly to the entire enterprise as we leverage the combined capabilities of Segment. Okay, that's very clear and compelling. I think I'm going to hold off on my other question and try to preserve some time for others. So, thank you, and we'll talk soon.

Speaker Change: If our data back and forth on behalf of our customers, who may be already data breaks to users and so we think that thats additive not segment, but increasingly to the entire enterprise as we leverage the combined capabilities of segment communications.

Khozema Z. Shipchandler: Okay, that's very clear and compete.

Speaker Change: Compelling I think are going to hold off on my other question and try to.

Speaker Change: Preserve some time for others.

Speaker Change: Thank you and talk soon.

Speaker Change: Okay. Thanks.

Mark Murphy: Thank you. One moment, please, for our next question. Our next question comes from the line of Meta Marshall with Morgan Stanley. Great, thanks.

Speaker Change: Thank you.

Speaker Change: I'm pleased for our next question.

Mark Murphy: Our next question comes from the line of meta Marshall with Morgan Stanley.

Meta A. Marshall: Maybe following up on segment, you know, understanding kind of the product rollouts that are happening, but maybe just, you know, we're about 60 days in to new leadership there. Any thoughts on new leadership as they've gotten in and how to improve the go-to-market there? That'd be helpful. Thanks. Yeah, good question, Meta.

Meta A. Marshall: Great. Thanks.

Meta A. Marshall: Following up on segment.

Meta A. Marshall:

Speaker Change: Understanding kind of the product rollouts that are happening, but maybe it does and it we're about 60 days and to new leadership, there just any thoughts of new leadership as they've gotten and then how to improve the go to market there that'd be helpful. Thanks.

Khozema Z. Shipchandler: So I'll just kind of answer your question more generally. And then I think more specifically about Thomas, and I think the leadership that he's brought. So I think, in terms of the business, we've started to take steps in terms of our path towards, you know, the non-gap operating profit target that we established for Q225, and we feel like we're on track for that. We're making good progress, but that path isn't necessarily going to be linear.

meta: Yes, good question Peter.

Speaker Change: Just kind of answer your question more generally and then I think more specifically about Thomas and I think leadership to east broad so I.

Khozema Z. Shipchandler: I think in terms of the business, we have started to take steps in terms of our path towards.

Khozema Z. Shipchandler: The non-GAAP operating profit target that we established for 2025, and we feel like we're on track for that and we're making good progress that path is necessarily going to be linear.

Khozema Z. Shipchandler: And while we're seeing.

Khozema Z. Shipchandler: And, you know, while we're seeing good progress in terms of bookings, you know, that's going to take some time to kind of catch up and ultimately show up in the revenue line. And so there's sort of some dynamics there.

Khozema Z. Shipchandler: Good progress in terms of bookings that's going to take some time to kind of catch up and ultimately show up in the revenue line and so theres like started some dynamics there in the meantime, we're going to control our costs and be very focused about the.

Khozema Z. Shipchandler: R&D areas of prioritization in terms of go to market Thomas.

Khozema Z. Shipchandler: We are starting to see some green shoots.

Khozema Z. Shipchandler: There's a couple of customers that we referenced in our talk track I think we're very excited about the nature of those customers what they do our ability to grow with them I think in particular, what we're very excited about is our ability to deliver time to value for those customers significantly faster than I think.

Khozema Z. Shipchandler: In the meantime, we're going to control our costs and be very focused on the R&D areas of prioritization. In terms of going to market, before I get to Thomas, we are starting to see some green shoots. You know, there's a couple customers that we referenced in our talk track. I think we're very excited about the nature of those customers, what they do, our ability to grow with them. I think, in particular, what we're very excited about is our ability to deliver time to value for those customers significantly faster than I think where we've been historically.

Khozema Z. Shipchandler: Where we've been historically.

Khozema Z. Shipchandler: In the past that have taken us up to six months in some cases to be able to get to value initially and I think we're starting to see some.

Khozema Z. Shipchandler: Several instances actually where we've been able to achieve that as fast as 30 days.

Khozema Z. Shipchandler: Thomas has been an Awesome addition to the leadership team quite frankly.

Khozema Z. Shipchandler: I think in the past, it took us up to six months, in some cases, to be able to get to value initially. And I think we're starting to see some in several instances, actually, where we've been able to achieve that in as fast as 30 days. I think Thomas has been an awesome addition to the leadership team.

Khozema Z. Shipchandler: With respect to all of our leaders they feel very very strong about our leadership bench overall.

Khozema Z. Shipchandler: But in terms of Thomas specifically, given his deep knowledge of the product just given his background where.

Khozema Z. Shipchandler: He focused both on sort of product as well as marketing, which is useful because the marketer often tends to be the buyer and some of these instances I think thats been a real accelerant in terms of the progress that we expect and I think just in general it's provided some stability and focus which is also something that we're very geared towards with respect to segment.

Khozema Z. Shipchandler: Quite frankly, with respect to all of our leaders, I feel very, very strong about our leadership bench overall. But in terms of Thomas, specifically, given his deep knowledge of the product, just given his background where he focused both on the product as well as marketing, which is useful because the marketer often tends to be the buyer in some of these instances. I think that's been a real accelerant in terms of the progress that we expect. And I think, just in general, it's provided some stability and focus, which is also something that we're very geared towards with respect to second. Thanks so much. I'll pass it on.

Speaker Change: Great. Thanks, so much I'll pass it on.

Khozema Z. Shipchandler: Thanks.

Speaker Change: Thank you <unk>.

Speaker Change: Please for our next question.

Meta A. Marshall: Thank you. A moment, please, for our next question. Our next question comes from the line of Taylor McGinnis with UBS, a bit more color on what's driving the slower organic growth guide of 4% to 5% in 2Q. So it looks like crypto revenue in 1Q is actually higher than 4Q. So combined with, you know, some of the other headwinds we might be experiencing, you would think that that would lead to accelerating growth. So can you just maybe comment on why that might not be materializing?

Khozema Z. Shipchandler: And our next question comes from the line of Taylor Maginnis with UBS.

Taylor Anne McGinnis: Yeah, Hi, thanks, so much for taking my question I am hoping that you could provide a little bit more color on what's driving the slower organic growth guide.

Meta A. Marshall: 4% to 5% and QQ. So it looks like crypto revenue in <unk> is actually higher than <unk>.

Taylor Anne McGinnis: That combined with some of the other headwinds that you might be lapping you would think that that would lead to accelerating growth. So can you just maybe comment on why that may not be materializing and startup QQ has there been any deterioration in the macro or anything in the demand environment that might be driving some of that thank you. So much.

Taylor Anne McGinnis: And at the start of 2Q, has there been any deterioration in the so much? So a couple of things to call out. So we have largely left crypto at this point; we don't expect it to be a headwind in Q2. We do have some product-specific dynamics that we've called out before. So as we've said, so first segment revenue of 2% in Q1 from a growth perspective, we expect it to be muted for the. As Khozema said, we're working on a number of different initiatives there, but they'll take time to kind of show up in our financial... We also have some noise from the end-of-life of our ZipWhip software product, which will be a headwind to growth. It will be about 100 basis points of a headwind in Q2, and roughly 80 basis points for the year.

Taylor Anne McGinnis: Yeah, I'll start Taylor wants to add Chad. So a couple of things to call out. So we have largely locked at this point, we don't expect it to be a headwind in Q2.

Taylor Anne McGinnis: We do have some product specific dynamics that we've called out before so as we said so first segments revenue with 2% in Q1 from a growth perspective, we expect it to be muted for the year.

Taylor Anne McGinnis: As the Zama said, we're working on a number of different initiatives here, but they'll take time to kind of show up in our financial results.

Taylor Anne McGinnis: We also have some noise from the end of life of our <unk> software product that will be a headwind to growth will be about 100 basis points of a headwind in Q2, roughly 80 basis points for the year and then I would just say more broadly.

Aidan Viggiano: And then I can say more broadly, you know, we've continued to see volumes stabilize, as Khozema mentioned, in our communications business. And we are seeing year-over-year growth in most of the industries that we operate in, but we're not yet seeing total volumes kind of inflect or growth reaccelerate. And I'd say that trend is more evident with our internationally terminating traffic. So we've seen lower internationally terminating traffic volumes, which is reflected in. We're really reorienting the teams around gross profit, and we're maintaining price discipline as we pursue certain international markets, and so we saw gross profits grow by 10%. We think that's the right way to run the business, but we are seeing lower traffic there.

Aidan Viggiano: Continue to continue to see volumes stabilize as Damon mentioned in our communications business and we are seeing year over year growth in most of the industries that we operate in but we're not yet seeing total volumes kind of inflect or growth Reaccelerate and I'd say that trend is more evidenced with our internationally terminating traffic we've seen lower <unk>.

Aidan Viggiano: Internationally.

Aidan Viggiano: Joining traffic volumes, which is reflected in <unk>.

Aidan Viggiano: Kind of what we talked about with gross margins being a little bit higher as I mentioned earlier.

Aidan Viggiano: We're really reorienting the teams around gross profit and we're maintaining price discipline as we pursue certain international markets and so we saw gross profit to grow by 10%, we think thats the right way to run the business, but we are seeing lower traffic. There. So that's having a bit of an impact.

Aidan Viggiano: But we're not standing still it because as I mentioned, we have a number of short and long term growth initiatives underway I'm not going to reiterate all of the.

Aidan Viggiano: Actions and the opportunities that he has talked about the last thing I'll say is that regardless of where we are in the growth range. We're going to continue to deliver the profits cash flow. We've proven over the last year that we can drive significant profitability and cash generation in this business and while we're working through Reaccelerate growth, we're confident in our ability to get their profit.

Aidan Viggiano: Cash as evidenced by the.

Aidan Viggiano: And congrats what guidance that we gave on total year free cash flow today.

Aidan Viggiano: So that's having a bit of an impact, but we're not standing still. So we're going to keep on with total year free cash flow today. And I'd say we're also willing to be opportunistic and repurchase our shares when we believe they're undervalued. Great. Thanks so much.

Aidan Viggiano: And I'd say, we're also willing to be opportunistic in repurchasing our shares.

Aidan Viggiano: When we believe they are undervalued.

Speaker Change: Great. Thanks, so much.

Speaker Change: Thank you.

Speaker Change: <unk> for our next question.

Taylor Anne McGinnis: Thank you. One moment, please, for our next question. Our next question comes from the line of Aleksandr Zukin with Wolf Research. Yeah, hey guys, thanks for taking the question. I guess maybe any kind of changes in the competitive environment internationally and then domestically, again, sounds like stabilization and messaging volume. Or is that more of a mixed shift towards SMS and personalized messaging? Is it branded calling? Curious what's helping kind of drive that NRR stabilization?

Aidan Viggiano: Our next question comes from the line of Alex Zukin with Wolfe Research.

Aleksandr J. Zukin: Yeah, Hey, guys. Thanks for taking my question I guess, maybe.

Taylor Anne McGinnis: That changes in the competitive environment.

Aleksandr J. Zukin: Nationally and then domestically again, it sounds like the stabilization and messaging volumes is that more of a mix shift towards SMS and personalized messaging as a branded call and curious, what's helping kind of drive that enter our stabilization.

Taylor Anne McGinnis: And then just a football.

Aleksandr J. Zukin: And then just a quick follow-up. Alex, I'm just going to repeat the question back to you because we had a little bit of difficulty hearing you. So the way that I heard you ask it was whether or not we were seeing any changes in the competitive environment, or domestically, that it sounds like to you that there was stabilization of messaging volume. And then, is there more of a makeshift towards SMS, personalized messaging, basically what's kind of driving NRR stabilization? Did we hear the question right? Yes, you did.

Speaker Change: Yeah, Alex I am just going to repeat back the question because we had a little bit of difficulty hearing you. So the way that I heard you ask it was whether or not we were seeing any changes in the competitive environment.

Aleksandr J. Zukin: International.

Aleksandr J. Zukin: Or domestically.

Alex: It sounds like to you that there were as stabilization and messaging volumes and then is there more of a mix shift towards SMS precise messaging basically what's kind of driving at.

Speaker Change: Our stabilization we hear the question right.

Speaker Change: Yes, you bet.

Operator: Okay, so in terms of the competitive environment, maybe stick with that one first. I wouldn't say that we've seen any real changes there. I think that, as Aidan alluded to in her prior answer, we have seen a little bit of softness in terms of internationally terminating traffic. But, from our perspective, we always want to maintain price discipline in the way that we think about those markets. And so that's kind of what we've seen.

Alex: Okay. Thanks, so in terms of the competitive environment, maybe just pick that one first I wouldn't say that we've seen any real changes there I think that as <unk> alluded to in her prior answer.

Operator: We have seen a little bit of softness in terms of internationally terminating traffic I think from our perspective like we always want to maintain price discipline about the way that we think about those markets and so.

Operator: That's kind of what we have seen otherwise the volumes across the board have been more or less stable, but they haven't inflected.

Khozema Z. Shipchandler: Otherwise, volumes across the board have been more or less stable, but they haven't inflected, and I think that's kind of impacting some of the growth dynamics as we look forward. There's a bunch of new stuff in the hopper that we're kind of thinking about and executing against. It'll just take a little bit of time for that to show up in some of the growth numbers. In terms of mix, I wouldn't say that there's anything significant happening in mix other than what we've already talked about in terms of, As international weakens a little bit and you see strength in domestic, that's obviously going to have an impact on gross margins, but I think as it relates to more personalized messaging over time, I think that is certainly our expectation, especially as we pull in segment into more of our communications workloads.

Khozema Z. Shipchandler: And I think that's kind of impacting some of the growth dynamics as we look forward.

Khozema Z. Shipchandler: There is a bunch of new stuff in the hopper that we're kind of thinking about and executing against it will just take a little bit of time for that to show up in some of the growth numbers in terms of mix I wouldn't say that there is like anything significant happening in mix other than what we've already talked about in terms of.

Khozema Z. Shipchandler: International weakens, a little bit and you see strength in domestic thats, obviously going to have an impact on gross margins, but I think as it relates to more personalized messaging over time I think that is certainly our expectation, especially as we pull in segment into more of our communications workloads I think we're already starting to see.

Khozema Z. Shipchandler: I think we're already starting to see examples of that with customers wanting to deliver much more personalized communications using data. I think you'll see more of that through some of the products that we kind of called off. I think agent copilot with unified profiles is one, but voice intelligence, which we've been kind of using within the confines of voice itself, is another.

Khozema Z. Shipchandler: Examples of that with customers wanting to deliver much more personalized communications using data.

Khozema Z. Shipchandler: I think youll see more of that through some of the products that we kind of called off I think agent co pilot with.

Khozema Z. Shipchandler: Unified profiles is one but voice intelligence, which we've been kind of using within the confines of voice itself is another and I think increasingly youll start to see a lot more personalized communications I think thats the way that generative AI is really going to accelerate our business and some of the.

Khozema Z. Shipchandler: And I think increasingly you'll start to see a lot more personalized communications. I think that's the way that generative AI is really going to accelerate our business, and some of the impacts that we see with customers fundamentally to reduce costs and generate better outcomes. And then on the OPEC side, obviously, some kind of moving pieces here in Q1 and Q2. But where do we as you guys think about the kind of balance of both getting the most leverage out of the model?

Khozema Z. Shipchandler: Impacts that we see with customers fundamentally to reduce cost and generate better outcomes.

Khozema Z. Shipchandler: Yeah.

Speaker Change: Makes sense and then on the Opex side.

Khozema Z. Shipchandler: Obviously, its some kind of moving pieces here.

Khozema Z. Shipchandler: In Q1.

Khozema Z. Shipchandler: In Q2, but where do we as you guys think about.

Khozema Z. Shipchandler: Kind of a balance of both getting the most leverage out of the model and where you're actually hiring and investing incremental dollars.

Khozema Z. Shipchandler: How should we think about the hiring targets for us.

Khozema Z. Shipchandler: The next.

Khozema Z. Shipchandler: Incremental.

Khozema Z. Shipchandler: A few quarters.

Aleksandr J. Zukin: And where are you actually hiring and investing incremental dollars? How should we think about the hiring targets for kind of the next kind of incremental year or Q4? Yeah, I can kind of take the question more generally. I think that we don't feel like we have significant headcount needs right now.

Khozema Z. Shipchandler: Yes.

Khozema Z. Shipchandler: I think your question more generally I think that we don't feel like we have significant head count needs right. Now I mean, obviously, we've got to kind of the normal process of back filling and stuff like that but we're not looking to do any material adds I would say that.

Khozema Z. Shipchandler: I mean, obviously, we go through kind of the normal process of backfilling and stuff like that, but we're not looking to do any material ads. I'd say that our priorities right now have been around R&D and just kind of replenishing the pipeline there. We have a number of really focused projects in both communications and segments that we do expect to bear fruit over sort of the medium to long term. And I think that over time, this will start to show up in some of the growth numbers.

Khozema Z. Shipchandler: Our priorities right now have been around R&D. It just kind of replenishing the pipeline. There we have a number of really focused projects in both communications and segment that we do expect to bear fruit over the medium to long term and I think that over time. This will start to show up in some of the growth numbers I think other than that.

Khozema Z. Shipchandler: I think other than that, I wouldn't really expect anything around OPEX other than what we've called out in the past, which is, you know, we've got this bonus program that we've obviously rolled out across the business. That's kind of a near-term impact on OPEX, but I think you understand the dynamics there and the way that that impacts stock-based compensation over time.

Khozema Z. Shipchandler: That I wouldn't really expect anything around opex other than what we've called out in the past, which is we've got this bonus program that we've obviously rolled out across the business that's kind of a near term impact on opex, but I think you understand the dynamics, there and the way that that impacts stock based compensation overtime, but otherwise I think we feel.

Khozema Z. Shipchandler: But otherwise, I think we feel pretty good with the cost base that we've already got. And I think just one last thing, maybe I'll add is that we still see opportunity in terms of, like, geo-diversification of the roles that we're hiring. And then I think the last one is, like, automation, right?

Khozema Z. Shipchandler: Pretty good and with the cost basis that we've already got and I think just one last thing maybe I'll add as well.

Khozema Z. Shipchandler: We still see.

Khozema Z. Shipchandler: Opportunity in terms of like Geo diversification of of the rules that were hiring and then I think the last one is like automation right. We're obviously doing a lot with automation for customers and we would expect that a lot of those same workloads that we're offering externally should have positive benefits that accrued.

Khozema Z. Shipchandler: We're obviously doing a lot with automation for customers, and we would expect that a lot of those same workloads that we're offering externally should have positive benefits for the crew at Twilio as well. Perfect. Very safe.

Khozema Z. Shipchandler: <unk> as well.

Speaker Change: Perfect very clear thank you guys.

Khozema Z. Shipchandler: Thanks.

Aleksandr J. Zukin: Thank you, guys. Thank you. One moment, please, for our next question. And our next question comes from the line of Ryan Koontz with Needham & Company. Thanks for the question.

Speaker Change: Thank you one moment please.

Speaker Change: Please for our next question.

Ryan Boyer Koontz: I wanted to follow up if I could on Aleks' last question there about the competitive dynamic and, you know, how would you explain kind of what's happening with registered and unregistered messages these days? I know you were a leader, driving toward that, and how is that impacting the competitive landscape today and is there any, What's also your perspective, I guess, on the opportunity around the political mess? Yeah, there are a couple of questions in there, Ryan. So, let me, let me take the political one first.

Aleksandr J. Zukin: And our next question comes from the line of Ryan Koontz with Needham <unk> Company.

Speaker Change: Thanks for the question I wanted to follow up if I could on.

Ryan Boyer Koontz: Alex's last question there about the competitive dynamic.

Ryan Boyer Koontz: How would you.

Ryan Boyer Koontz: Explain kind of what's happening with registered unregistered messages. These days I know you were a leader certainly in driving toward that and how is that impacting the competitive landscape today and is there any.

Ryan Boyer Koontz: What's also your perspective, I guess on the opportunity around political messaging as it relates to the election coming up thank you.

Khozema Z. Shipchandler: So I think in 2024, generally, obviously, we're in the middle of an election season cycle, and we will generate some revenue from political customers, but we don't really anticipate an expected outsized impact as a result of the race. And so we're not going to accept any business where that policy is not being properly followed during this upcoming cycle. And we think that's in the best long-term interest of the business and in the best long-term interest of certainly the American consumer, but that has global implications as well because we're taking kind of the same stance in most markets.

Ryan Boyer Koontz: Yeah, a couple of questions in there Ryan So let me.

Khozema Z. Shipchandler: Let me take the political one first so I think in 2024 generally obviously, we're in the middle of an election season cycle.

Khozema Z. Shipchandler: We will generate some revenue from political customers, but we don't really anticipate unexpected outsized impact as a result of.

Khozema Z. Shipchandler: The race.

Khozema Z. Shipchandler: Just as a reminder, we have registration requirements and an acceptable use policy in place that we expect all of our customers to follow especially as it relates to opt ins and that really just sort of insurers the quality of traffic on our network. It protects consumers and so we're not going to accept any business where that policy is.

Khozema Z. Shipchandler: Being properly followed during this upcoming cycle and we think thats in the best long term interest of the business and in the best long term interests of.

Khozema Z. Shipchandler: Certainly the American consumer, but that has actually global locations as well because we're taking kind of the same stance in most markets thats kind of a good segue to.

Khozema Z. Shipchandler: The dynamic that you asked in the first part of your question. The whole 10, DLC thing is entirely behind us.

Khozema Z. Shipchandler: We went through that process last year I think we felt a very small impact as a result of that.

Khozema Z. Shipchandler: And so I don't think that there'll be really any impact as a result until free.

Khozema Z. Shipchandler: And of a non issue as well because that got done at that point as well and then finally just in terms of competitive dynamics I don't really think.

Khozema Z. Shipchandler: Ulcers anything other than.

Khozema Z. Shipchandler: The feedback that we receive from our customers is that, A., they want to work with a trusted provider, and so we think that we benefit from using compliance not just as sort of our regulatory posture but actually as a unique selling point of the business. And B, I think increasingly they want to work with someone who doesn't just prosecute that traffic in that fashion but also ensures that no fraud or anything of that nature is being committed as well, which is where our AI tools and the like can really play a role in helping our customers with their traffic and ensuring. That's really great, Khozema. Thank you.

Khozema Z. Shipchandler: The feedback that we received from our customers is that a they want to work with a trusted provider and so we think that we benefit from using compliance not just to sort of a regulatory posture, but actually as a unique selling point of the business.

Khozema Z. Shipchandler: And B I think increasingly they want to work with someone who doesn't just prosecute that traffic in that fashion, but also ensures that no fraud or anything of that nature as being committed as well, which is where our AI tools and the like can really play a role in helping our customers with their traffic and mature.

Khozema Z. Shipchandler: Those claims.

Khozema: That's really great. Thank you just real quick follow up on the Adp's. Besides that relatively stable now are those still inching up.

Khozema Z. Shipchandler: Just a real quick follow-up on the A to B side, is that relatively stable now, or are they still inching up? I'd say it's relatively stable at this stage; there's nothing kind of new to talk about. I don't know, a couple years ago, I guess.

Speaker Change: I'd say its relatively stable at this stage, there's nothing kind of new to talk about.

Speaker Change: I don't know a couple of years ago I guess.

Ryan Boyer Koontz: Got it. Super. Thank you. Thanks. One moment, please, for our next question. And our next question comes from the line of Samad Samana with Jeffrey. Awesome. Thank you. This is actually Billy Fitzsimmons for Samad.

Speaker Change: Okay got it Super Thank you.

Khozema Z. Shipchandler: Thanks.

Samad Saleem Samana: Thank you one moment please for our next question.

Ryan Boyer Koontz: Okay.

William Fitzsimmons: Our next question comes from the line of <unk> with Jefferies.

William Fitzsimmons: Awesome. Thank you this is actually Bill Simmons first demand.

William Fitzsimmons: I'll keep it pretty quick. Interquarter, you gave us an organic growth target range and reaffirmed it today. Can you just remind us what that growth range kind of assumes in terms of macrodynamics as we progress through the year? Thank you.

William Fitzsimmons: I'll keep it pretty quick intra quarter, you gave a organic growth target range of it.

William Fitzsimmons: Today can you just remind us what that growth range kind of assumes in terms of macro dynamics as we progressed through the year. Thank you.

Aidan Viggiano: Yeah, so we've seen relatively stable volumes, Billy, as we've talked about, and I'd say, as you think about kind of the range of outcomes between the low end of the range and the higher end of the range, I'd say if volumes, if we didn't see any erosion kind of overall in volumes, I would say that would kind of get you to the lower end of the range. Conversely, if we started to see volumes inflect and we continued to execute on our cross-sell initiatives and expansion with ISDs and the different initiatives that we're working on, we could see, you know, volume and revenue at the higher end of the range.

William Fitzsimmons: Yeah, So we've seen relatively stable.

Aidan Viggiano: Stable volumes.

Aidan Viggiano: As we've talked about and I'd say as you think about kind of the range of outcomes between the low end of the range. The higher end of the range I would say if volume.

Aidan Viggiano: If we didn't see any erosion kind of overall volumes I would say that would kind of get you to the lower end of the range. Conversely, if we started to see volumes and slacked off and we continue to execute on our cross sell initiatives and expansion with Isps and the different initiatives that we're working on we could see.

Aidan Viggiano: Volume and revenue at the higher end of the range.

Aidan Viggiano: What I would say is, and I said this before, regardless of where we are in the range, we're going to deliver on the profit and free cash flow. We're very intent and focused on that. We were kind of very zeroed in regardless of where we land.

Aidan Viggiano: What I would say is that.

Aidan Viggiano: I said this before but regardless of where we are in the range, we're going to deliver on the profit and free cash flow.

Aidan Viggiano: We're very intently focused on that.

Aidan Viggiano: They were kind of various <unk>, regardless of where we land on the revenue range.

Aidan Viggiano: Yeah.

Speaker Change: Understood. Thank you very much.

William Fitzsimmons: Thank you. One moment, please, for our next question. And our next question comes from the line of Michael Turrin with Wells Fargo. Hey, thanks.

Speaker Change: Thank you.

Aidan Viggiano: I'm pleased for our next question.

Michael James Turrin: And our next question comes from the line of Michael <unk> with Wells Fargo.

Michael James Turrin: Hey, Thanks I appreciate you taking the question just on the communications customer metric.

Michael James Turrin: Appreciate you taking the questions just on the communications customer metric. That ticked down a bit from Q3 to Q4 and picked back up in Q1. So I'm just curious if any of that is definitional, just tied to the splitting of segments, or if that is a return to just the bounce back and customer activity on the core communication segment. No, it's not definitional.

Michael James Turrin: That had ticked down a bit.

Michael James Turrin: Q3, Q4 and picked back up in Q1, so I'm just curious if any of that is definitional just tied to the splitting of segments or if that is the return to just the bounce back in customer activity on the core communications segment.

Aidan Viggiano: It is, I would say it's a bounce back given the two options that you gave me there. But what I would just say overall is that this metric represents, it's anchored to a minimum $5 monthly revenue spend. And so, you know, we have a large number of active customer accounts with relatively low individual spend that, in aggregate, do not drive a significant portion of the revenue. So it's nothing; it has nothing to do with definition.

Michael James Turrin: No. It is not definitional it is.

Aidan Viggiano: Take the bounce back given the two options that you gave me there, but what I would just say overall with that.

Aidan Viggiano: This metric represents it's anchored to a minimum $5 monthly revenue spend and so we haven't large number of active customer accounts with relatively low individual spend that in aggregate do not drive like a significant portion of the revenue. So it's not it has nothing to do with definition is a bounce back I guess.

Aidan Viggiano: In terms of the customer count, but I would just say the relative importance of this metric given the size and the scale of the business at this point that we're talking about $5 threshold.

Aidan Viggiano: It's a bounce back, I guess, in terms of the customer account. But I would just say the relative importance of this metric, given the size and the scale of the business at this point, and we're talking about a $5 threshold, I don't think it's probably the most relevant metric today. I hope that helps with how much we've grown.

Aidan Viggiano: I don't think it's probably the most relevant metric today.

Speaker Change: Just helpful.

Aidan Viggiano: Brown.

Michael James Turrin: And on segment, just how should we think about the timeline to get that piece of the business to a good foundational cost base? Thank you all so much for joining us today. From a cost perspective, Michael? I think so. Yeah, I mean, just when you feel like the I mean, obviously, there are some moving pieces there.

Aidan Viggiano: On segment.

Aidan Viggiano: How should we think about the timeline to get that piece of the business to a good foundational cost space.

Michael James Turrin: But when you feel like the sort of the foundation is in place for at least the initial efforts and rebuilding that business. Now, why don't I start with the cost side, and then Khozema can talk more about all the actions that we're taking. What I would say is the business lost $21 million in the first quarter, but that was actually up a little bit versus the fourth quarter.

Michael James Turrin: To restart from obviously there had been.

Michael James Turrin: And evaluation period, so now going forward, how should we think about the timeline of where you've gotten to at least sort of a good foundational restarting point if you will.

Khozema: From a cost perspective, Michael.

Khozema: I think so yes, I mean, just when you feel like that I mean, obviously there are some moving pieces there, but when you feel like the sort of the foundation is in place or at least.

Michael James Turrin: The initial efforts and rebuilding that business.

Khozema: Yes, why don't I start with the cost side, and then <unk> can talk more around all the actions that we're taking what I would say is the business lost $21 million in the first quarter that was actually up a little bit versus the fourth quarter.

Khozema: We have a path to get that business to breakeven by the second quarter of next year. What I would say is we don't expect it to be completely linear right. We have a number of initiatives that we're working on containment talks about the product from a product perspective getting to data warehousing interoperability theres a number of things we're working on with regards to <unk>.

Aidan Viggiano: We have a path to get that business to breakeven by the second quarter of next year. But what I would say is we don't expect it to be completely linear, right? We have a number of initiatives that we're working on. Khozema talked about the product, from a product perspective, getting to data, warehousing, or operability. There's a number of things we're working on with regard to time to value. So, you know, we intend to incur some costs to deliver on those objectives, but we will get to breakeven by Q2 of 2025.

Aidan Viggiano: Time to value so.

Aidan Viggiano: We intend to incur some cost to deliver on those objectives, but we will get to the breakeven by Q2 of 2025.

Aidan Viggiano: It just – that decline to Q2 2025 won't necessarily be linear. So, we have plans in place, but I just wanted to put that out there so you can think about that and model it.

Aidan Viggiano: Decline for Q2, 2025 won't necessarily be linear so we have plans in place, but I just wanted to put that out there they are seeing or how to think about that and model. It yes. The only thing I would add there Michael is that.

Khozema Z. Shipchandler: Yeah, the only thing that I would add there, Michael, is that this management team has been quite good about meeting targets that we set out for ourselves, and nothing's changed about our ability and confidence in being able to get to non-gap breakeven by Q2 2025 of next year. In the meantime, there are a number of other things that we also committed to that were more operational in nature – data warehouse interoperability, delivering a combined segment Twilio offering, making sure that we had a number of additional things like that on our roadmap, improving our time to value.

Khozema Z. Shipchandler: This management team has been quite good about meeting targets that we set out for ourselves and nothing has changed about our ability and confidence in being able to get to non-GAAP breakeven.

Khozema Z. Shipchandler: By Q2 'twenty five of next year in the meantime, there are a number of other things that we also committed to that were more operational in nature due to warehouse interoperability delivering a combined segment twilio offering making sure that we had a number of additional things like that on our roadmap upcoming <unk>.

Khozema Z. Shipchandler: Proving our time to value and against each of those operational areas, we're actually making quite good progress.

Khozema Z. Shipchandler: And against each of those operational areas, we're actually making quite good progress. And, you know, again, as you alluded to, there are some dynamics here in terms of both revenue and cost, and some of the revenue dynamics are going to just take a little bit of time given the nature of how bookings have to kind of catch up. But we are seeing green shoots.

Khozema Z. Shipchandler: Again as you alluded to there are some dynamics here in terms of both revenue and cost and some of the revenue dynamics are going to just take a little bit of time, given the nature of how bookings have to kind of catch up but we are seeing green shoots we are seeing interesting new customers and I think as we continue to execute on the operate.

Michael James Turrin: We are seeing interesting new customers, and I think as we continue to execute on the operational items that are important to the future of the business, I think we feel increasingly confident that the segment is a really important asset to Twilio, and that data is going to play a really critical role in terms of the way that we're going to deliver customer outcomes. And I think you saw the first one of those with this agent copilot that we released using segment and comms in Q1. Thank you, guys. One moment, please. And our next question comes from the line. Ryan MacWilliams with Barker. Hey, thanks for taking the time to answer the question. This is Pete Newton for Ryan MacWilliams.

Pete Newton: <unk> items that are important to the future of the business I think we feel increasingly confident that segment is a really important asset just really over that data is going to play a really critical role in terms of the way that we're going to deliver customer outcomes and I think you saw the first one of those with decision co pilot.

Pete Newton: We released using segment and comms in Q1.

Pete Newton: Thank you Beth.

Pete Newton: Thank you one moment please for our next question.

Pete Newton: And our next question comes from the line of.

Michael James Turrin: Right.

Pete Newton: Ryan Macwilliams with Barclays.

Ryan Patrick MacWilliams: Just a question on the sales side. Did we see a recent sales efficiency and rep execution trend recently? Is this efficiency level in line with the internal? You have a little bit of a bad connection. Can you try again?

Pete Newton: Hey, Thanks for taking my question. This is for Ron just a question on the sales side.

Pete Newton: Maybe how sales efficiency and execution trended recently.

Pete Newton: Efficiency levels.

Ryan Patrick MacWilliams: Okay.

Pete Newton: You have a little bit of a bad connection to U T.

Pete Newton: Can you try again.

Operator: Is this better? Yeah. Perfect. Yeah, just a question on the sales side. How has sales efficiency trended recently? And is this in line with internal expectations?

Ryan Patrick MacWilliams: Okay.

Pete Newton: Does better.

Operator: Yes.

Aidan Viggiano: Maybe if you could delineate between sales efficiency on the segment side versus the communication side, this would give us a full picture. I think on the communication side of the house, it's in line with where we expected it to be. There's a team executing, we have reoriented that team to gross profit dollar generation, for the most part, I'd say probably 80% of the team is measured on that, and they're performing kind of in line with expectations.

Operator: Perfect and then just a question on the sales side.

Aidan Viggiano: Sales efficiency trended recently and it's in line with internal expectations and maybe if you could delineate between sales efficiency on the segment side versus the communication side. This would get a full picture.

Aidan Viggiano: Yes, I think on the communications side of the house.

Aidan Viggiano: In line with where we expected it to be there as a team is executing we have reoriented that team to gross profit dollar generation for the most part I'd say, probably 80% of the team as measured on that.

Aidan Viggiano: And they're performing kind of inline with expectations on the segment side, we are kind of in a bit of a rebuild here.

Aidan Viggiano: You know, on the segment side, we are kind of in a bit of a rebuild here. I'd say, you know, bookings came in. I would say a little later than we'd want to be, like, longer term in the segment business in Q1, but the team has a number of actions in place, and Khozema's kind of talked about them several times now, so I won't reiterate them, but it's going to take a couple quarters for Thomas and the team to get that business back and humming to kind of where we want it to be, and I mean, we obviously took some very significant cost action.

Aidan Viggiano: Bookings came in.

Aidan Viggiano: I would say a little later than we'd.

Aidan Viggiano: Longer term and in the segment business in Q1, but the team has a number of actions in place and cause name has kind of talked about them. Several times that I won't reiterate that but it's going to take a couple of quarters for Thomas and the team to get that business back and humming to kind of where we want it to be and it will take some time for that to show up in the financial metrics I think sales efficiency journey.

Aidan Viggiano: <unk> has been pretty good I mean, we obviously took some very significant cost actions last year as revenue line continues to grow as <unk> mentioned, we're anchoring everybody against the gross profit dollar metric and we think that's important to be able to incentivize the sales force and so I think that combination of things has yielded a lot of the.

Ryan Patrick MacWilliams: Last year, the revenue line continues to grow. As Aidan mentioned, we're anchoring everybody against the gross profit dollar metric, and we think that's important to be able to incentivize the sales force. And so I think that combination of things has yielded a lot of the operating leverage that we've seen over the last year, which we continued into Q1. And obviously, a lot of that is now starting to translate to really significant cash flow, which feels quite good. Very helpful.

Ryan Patrick MacWilliams: <unk> leverage that you've seen over the last year, which continued into Q1 and obviously a lot of that now is starting to translate it really significant cash flow, which feels quite good.

Speaker Change: Okay very helpful. Thanks, guys.

Ryan Patrick MacWilliams: Okay.

Ryan Patrick MacWilliams: Okay.

Speaker Change: Thank you one moment please for our next question.

Ryan Patrick MacWilliams: Thanks, guys. Thank you. One moment, please, for our next question. And our next question comes from the line of Arjun Bhatia with William Blair. Thanks for taking the questions. Just one quick one for me.

Ryan Patrick MacWilliams: Okay.

Arjun Rohit Bhatia: And our next question comes from the line of our June <unk> with William Blair.

Ryan Patrick MacWilliams: Yeah.

Arjun Rohit Bhatia: Thanks for taking the question just one quick one for me.

Arjun Bhatia: When we're thinking of some of the segment plans that you had laid out with the, you know, deeper integration into comms, and I think you touched on some of this a little bit, but curious, like, how long before we start to see results from some of that flow through to enhance the comms business? Is that something that's a 24 outcome or, you know, with some of the product work still to be done, something that maybe we should expect in 25 and beyond?

Arjun Rohit Bhatia: When we're thinking of some of the segment plans that you had laid out before.

Arjun Bhatia: The integration is behind Us and I think you saw some.

Arjun Bhatia: Some of this a little bit, but curious like how long I know there's.

Arjun Bhatia: Quite a bit still left to do here, but how long before we start to see results from some of that flow through.

Arjun Bhatia: To enhance the comms business is that something Thats, a 24 hour calmer.

Arjun Bhatia: With some of the products, we're just hoping to dive into something that maybe we should expect a plus five and beyond.

Arjun Bhatia: Yeah, I mean, I think we have to delay a little bit between when it shows up in our financials versus, you know, how customers are starting to get value from it, but, you know, we cited an example in our earlier remarks about how when a customer fielded the combined capability segment inside of communications, that was a specific contact center environment, it was a really powerful outcome, right? They were able to reduce their costs by about 30%. They were able to increase their deflection rate by about 70%.

Speaker Change: Yes, I mean, I think we have to delay a little bit between when it shows up in our financials versus how customers are starting to get value from it but we cited an example.

Arjun Bhatia: In our earlier remarks about how.

Arjun Bhatia: When a customer fielded the.

Arjun Bhatia: The combined capability segment inside of communications that was the specific contact center environment.

Arjun Bhatia: It was a really powerful outcome right they were able to reduce their cost by about 30%. They were able to increase their deflection rate by about 70% in what's the core of this is fundamentally how do we deliver a better outcome for our customer.

Khozema Z. Shipchandler: And, you know, what's at the core of this is fundamentally how do we deliver a better outcome for a customer at a materially lower cost point for them overall? So, I think that, in general, we feel pretty good about the customer delivery. And, again, we'll use examples like that to kind of prove that this adds really demonstrable value to customers. We'll continue signing new logos on that basis over the next several quarters, and then those bookings will just take time to turn into revenue. But, so far, so good, and I'm certainly very encouraged by some of the early examples. A perfect couple.

Khozema Z. Shipchandler: Materially lower cost point for them overall now some of that value, obviously accrues to us because we have been able to kind of upsell.

Khozema Z. Shipchandler: Using AI some of these different products that we're we're trying to uplift so I think that in general.

Khozema Z. Shipchandler: We feel pretty good about the customer delivery and again, we'll use examples like that to kind of prove that this adds really demonstrable value to customers will continue signing new logos on that on that basis over the next several quarters and then those bookings will just take time to turn into revenue, but so far so good in them.

Khozema Z. Shipchandler: Very encouraged by some of the early examples.

Speaker Change: Alright perfect helpful. Thank you.

Arjun Bhatia: It's good to hear from you. Thank you. Thank you. One moment, please, for our next question. Our next question comes from the line of Michael Funk with Bank of America. Yeah, thank you for the question this evening. So on the international softness that you cited, I'm curious how much of that is due to a shift in traffic, so to RCS and WhatsApp, for example, versus a reduction in traffic volume. Yeah, I wouldn't say it's due to a shift in anything.

Michael J. Funk: Thank you one moment please for our next question.

Michael J. Funk: Actually, Michael, I think that there's just a little bit soft from a kind of demand and environment perspective in terms of international termination. I think, more specifically, we haven't really seen significant activity there yet. We certainly expect RCS to play a role down the line. I think, if anything, it'll probably be accretive to the business, but that's not what we saw in international volume. Now, that's very helpful.

Arjun Bhatia: And our next question comes from the line of Michael Funk with Bank of America.

Speaker Change: Yes. Thank you for the questions. This evening.

Michael: So on the international softness that you cited I am curious how much of that is due to a shift in traffic.

Michael J. Funk: So to Rcs and Whatsapp for example.

Michael J. Funk: Versus a reduction in traffic volume.

Michael J. Funk: Yes, I wouldn't say, it's due to a shift in anything actually Michael I think that if there is just a little bit soft from a demand environment perspective in terms of that international termination.

Michael J. Funk: In terms of Rcs more specifically like we haven't really seen.

Michael J. Funk: Significant activity there yet.

Michael J. Funk: Certainly expect Rcs to play a role down the line I think if anything it will probably be accretive to the business, but that's not what we saw in international volumes.

Khozema Z. Shipchandler: And one more quick one, if I could, you know, thank you for the color on, you know, agent copilot, embedding segment, and more of the comms products. For clarification there, are you charging additional or separate for the embedding of the segment? Or is it more of a teaser to get customers more familiar with the segment and hopefully drive share and lower, higher usage and engagement and interest in that product over time? Yeah, ultimately, it'll result in a price upsell. There's like a lot of details.

Speaker Change: No that's very helpful and one more quick one if I could thank you for the color on.

Khozema Z. Shipchandler: Agent co pilots embedding segmented more of the comms products for clarification. There are you charging additional or separate.

Khozema Z. Shipchandler: Where are the embedding of segment or is it more of a key there or to get customers more familiar with segment and hopefully drive drive churn lower.

Khozema Z. Shipchandler: Higher usage and engagement and interest in that product over time.

Michael J. Funk: But just to answer your question, in short, it'll fundamentally result in a price upsell. There are a number of like packaging and pricing considerations that kind of go into how we'll ultimately take some of these products to market. But the short answer is, it'll ultimately result in increased prices. Okay, but in the short term, as you initially launch, there is no price increase, it's simply embedded in the product, but over time, there'll be separate SKUs or pricing, is that correct?

Khozema Z. Shipchandler: Yes, ultimately it'll result in a price up sell.

Michael J. Funk: A lot of details, but just to answer your question in short it will fundamentally result, enterprise upsell Theres, a number of like kind of packaging and pricing considerations that kind of go into how we'll ultimately take some of these products to market, but the short answer is it will ultimately result in increased price.

Michael J. Funk: Okay.

Michael J. Funk: In a short term.

Michael J. Funk: Italy launch there there is no price increases simply embedded in the product, but over time there'll be separate skus or pricing is that correct.

Michael J. Funk: But when it's in private beta, we typically offer it for like a teaser period where there's not as much of a price increase. But once it kind of goes out of private and it's fully GA, and the customer is actually using it beyond kind of the test period, then there is fundamentally a price increase that goes into effect. So it's not meant to be just protective; it's meant to be value-enhancing, and therefore, with the price up.

Michael J. Funk: And it's in private beta we typically offer it for like a teaser period, where.

Michael J. Funk: Theres not as much of a price increase but once it kind of goes out of the private.

Michael J. Funk: It's fully <unk> and the customer is actually using it beyond kind of the test period. Then there is fundamentally a price increase that goes into effect. So it's not meant to be.

Michael J. Funk: Just protective it's meant to be value enhancing and therefore with the price uptick.

Michael J. Funk: All right, that's very helpful. Thank you. Thank you. One moment, please, for our next question. Our next question comes from the line between Peter Weed and Burns.

Speaker Change: Great. That's very helpful. Thank you.

Peter Weed: Thank you.

Speaker Change: Please for our next question.

Peter Weed: Our next question comes from the line of Peter we'd with Bernstein.

Peter Weed: Thank you. You know, one of the things that you changed in communications here recently was grouping and collecting some of the marketing together with communications. And I'm wondering how much they may either be benefiting or dragging on the communications business if we, you know, just looked at what would be isolated and what we might have been looking at in the communications business more historically. I think the question was, when we moved over flex and marketing campaigns to communications, is there like a, well, just to be clear, like, when we talk about communications, we talk about it on an apples-to-apples So, all of history is kind of been recast for flex and marketing campaigns moving over. So there's no, like, artificial benefit from that.

Peter Weed: Thank you.

Peter Weed: One of the things that changed in communications here recently, he was group and one question on some of the marketing.

Peter Weed: In with communications.

Peter Weed: I'm wondering how much they may either be benefiting or dragging on the communications business.

Peter Weed: Just looked at.

Peter Weed: What would be isolated and what we might have been looking at them and communications business more historically.

Peter Weed: And the question was when we moved over to flex and marketing campaigns to communication as well so just to be clear when we talk about communications.

Peter Weed: We talked about it on an apples to apples basis. So all on history has kind of been recast it for flex and marketing campaign moving over so there's no like artificial benefit from that reorganization Oh sure.

Khozema Z. Shipchandler: Oh, sure. Yeah, you know, I get that. I'm more like I'm just thinking about before it was moved over, we kind of knew how it was going. And I just don't know if they are, you know, the reason that is, you know, ticking up from an NRR or would NRR for communications be picking up more aggressively. And those are more like segments where they've got, you know, a below 100% NRR and are actually dragging down communications. No, I wouldn't say so. I'd say we'd be roughly in the same position.

Peter Weed: Get that more like I'm, just thinking about before it was moved over we kind of knew how was going and I just don't know if they are.

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Khozema Z. Shipchandler: I wouldn't say, it's I'd say like it will be roughly in the same.

Khozema Z. Shipchandler: Physician theyre, not dragging down there not necessarily benefiting that communications business either in terms of pulling up the NR.

Speaker Change: Okay. Thank you.

Khozema Z. Shipchandler: Yeah.

Speaker Change: Thank you ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect.

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Peter Weed: They're not dragging down, they're not necessarily benefiting the communications business either in terms of pulling up the NRR. Okay thank you. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Ittai Kidron, Joseph Hickey, Aidan Viggiano, William Fitzsimmons, Matthew Martino, Twilio Inc Ittai Kidron, Joseph Hickey, Aidan Viggiano, William Fitzsimmons, Matthew Martino, Twilio Inc Ittai Kidron, Jeffrey Lawson, Aidan Viggiano, William Fitzsimmons, Aidan Viggiano, William [inaudible] ?? ?? ?? ?? ?? ?? Hello, and welcome to the Twilio Inc. First Quarter 2024 Earnings Conference. At this time, all participants are in a listen-only mode.

Speaker Change: Hello, and welcome to the Twilio, Inc. First quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Peter Weed: After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Operator: After the speaker presentation, there will be a question and answer session. To ask a question during this session, you will need to press Star 1-1 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press Star 1 1 again.

Operator: You will then hear an automated message advising that Youre Hain has been raised to withdraw your question. Please press star one again please.

Bryan Vaniman: Today's conference is being recorded. It is now my pleasure to introduce Senior Vice President of Investor Relations and Corporate Development, Bryan Vaniman. Good afternoon, everyone. And thank you for joining us for Twilio's first quarter 2024 earnings conference call. Joining me today are Khozema Shipchandler, Chief Executive Officer, and Aidan Viggiano, Chief Financial Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our Investor Relations website at investors.twilio.com.

Operator: Please be advised that today's conference is being recorded.

Bryan Vaniman: 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.

Bryan Vaniman: It is now my pleasure to introduce.

Bryan Vaniman: Senior Vice President of Investor Relations and corporate development.

Bryan Vaniman: Ian Vandeman.

Bryan Vaniman: Okay.

Khozema Z. Shipchandler: Many of those risks and uncertainties are described in our SEC filings, including in our most recent Form 10-K and our forthcoming 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 Q1 results, and then we'll open the call for Q&A. Thank you, Bryan. Good afternoon, everyone, and thank you for joining us today.

Speaker Change: Good afternoon, everyone and thank you for joining us for Twilio as first quarter 2024 earnings Conference call. Joining me today are Kristina ship Chandler, Chief Executive Officer, and Aidan Viggiano Chief Financial Officer. As a reminder, we will disclose non-GAAP financial measures on this call definitions and reconciliations between our GAAP.

Speaker Change: GAAP and non-GAAP results can be found in our earnings release and earnings presentation posted on our IR website at investors that Twilio Dot com we.

Speaker Change: 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 many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-K and our forthcoming.

Speaker Change: 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.

Speaker Change: I'll hand, it over to <unk>, who will discuss our Q1 results and then we'll open the call for Q&A.

Speaker Change: Thank you Brian Good afternoon, everyone and thank you for joining us today.

Khozema Z. Shipchandler: Twilio had a solid start to the year, exceeding our Q1 guidance, delivering $1.047 billion in revenue and $160 million in non-GAAP income from operations. Our team executed well across the board in Q1, as evidenced by a record quarter of non-GAAP gross profit of $566 million, a 54% year-over-year increase in our non-GAAP income from operations, and another strong quarter of free cash flow of $1 We are in the early stages of reinvigorating the business, and we are optimistic about our progress thus far.

Speaker Change: <unk> had a solid start to the year exceeding our Q1 guidance delivering $1 <unk> dollars 7 billion in revenue and $160 million and non-GAAP income from operations.

Khozema Z. Shipchandler: Our team has executed well across the board in Q1, as evidenced by a record quarter of non-GAAP gross profit of $566 million or 54% year over year increase in our non-GAAP income from operations and another strong quarter of free cash flow of $177 million.

Khozema Z. Shipchandler: We are in the early stages of reinvigorating the business and are optimistic about our progress. Thus far in fact, we are executing with greater discipline rigor and focus on innovation than ever before.

Khozema Z. Shipchandler: In fact, we're executing with greater discipline, rigor, and focus on innovation than ever before. In the last five quarters, we've begun delivering significant non-gap operating profitability, and in the last four quarters, that's been paired with significant free cash flow.

Khozema Z. Shipchandler: In the last five quarters, we've begun delivering significant non-GAAP operating profitability in the last four quarters, that's been paired with significant free cash flow.

Khozema Z. Shipchandler: And we are committed to additional operating leverage and accompanying free cash flow. In the meantime, we are also making new targeted R&D investments that we expect to reaccelerate growth over time. In March, we announced an accelerated target for gap operating profitability to Q4 2025. And we also announced that the board authorized an additional $2 billion of share repurchases, bringing our total share of purchase authorization to $3 billion.

Khozema Z. Shipchandler: And we are committed to additional operating leverage and accompanying free cash flow in.

Khozema Z. Shipchandler: In the meantime, we are also making new targeted R&D investments that we expect to reaccelerate growth overtime.

Khozema Z. Shipchandler: In March we announced an accelerated target for GAAP operating profitability to Q4, 2025, and we also announced that the board authorized an additional $2 billion of share repurchases.

Khozema Z. Shipchandler: Bringing our total share repurchase authorization to $3 billion.

Khozema Z. Shipchandler: This is a reflection of the board's confidence in our strategy and the opportunity ahead. As of today, we've repurchased approximately a billion and a half of shares, and we're targeting to complete the remaining billion and a half of our purchases by the end of this year. At the same time, we also completed our operational review of Segment, and the team is focused on executing the plans we outlined, including more focused product innovation, embedding Segment's capabilities into communications products, and a commitment to getting Twilio Segment to breakeven on a non-GAAP operating income basis by Q2 2025.

Khozema Z. Shipchandler: This is a reflection of the board's confidence in our strategy and the opportunity ahead.

Khozema Z. Shipchandler: As of today, we have repurchased approximately one 1 billion and a half of shares and we're targeting to complete the remaining $1 billion of half of repurchases by the end of this year.

Khozema Z. Shipchandler: At that same time, we also completed our operational review of segment and the team is focused on executing the plans, we outlined including more focused product innovation embedding segments capabilities into communications products and the commitment to getting Twilio segment to breakeven on a non-GAAP operating income basis.

Khozema Z. Shipchandler: By Q2 2025.

Khozema Z. Shipchandler: We are making progress in each area. Across the board, we're innovating and releasing new products, many of which are underpinned by customer AI, our predictive and generative AI layer. Finally, we welcomed a new group of leaders to Twilio who will play an important role in shaping the next chapter of our company as we operate with greater financial discipline, operational rigor, and focus on innovation. Now, let's turn to our business highlights. Our Twilio communications business had a strong first quarter with revenue of $972 million, up 7% on an organic basis year over year and representing 93% of our overall revenue.

Khozema Z. Shipchandler: We are making progress in each area.

Khozema Z. Shipchandler: Across the board, we're innovating and releasing new products, many of which are underpinned by customer AI, our predictive and generative AI layer.

Khozema Z. Shipchandler: Finally, we welcomed a new bench of leaders to Twilio, who will play an important role in shaping the next chapter of our company as we operate with greater financial discipline and operational rigor and focus on innovation.

Khozema Z. Shipchandler: And now, let's turn to our business highlights.

Khozema Z. Shipchandler: Our Twilio communications business had a strong first quarter with revenue of $972 million up 7% on an organic basis year over year.

Khozema Z. Shipchandler: And representing 93% of our overall revenue.

Khozema Z. Shipchandler: During the quarter, communications landed meaningful customer wins, released new products, and deepened our relationships with ISVs, partners, and resellers. With this disciplined approach, we're focused on growth levers that we believe will drive reacceleration in both the short and long term. In the short term, our growth will be fueled by expanding our network of ISVs and global partners, driving more self-service and cross-sell momentum, and extending the value that we're delivering to customers. In Q1, we signed a seven-figure partner agreement with China Unicom, one of China's wireless carriers who will resell a majority of our communications products for its enterprise customers across Singapore and Hong Kong.

Khozema Z. Shipchandler: During the quarter communications landed meaningful customer wins released new products and deepened our relationships with these partners and resellers.

Khozema Z. Shipchandler: With this disciplined approach we are focused on growth levers that we believe will drive reacceleration in both the short and long term.

Khozema Z. Shipchandler: In the short term our growth will be fueled by expanding our network of Isps and global partners driving more self service and cross sell momentum and extending the value that we're delivering to customers.

Khozema Z. Shipchandler: In Q1, we signed a seven figure partner agreement with China Unicom one.

Khozema Z. Shipchandler: Of China's wireless carriers, who will resell our majority of our communications products for its enterprise customers across Singapore and Hong Kong.

Khozema Z. Shipchandler: We also signed a partnership with Bloomreach, a leader in the marketing automation space, and we'll be working with them to co-sell Twilio products. Over the long term, our focus on innovation will unlock more value for customers, creating stickier relationships, and ultimately expand Twilio into new markets and larger deal sizes. We made progress on a number of our AI products and are driving better synergies with our communications and segment products. In Q1, we announced Agent CoPilot, our first of three launches in 2024, where Twilio will natively embed Segment into its communications products.

Khozema Z. Shipchandler: We also signed a partnership with Blue Ridge, a leader in the marketing automation space and we will be working with them to co sell twilio products.

Khozema Z. Shipchandler: Over the long term our focus on innovation will unlock more value for customers, creating stickier relationships and ultimately expand twilio into new markets and larger deal sizes.

Khozema Z. Shipchandler: We made progress on a number of our AI products and are driving better synergies with our communications segment products.

Khozema Z. Shipchandler: In Q1, we announced agent co pilot our first of three launches in 2024, where Twilio will natively embed segment into Twilio as communications products with.

Khozema Z. Shipchandler: With Agent Copilot, we've embedded unified profiles, powered by Segment, within Flex, giving agents deeper insights into their customers' behaviors and preferences. By accessing the real-time data from unified profiles, Agent Copilot assists in intelligent routing to agents and provides them with actionable insights for each customer interaction, automating and enhancing agent productivity while reducing resolution times.

Khozema Z. Shipchandler: With agent co pilot, we've embedded unified profiles powered by segment within flex, giving agents deeper insights into their customers' behaviors and preferences.

Khozema Z. Shipchandler: By accessing the real time data from unified profiles agent co pilot assistant intelligent routing to agents and provides them with actionable insights for each customer interaction.

Khozema Z. Shipchandler: <unk> and enhancing agent productivity, while reducing resolution times.

Khozema Z. Shipchandler: Agent Copilot and Unified Profiles are currently in public beta, and customers like Universidad UK are already leveraging these capabilities within their contact centers. As a result, they've driven a reduction in handle time by 30%, and by using our embedded AI automation tools, they've been able to deflect 70% of support cases in just two months. While it's still early, these results are impressive, as they illustrate how our customers are able to quickly realize tremendous business value at scale when combining segments within our communications capabilities.

Khozema Z. Shipchandler: Adrian Copilot and unified profiles are currently in public data and customers like University of <unk> UK are already leveraging these capabilities within their contact centers.

Khozema Z. Shipchandler: As a result, they've driven a reduction in handle time by 30% and by using our embedded AI automation tools, they've been able to deflect 70% of support cases in just two months.

Khozema Z. Shipchandler: While it's still early these results are impressive as it illustrates how our customers are able to quickly realize tremendous business value at scale when combining segment within our communications capabilities.

Khozema Z. Shipchandler: Our customers also continue to realize tangible benefits when using our other customer AI innovations, including voice intelligence, which has gotten a great response from our initial public beta customers. With voice intelligence, brands like PGA of America are leveraging transcriptions for their customer support interactions within their flex instance. Getting valuable data insights from call recordings, of the hundreds of customers that have deployed voice intelligence, over half are using language operators, which allows brands to trigger an action based on any keyword, allowing for better personalized communications.

Khozema Z. Shipchandler: Our customers also continue to realize tangible benefits when using our other customer, yes innovations, including voice intelligence, which has gotten a great response from our initial public beta customers with.

Khozema Z. Shipchandler: With voice intelligence brands like PGA of America are leveraging transcriptions for their customer support interactions within their flex instance.

Khozema Z. Shipchandler: Getting valuable data insights from call recordings.

Khozema Z. Shipchandler: The one hundreds of customers that have deployed voice intelligence.

Khozema Z. Shipchandler: Half are using language operators, which allows brands to trigger an action based on any keyword, allowing for better personalized communications.

Khozema Z. Shipchandler: We also recently introduced language operators that use generative AI and large language models to determine the best sentiment for the overall conversation, so brands can get a better sense of where escalations or customer churn may take place. And we're continuing to embed AI capabilities into our verification products. We currently have over 11,000 customers leveraging Verify FraudGuard, and in Q1 alone, FraudGuard blocked more than 62 million fraudulent messages.

Khozema Z. Shipchandler: We also recently introduced language operators that uses generative AI and large language models to determine the best sentiment for the overall conversation some brands can get a better sense of where escalations or customer churn may take place.

Khozema Z. Shipchandler: And we're continuing to embed AI capabilities into our verification products.

Khozema Z. Shipchandler: We currently have over 11000 customers leveraging verify front garden and in Q1 alone fraud guard blocked more than 62 million fraudulent messages.

Khozema Z. Shipchandler: We are not only saving our customers money, but we're also ensuring our customers' end users have a seamless experience. During the quarter, we signed a competitive deal with Blue Sky, a social media app that recently launched its app to the public. They chose Twilio's Verify API to ensure a seamless and secure signup process for new users.

Khozema Z. Shipchandler: We are not only saving our customers' money, but we're also ensuring our customers and users have a seamless experience.

Khozema Z. Shipchandler: During the quarter, we signed a competitive deal with Blue Sky, a social media App, which recently launched its app to the public.

Khozema Z. Shipchandler: They chose Twilio is verify API to ensure a seamless and secure sign up process for new users at.

Khozema Z. Shipchandler: At launch, the company saw an impressive amount of signups, gaining almost 800,000 new users in one day. And FraudGuard not only helped save the company hundreds of thousands of dollars, but it ensured new users received secure authentication. Now, turning to our Twilio Segment business... For Q1, segment revenue was $75 million, up 2% year over year. It was a challenging quarter, but we came out of our segment operational review in March with greater clarity around a short list of priorities that we believe will address the underperformance of segments.

Khozema Z. Shipchandler: At launch the company saw an impressive amount of sign ups, gaining almost 800000, new users in one day.

Khozema Z. Shipchandler: Ron Guard not only help save the company one hundreds of thousands of dollars, but it ensured new users received secure authentication.

Khozema Z. Shipchandler: Now turning to our Twilio segment business for Q1 segment revenue was $75 million up 2% year over year.

Khozema Z. Shipchandler: It was a challenging quarter, but we came out of our segment operational review in March with greater clarity around a short list of priorities that we believe will address the underperformance of segment.

Khozema Z. Shipchandler: We will continue to focus on rationalizing our investments to right-size our segments cost base, accelerating time to value for customers by using AI to automate onboarding and enhancing data warehouse interoperability, delivering three products in 2024 that natively embed segmentation into communications, and capitalizing on customer AI momentum. In the month following the review, we've already made meaningful progress against all of these areas, and we believe that we have the right set of plans in place to turn this business around, address churn and contraction, and improve its financial performance.

Khozema Z. Shipchandler: We will continue to focus on rationalizing our investments to right size segments cost base accelerating time to value for customers by using AI to automate onboarding and enhancing data warehouse the interoperability delivering three products in 2024 that natively embed segment and the communications.

Khozema Z. Shipchandler: And capitalizing on customer AI momentum.

Khozema Z. Shipchandler: In the month following the review we have already made meaningful progress against all of these areas and we believe that we have the right set of plans in place to turn this business around addressed churning contraction and improve its financial performance.

Khozema Z. Shipchandler: We are also committed to getting Segment to breakeven on a non-GAAP operating income basis by Q2 2025. During the quarter, we deepened our partnerships with Databricks and Snowflake. With Databricks, we launched a new bi-directional integration that allows customers to seamlessly ingest and activate data.

Khozema Z. Shipchandler: We are also committed to getting segment to breakeven on a non-GAAP operating income basis by Q2 2025.

Khozema Z. Shipchandler: During the quarter, we deepened our partnerships with data bricks and snowflake.

Khozema Z. Shipchandler: With data bricks, we launched a new bidirectional integration that allows customers to seamlessly ingest and activate data.

Khozema Z. Shipchandler: We are on track to deliver further enhancements to our data warehouse interoperability offerings across partners in Q2. And, as mentioned earlier, we delivered focused product innovation like Agent Copilot that demonstrates segment value when it's natively embedded into communications. Customer AI Predictions is continuing to get adopted by new customers.

Khozema Z. Shipchandler: We are on track to deliver further enhancements to our data warehouse interoperability offerings across partners in Q2.

Khozema Z. Shipchandler: And as mentioned earlier, we delivered focused product innovation like agent co pilot that demonstrates segment's value when it's natively embedded into communications.

Khozema Z. Shipchandler: And since it's GA and Q3 2023, more customers are realizing the benefits and positive material impact on their businesses. For instance, XP Inc., a Brazilian investment management company, said that since implementing customer AI predictions and by using our out-of-the-box tools, they've been able to save their team four weeks of data science work and improve audience engagement and conversion rates. Looking ahead to Q2, we'll bring our second product that natively embeds segment data into communications into beta, which further demonstrates the value we can deliver to our customers by combining segment data with our communications product.

Khozema Z. Shipchandler: Customer AI predictions is continuing to get adopted by new customers and since it's GE in Q3 2023 more customers are realizing the benefits and positive material impact to their businesses.

Khozema Z. Shipchandler: For instance, XP, Inc. A Brazilian investment management company said that since implementing customer AI predictions and by using our out of the box tools.

Khozema Z. Shipchandler: David and I will just say their team four weeks of data science work and improved audience engagement and conversion rates.

Khozema Z. Shipchandler: Looking ahead to Q2, we will bring our second product that natively embedded segment and the communications into beta, which further demonstrates the value we can deliver to our customers by combining segment data with our communications products.

Khozema Z. Shipchandler: Before turning things over to Aidan, I want to take a moment to welcome the new leaders that have joined my management team. During the quarter, we welcomed Inbal Shani as our Chief Product Officer for Twilio Communications and Thomas Wyatt as our President of Segment.

Speaker Change: Before turning things over to Ian I want to take a moment to welcome the new leaders that have joined my management team during the quarter, we welcomed <unk> as our chief product officer for Twilio Communications and Thomas why it is our president of segment.

Khozema Z. Shipchandler: And yesterday, Chris Keller joined as our Chief Marketing Officer. We've also taken a thoughtful approach to evolving our governance practices. First, we welcome Andy Staffman, a partner at Sachem Head Capital Management, to Twilio's Board of Directors.

Khozema Z. Shipchandler: And yesterday, Kris Keller joined as our Chief marketing Officer.

Khozema Z. Shipchandler: We've also taken a thoughtful approach to evolving our governance practices.

Khozema Z. Shipchandler: We welcomed Andy staff men a partner at <unk> had capital management to Twilio as board of directors.

Khozema Z. Shipchandler: And second, we announced in early April that we plan to hold an Investor Day within the next 12 months, at which time we'll share an updated medium-term financial framework and set of targets. And finally, we recently submitted a proposal for the declassification of our board, which will be voted upon at our annual shareholder meeting in June. In summary, we're making a lot of progress in a very short period of time, and we're continuing to drive significant change. We're maturing as a company and as a team. We're making deliberate decisions with discipline, rigor, and focus to deliver attractive levels of growth and profitability over the medium term.

Khozema Z. Shipchandler: And second we announced in early April that we plan to hold an investor day within the next 12 months at which time, we will share an updated medium term financial framework and set of targets.

Khozema Z. Shipchandler: And finally, we recently submitted a proposal for the declassification of our board, which will be voted upon at our annual shareholder meeting in June.

Khozema Z. Shipchandler: In summary, we're making a lot of progress in a very short period of time and we're continuing to drive significant change, we're maturing as a company and as a team.

Khozema Z. Shipchandler: We're making deliberate decisions with discipline and rigor and focus to deliver attractive levels of growth and profitability over the medium term.

Khozema Z. Shipchandler: Well, we've started to see positive impacts from some of these changes and our recent financial results. Others will take longer to bear fruit, but we are confident that the opportunities we pursue will create meaningful value for all of our stakeholders and allow us to deliver on our commitment to drive durable, profitable growth over the long term. And with that, I'll turn it over to Aidan. Thank you, Khozema.

Khozema Z. Shipchandler: While we have started to see positive impacts from some of these changes in our recent financial results.

Khozema Z. Shipchandler: Others will take longer to bear fruit, but we are confident that the opportunities we pursue will create meaningful value for all of our stakeholders and allow us to deliver on our commitment to drive durable profitable growth over the long term.

Aidan Viggiano: And with that I'll turn it over to Ed.

Aidan Viggiano: In Q1, we exceeded our guidance on both revenue and non-GAAP income from operations and delivered our fourth consecutive quarter of solid free cash flow generation. Q1 revenue was $1.047 billion, up 4% reported and 7% organically year-over-year. Communications revenue was $972 million, up 4% reported and 7% organically year-over-year.

Aidan Viggiano: Thank you Emma.

Aidan Viggiano: Q1, we exceeded our guidance on both revenue and non-GAAP income from operations and delivered our fourth consecutive quarter of solid free cash flow generation.

Aidan Viggiano: Q1 revenue was $1 7 billion up 4% reported and 7% organically year over year communications revenue with $972 million up 4% reported and 7% organically year over year.

Aidan Viggiano: And segment revenue was $75 million, up 2% year-over-year. Our Q1 revenue growth was impacted by the crypto headwinds that we've referenced the past several quarters, as well as the sunsetting of the software component of our Zipwit business that we discussed during our Q4 2023 earnings call. These represented a combined 210 basis point headwind to our organic residue growth in Q1. Excluding these items, Consolidated Q1 Organic Revenue Growth was 9%, and Communications Organic Revenue Growth was 10% year-over-year.

Aidan Viggiano: <unk> segment revenue was $75 million up 2% year over year.

Aidan Viggiano: Our Q1 revenue growth was impacted by the crypto headwind that we've referenced in the past several quarters as well as the sunsetting of the software component of our business that we discussed during our Q4 2023 earnings call.

Aidan Viggiano: These represented a combined 210 basis point headwind to our organic revenue growth in Q1.

Aidan Viggiano: Excluding these items consolidated Q1 organic revenue growth was 9% and communications organic revenue growth was 10% year over year.

Aidan Viggiano: We have now lapped the crypto headwinds and do not expect a material negative impact on revenue growth from these customers moving forward. We continue to expect modest headwinds throughout 2024 from sunsetting the software component of our ZipList business, which we estimate to be roughly 100 basis points in Q2 and 80 basis points for the whole year. We also previously announced the sunsetting of our video product. However, based on customer feedback, we've extended the transition support timeline through 2026.

Aidan Viggiano: We have now lapped the crypto headwind and do not expect a material negative impact to revenue growth from these customers moving forward.

Aidan Viggiano: To expect modest headwinds throughout 2024 from sunsetting, the software component of our Zip.

Aidan Viggiano: Which we estimate to be roughly 100 basis points in Q2, and 80 basis points for the full year.

Aidan Viggiano: We also previously announced the sunsetting of our video product. However, based on customer feedback we've extended the transition support timeline through 2026.

Aidan Viggiano: As a result, we no longer expect notable headwinds from video in 2024. Our Q1 dollar-based net expansion rate was 102 percent. Our dollar-based net expansion rate for communications was 103%, a modest improvement quarter over quarter. Our dollar-based net expansion rate for communications was 105%, excluding crypto and Ziploc software customers.

Aidan Viggiano: As a result, we no longer expect notable headwinds from video in 2024.

Aidan Viggiano: Yes.

Aidan Viggiano: Our Q1 dollar based net expansion rate was 102%.

Aidan Viggiano: Our dollar based net expansion rate for communication by the 103%.

Aidan Viggiano: Modest improvement quarter over quarter.

Aidan Viggiano: Our dollar based net expansion for communications was 105% excluding kicked out and ZIP software customers.

Aidan Viggiano: Our dollar-based net expansion rate per segment was 92%, driven primarily by elevated churn and contraction. As discussed during our operational review in early March, we are focused on improving customer time-to-value, and we're also investing in data warehouse interoperability, both of which we believe will improve segments' churn and contraction over time. We delivered a record non-GAAP gross profit of $566 million, up 8% year-over-year. This represented a non-GAAP gross margin of 54.1 percent.

Aidan Viggiano: Our dollar based net expansion rate for segment was 92% driven primarily by elevated churn and contraction.

Aidan Viggiano: As discussed during our operational review in early March we have focused on improving customer tied to value and we're also investing in data warehouse interoperability both of which we believe will improve segments churn and contraction over time.

Aidan Viggiano: We delivered record non-GAAP gross profit of $566 million up 8% year over year.

Aidan Viggiano: This represented a non-GAAP gross margin of 54, 1%.

Aidan Viggiano: This was up 180 basis points year over year and 170 basis points quarter over quarter. The margin improvement quarter over quarter was primarily driven by lower international messaging mix and lower hosting fees as a result of larger credits on our cloud spend, which benefited both communications and segment gross margin. As a reminder, we continue to manage the business towards gross profit dollar growth. Q1 non-GAAP gross margins for our communications and segment business units were 52.2% and 77.6%, respectively.

Aidan Viggiano: This was up 180 basis points year over year, and 170 basis points quarter over quarter.

Aidan Viggiano: The margin improvement quarter over quarter was primarily driven by lower international messaging deck and lower hosting fees as a result of larger credits on our cloud spend which benefited both communications and segment gross margins.

Aidan Viggiano: As a reminder, we continue to manage the business towards gross profit dollar growth.

Aidan Viggiano: Q1, non-GAAP gross margins for our communications segment business units were 52, 2% and 77, 6% respectively.

Aidan Viggiano: As a reminder, we are migrating part of Segment's architecture to new infrastructure providers this year to recognize greater... During this transition, we will incur some overlapping vendor expenses. As a result, we expect Segment's gross margin rate to decline throughout the year until the migration is completed. Q1 non-gas income from operations was $160 million, up 54% year-over-year.

Aidan Viggiano: As a reminder, we are migrating our segments architecture to new infrastructure providers this year to recognize greater efficiencies.

Aidan Viggiano: During this transition we will incur some overlapping vendor expenses as.

Aidan Viggiano: As a result, we expect segment gross margin rate to decline throughout the year until the migration is complete.

Aidan Viggiano: Q1, non-GAAP income from operations was $160 million up 54% year over year.

Aidan Viggiano: As we mentioned last quarter, this included $19 million of sequential incremental expenses associated with our new employee cash bonus program, which we initiated to reduce stock-based compensation expenses over time. Our Q1 non-GAAP operating margin of 15.2% was up almost 500 basis points year-over-year and down 80 basis points versus the prior quarter, driven by a 180 basis point impact from the new employee cash bonus program. Q1 non-GAAP income from operations for our communications business was $249 million, and the Q1 non-GAAP loss from operations for our segment business unit was $21 million. Q1 gap loss from operations was $44 million, which included $10 million of expenses associated with restructuring charges.

Aidan Viggiano: As we mentioned last quarter. This included $19 million of sequential incremental expenses associated with our new employee cash bonus program, which we initiated to reduce stock based compensation expenses over time.

Aidan Viggiano: Our Q1 non-GAAP operating margin of 15, 2% was up almost 500 basis points year over year and down 80 basis points.

Aidan Viggiano: Firstly as the prior quarter, driven by a 180 basis point impact from the new employee cash bonus program.

Aidan Viggiano: Q1, non-GAAP income from operations for our communications business with $249 million and the Q1 non-GAAP loss from operations of our segment business unit was $21 million.

Aidan Viggiano: Q1, GAAP loss from operations was 44 million, which included $10 million of expenses associated with restructuring charges.

Aidan Viggiano: Stock-based compensation as a percentage of revenue was 14.9% in Q1, excluding approximately $2 million of restructuring costs, down 40 basis points quarter over quarter and 100 basis points year over year. We generated free cash flow of $177 million in Q1, inclusive of $23 million of restructuring. This is up $292 million year over year, and over the last 12 months, we've generated free cash flow of $655 million. I'm really pleased with our continued progress on free cash flow.

Aidan Viggiano: Stock based compensation as a percentage of revenue was 14, 9% in Q1, excluding approximately $2 million of restructuring costs down 40 basis points quarter over quarter, and 100 basis points year over year.

Aidan Viggiano: We generated free cash flow of $177 million in Q1 inclusive of $23 million of restructuring payments.

Aidan Viggiano: This is up $292 million year over year and over the last 12 months, we've generated free cash flow of $655 million.

Aidan Viggiano: I'm really pleased with our continued progress on free cash flow, it's been a key area of focus for the team over the last several quarters and reflects our ongoing work to drive efficiency in the business.

Aidan Viggiano: It's been a key area of focus for the team over the last several quarters and reflects our ongoing work to drive efficiency in the business. As a reminder, in March, we provided fiscal year 2024 targets of 5 to 10 percent organic revenue growth and $550 million to $600 million of non-GAAP income from operations, inclusive of an estimated $90 million of incremental expenses associated with the new employee cash bonus program that was introduced to reduce stock-based compensation expenses over time.

Aidan Viggiano: As a reminder, in March we provided fiscal year 2024 target of 5% to 10% organic revenue growth and $550 million to $600 million of non-GAAP income from operations inclusive of an estimated $90 million of incremental expenses associated with the new employee cash bonus.

Aidan Viggiano: Program that was introduced to reduced stock based compensation expenses over time.

Aidan Viggiano: And as Khozema mentioned, we accelerated our target for GAAP operating profitability from fiscal year 2027 to Q4 2025. We also committed to driving the segment to breakeven on a non-gap income from operations basis by Q2 2025. Finally, we're continuing to make good progress on our $3 billion share buyback program, having repurchased over $720 million since our last earnings call in February. This brings our total repurchases today to approximately $1.5 billion.

Aidan Viggiano: And as Damon mentioned, we accelerated our target for GAAP operating profitability for fiscal year 2027 for Q4 2025.

Aidan Viggiano: Also committed to driving segment to breakeven on a non-GAAP income from operations basis by Q2 2025.

Aidan Viggiano: Finally, we're continuing to make good progress on our $3 billion share buyback program, having repurchased over $720 million since our last earnings call in February.

Aidan Viggiano: This brings our total repurchases to date to approximately $1 $5 billion.

Aidan Viggiano: We intend to complete the remaining $1 5 billion of authorizing purchases by year yen, which has meaningfully reduced our outstanding share count over the next few quarters.

Aidan Viggiano: We intend to complete the remaining $1.5 billion of authorized repurchases by year's end, which should meaningfully reduce our outstanding share count over the next few quarters. Moving on to guidance. For Q2, we're initiating a revenue target of $1.05 billion to $1.06 billion, representing year-over-year growth of 1% to 2% on a reported basis and 4% to 5% on an organic basis. We're also reiterating our full year organic revenue growth range of 5 to 10 percent. Turning to our profit outlook, for Q2, we expect non-GAAP income from operations of $135 million to $145 million.

Aidan Viggiano: Moving to guidance for Q2 were initiating a revenue target of $1 <unk> 5 billion to $1 <unk> 6 billion, representing year over year growth of 1% to 2% on a reported basis and 4% to 5% on an organic basis.

Aidan Viggiano: We're also reiterating our full year organic revenue growth range of 5% to 10%.

Aidan Viggiano: Turning to our profit outlook for Q2, we expect non-GAAP income from operations of $135 million to $145 million.

Aidan Viggiano: This is down sequentially primarily due to incremental payroll expenses associated with our standard merit increases that go into effect in Q2, consistent with prior years, as well as increased marketing and travel expenditures. However, given our outperformance in Q1, we're raising our full year non-GAAP income from operations guidance to $585 million to $635 million. Additionally, we are continuing to focus on improving our free cash flow profile, and we anticipate that full-year free cash flow generation will be in line with our full-year non-GAAP income from operations.

Aidan Viggiano: This is down sequentially, primarily due to incremental payroll expenses associated with our standard merit increases that go into effect in Q2, consistent with prior years as well as increased marketing and travel expenditures.

Aidan Viggiano: However, given our outperformance in Q1, we're raising our full year non-GAAP income from operations guidance to $585 million to $635 million.

Aidan Viggiano: Additionally, we are continuing to focus on improving our free cash flow profile and we anticipate that full year free cash flow generation will be in line with our full year non-GAAP income from operations.

Aidan Viggiano: As we look ahead, we're investing in initiatives to reaccelerate growth. At the same time, we've accelerated our path to gap profitability, we're generating significant free cash flow, and we are Shared by that program. I'm excited to continue to build on the progress we've made to deliver improved outcomes for both our customers and our shareholders over the coming quarter. And with that, we'll now open it up to questions. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our first question comes from the line of Jim Fish with P.S. Hey, guys, this is Quinton on for Jim Fish.

Aidan Viggiano: As we look ahead, we are investing in initiatives to reaccelerate growth.

Aidan Viggiano: At the same time, we've accelerated our path to GAAP profitability, we're generating significant free cash flow and.

Quinton: Share buyback program.

Aidan Viggiano: I'm excited to continue to build on the progress we've made to deliver improved outcomes for both our customers and our shareholders over the coming quarters.

Speaker Change: And with that I will.

Quinton: Now open it up to questions.

Quinton: Thank you.

Quinton: As a reminder to ask a question. Please press star one one on your telephone.

Quinton: And wait for your name to be announced to withdraw your question. Please press star one one again.

Quinton: Our first question comes from the line of Jim Fish with PSC.

Quinton: Thanks for taking our question. Maybe first, you know, how are you looking at kind of the bifurcation between budgets or demand strength across, you know, your mid market and commercial versus your more enterprise customers at this point? Is the willingness to spend, you know, very similar across those two verticals? Are you seeing significant strength or weaknesses across, you know, one or the other?

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

Quinton: Maybe first.

Quinton: How are you looking at kind of the bifurcation between budgets or demand strength across call. It mid market and commercial versus your more enterprise customers. At this point is the willingness to spend very similar across those two verticals are you seeing significant strength or weaknesses across one or the other.

Khozema Z. Shipchandler: Yeah, I would say that, in general, we're seeing demand volume kind of hang in there across the board. I think that the growth profile that we've seen with most customers continues to be pretty good. There are a couple of pockets, I'd say, especially with respect to internationally terminating traffic, where we're seeing a little bit more weakness.

Speaker Change: Yes, I would say that.

Khozema Z. Shipchandler: In general, we're seeing kind of demand volume kind of hanging there across the board I think that.

Khozema Z. Shipchandler: The growth profile that we've seen with most customers continues to be pretty good. There is a couple of pockets I'd say, especially with respect to internationally terminating traffic, where we're seeing a little bit more weakness.

Khozema Z. Shipchandler: But I think that as you look at most of the industries that we ended up serving we are seeing year over year growth, obviously theres some noise in our business with respect to what we've got in terms of ZIP with in the comp set that creates.

Khozema Z. Shipchandler: But I think that as you look at most of the industries that we end up serving, we are seeing year over year growth. Obviously, there's some noise in our business with respect to what we've got in terms of ZipWhip and the concept that it creates. And I think, in general, that we've oriented our sales team around gross profit dollars, as Aidan mentioned in her remarks, and we're trying to maintain the price discipline that we've always talked about in prior calls like these.

Khozema Z. Shipchandler: And then I think in general like we've oriented our sales team around gross profit dollars as Steven mentioned in her remarks.

Khozema Z. Shipchandler: And we're trying to maintain the price discipline that we've always talked about in prior calls like these I think kind of the wrapper on the whole thing is is that we've seen volume stabilize for some period of time, we havent seen them quite inflect upwards and I'd say in particular, that's a call outs or for international I think on the flip side.

Khozema Z. Shipchandler: There's a number of things that we're working through.

Khozema Z. Shipchandler: Both short term and long term kind of growth initiatives and we feel pretty good about those but those are going to take some time to kind of play out I think in the short term cross sells an area that we're particularly focused as well as with Isps that should drive incremental growth over time in the meantime, we are really focused on cash flow and additional operating leverage.

Khozema Z. Shipchandler: I think in the short term, cross-sell is an area that we're particularly focused on, as well as with ISVs, that should drive incremental growth over time. And in the meantime, we're really focused on cash flow and additional operating leverage.

Khozema Z. Shipchandler: <unk>.

Aidan Viggiano: And then, Aidan, maybe for you, gross margins here were a bright spot for sure. Can you talk about why this wouldn't be a kind of sustainable uplift, understanding, you know, some benefit from product mix? But, you know, why couldn't we see this kind of upside continue through the rest of the year? Thank you. Yeah, sure. So we saw gross margins up 170 points quarter over quarter, with both business units up as well.

Speaker Change: Got it and then maybe for you gross margins here was a bright spot for sure can you talk about why this wouldn't be a kind of sustainable uplift understanding some benefit from product mix, but.

Aidan Viggiano: Why couldn't we see this kind of upside continue through the rest of the year. Thank you.

Aidan Viggiano: Yeah sure. So we saw gross margins up 170 basis points quarter over quarter with both business units as well.

Aidan Viggiano: So a couple of dynamics. First, on the communication side, which is, you know, the business that carries Twilio at this point, they were up 150 points quarter over quarter. Part of that was what you said, which was the favorable mix between the US and international. But, as Khozema just mentioned, we did see lower international terminating traffic.

Speaker Change: So a couple of dynamics first on the communication side.

Aidan Viggiano: The business that carries Twilio at this point they were up 158 points quarter over quarter part of it was what you said, which was the favorable mix between U S and international as David Just mentioned, we did see lower international terminating traffic. So that has a benefit to gross margins because we know gross margins.

Aidan Viggiano: So that has a benefit to gross margins, because we know gross margins, as we've communicated in the past, are lower internationally than domestically. We also had, in this quarter, as I said in the prepared remarks, some benefit from credits related to hosting spend. That benefited Q1 by about 80 basis points. We don't expect that to continue.

Aidan Viggiano: In the past, but lower internationally than domestically. We also had in this quarter as I said in the prepared remarks, some benefit from credits related to hosting spend that benefited Q1 by about 80 basis points. We don't expect that to continue and so I'd say the combination of those two things the hosting credits now.

Aidan Viggiano: And so I'd say the combination of those two things, the hosting credits not continuing, as well as the fact that this mix isn't necessarily controllable by us, is kind of how I think about gross margins going forward. Thank you. One moment, please, for our next question. And our next question comes from the line of Mark Murphy, J.P. Morgan.

Mark Murphy: <unk> as well as the fact that mix isn't necessarily controllable by US is kind of how I think about gross margins going forward.

Aidan Viggiano: Yeah.

Mark Murphy: Thank you.

Mark Murphy: Please for our next question.

Aidan Viggiano: And our next question comes from the line of Mark Murphy with JP Morgan.

Mark Murphy: Oh, thank you very much. Khozema, prior to the business review, our sense was that the Segment business could preserve some of the AI optionality because you can combine that with comms, as you mentioned, and then the broader customer AI vision, just recognizing it's sluggish overall in that business. Is Segment seeing some usage for pulling customer data into LLMs? And I'm also wondering about that, because you did mention Databricks. Connectivity, and I was just trying to understand what kind of projects those are.

Mark Murphy: Alright, Thank you very much.

Mark Murphy: Because I was thinking back prior to the business review, our sense was that the segments.

Mark Murphy: Could preserve some of the AI optionality because you can you can combine that with com as you mentioned to them.

Mark Murphy: The broader customer AI vision, just recognizing it's sluggish overall in that business is segment seeing some usage for pulling.

Mark Murphy: Pulling customer data into Llm's and I'm also wondering about that because you did mentioned the data bricks con.

Khozema Z. Shipchandler: And if you're seeing more of that in the pipeline, then I do have a very quick follow-up. Yeah, good question, Mark. So there's, there's kind of two dynamics there. So I think the first is that with respect to segment specifically, one of the things that we committed to as part of the operating review was to make sure that we were able to combine some of the data elements of segment with the communications capabilities that we have. We launched that product. It's called the Agent Co-Pilot.

Mark Murphy: Connectivity.

Speaker Change: I was just trying to understand what kind of projects those are and if you're seeing more of that in the pipeline and then I do have a very quick follow up.

Khozema Z. Shipchandler: That Agent Co-Pilot uses something that we refer to as unified profiles. And so basically, what that allows for is the ability for an agent to be able to absorb information during the context of a call, for that data to be stored subsequently, and then for us to be able to create a flywheel so that every subsequent interaction with that consumer, and then with consumers more broadly, for one of our customers, they're able to get value out of that, fundamentally reduce costs, have a better customer experience. And that If that data is then subsequently fed back into the copilot, and then that flywheel just kind of keeps on turning.

Speaker Change: Yes. Good question, Mark So theres kind of two dynamics there. So I think the first is is that.

Khozema Z. Shipchandler: With respect.

Khozema Z. Shipchandler: <unk> segment, specifically like one of the things that we committed to as part of the operating review was to make sure that we were able to combine some of the data elements of segment with the communications capabilities that we have but we launched that product. It's called the agent co pilot that agent co pilot uses.

Khozema Z. Shipchandler: Something that we referred to as unified profiles and so basically what that allows for US is the ability for an agent to be able to absorb information during the context of a call for that data to be stored subsequently and then for us to be able to create a flywheel. So that every subsequent interaction.

Khozema Z. Shipchandler: With that consumer and then with consumers more broadly for one of our customers, they're able to get value out of that fundamentally reduce costs have a better customer experience.

Khozema Z. Shipchandler: And that kind of creates a generative flywheel. If you will where segment is continually used through the unified profile. If that data is that subsequently fed back into the co pilot and then that's why we will just kind of keeps on turning and so that's how I kind of think about the optionality with respect to segment, we committed to three products actually during the course of the year.

Khozema Z. Shipchandler: And so that's how I kind of think about the optionality with respect to segment. We committed to three products actually during the course of the year, and we've delivered one.

Khozema Z. Shipchandler: We kind of alluded to the second one being on track for the upcoming quarter. So we feel pretty good about our progress there, too. And then, more broadly, like there's a number of generative AI elements, both within communications as well as across segments. And those things are happening nicely. The other part of the question that you asked about was Databricks.

Khozema Z. Shipchandler: We've delivered one we kind of alluded to the second one being on track for the upcoming quarters. So we feel pretty good about our progress there too and then I think more broadly like Theres, a number of generative AI elements, both within communications as well as segment and those things are happening nicely.

Khozema Z. Shipchandler: The other part of the question that you asked about was Dana bricks.

Khozema Z. Shipchandler: And, you know, with Databricks and Snowflake, actually, one of the priorities that we also laid out as part of the operating review was to establish greater data warehouse interoperability. With those folks, as well as the other big data warehouse players that are out in the market, and so the way that you should think about some of the announcements that we made as part of the release today is that, Fulfilling on that exact same roadmap that we articulated about a month and a half ago, we're making the progress that we intended to make. We're starting to see traction with those two players, and in particular, you asked about Databricks. That allows us to basically seamlessly offer data back and forth on behalf of our customers who may be already Databricks users.

Khozema Z. Shipchandler: With the <unk> like actually one of the priorities that we also laid out as part of the operating review was to establish greater Jarrett data warehouse interoperability.

Khozema Z. Shipchandler: With those folks as well as the other big data warehouse players that are out in the market and so the way that you should think about some of the announcements that we made as part of the release today is that.

Khozema Z. Shipchandler: Fulfilling on that exact same roadmap that we articulated about a month and a half ago, we're making the progress that we intended to make we're starting to see traction with those two players in particular, you asked about data bricks that allows us to basically seamlessly.

Khozema Z. Shipchandler: Offer data back and forth on behalf of our customers, who may be already data breaks users and so we think that that's additive not segment, but increasingly to the entire enterprise as we leverage the combined capabilities of segment communications.

Mark Murphy: And so we think that that's additive, not just to Segment but increasingly to the entire enterprise as we leverage the combined capabilities of Segment. Okay, that's very clear and compelling. I think I'm going to hold off on my other question and try to preserve some time for others. So, thank you, and talk soon.

Mark Murphy: Okay, that's very clear and compelling.

Speaker Change: Compelling I think are going to hold off on my other question and try to.

Speaker Change: Preserve some time for others.

Speaker Change: Thank you and talk soon.

Speaker Change: Okay. Thanks.

Meta A. Marshall: Thank you. One moment, please, for our next question. Our next question comes from the line of Meta Marshall with Morgan Stanley. Great, thanks.

Speaker Change: Thank you.

Speaker Change: I'm pleased for our next question.

Meta A. Marshall: Our next question comes from the line of meta Marshall with Morgan Stanley.

Khozema Z. Shipchandler: Maybe following up on segment, you know, understanding kind of the product rollouts that are happening, but maybe just, you know, we're about 60 days in to new leadership there. Any thoughts on new leadership as they've gotten in and how to improve the go-to-market there? That'd be helpful. Thanks. Yeah, good question, Meta.

Meta A. Marshall: Great. Thanks.

Meta A. Marshall: Following up on segment.

Khozema Z. Shipchandler:

Speaker Change: Understanding kind of the product rollouts that are happening, but maybe it does and it we're about 60 days and to new leadership, there just any thoughts of new leadership as they've gotten and then how to improve the go to market there that'd be helpful. Thanks.

Khozema Z. Shipchandler: So I'll just kind of answer your question more generally. And then I think more specifically about Thomas, and I think the leadership that he's brought. So I think, in terms of the business, we've started to take steps in terms of our path towards, you know, the non-gap operating profit target that we established for Q225, and we feel like we're on track for that. We're making good progress, but that path isn't necessarily going to be linear.

meta: Yes, good question Peter.

Khozema Z. Shipchandler: Just kind of answer your question more generally and then I think more specifically about Thomas and I think leadership that he's brought so I.

Khozema Z. Shipchandler: I think in terms of the business, we have started to take steps in terms of our path towards.

Khozema Z. Shipchandler: The non-GAAP operating profit target that we established for 2025, and we feel like we're on track for that and we're making good progress that path is necessarily going to be linear.

Khozema Z. Shipchandler: And while we are seeing.

Khozema Z. Shipchandler: And, you know, while we're seeing good progress in terms of bookings, you know, that's going to take some time to kind of catch up and ultimately show up in the revenue line. And so there's sort of some dynamics there.

Khozema Z. Shipchandler: Good progress in terms of bookings that's going to take some time to kind of catch up and ultimately show up in the revenue line and so there's sort of some dynamics there in the meantime, we're going to control our costs and be very focused about the.

Khozema Z. Shipchandler: R&D areas of prioritization in terms of go to market or gets Thomas we are starting to see some green shoots.

Khozema Z. Shipchandler: There's a couple of customers that we referenced in our talk track I think we're very excited about the nature of those customers what they do our ability to grow with them I think in particular, we're very excited about is our ability to deliver time to value for those customers significantly faster than I think.

Khozema Z. Shipchandler: In the meantime, we're going to control our costs and be very focused on the R&D areas of prioritization. In terms of going to market, before I get to Thomas, we are starting to see some green shoots. You know, there's a couple customers that we referenced in our talk track. I think we're very excited about the nature of those customers, what they do, our ability to grow with them. I think, in particular, what we're very excited about is our ability to deliver time to value for those customers significantly faster than I think where we've been historically.

Khozema Z. Shipchandler: Where we've been historically.

Khozema Z. Shipchandler: I think in the past that have taken us up to six months in some cases to be able to get to value initially and I think we're starting to see some.

Khozema Z. Shipchandler: Several instances actually where we've been able to achieve that in as fast as 30 days I think Thomas has been an Awesome addition to the leadership team quite frankly.

Khozema Z. Shipchandler: I think in the past, it took us up to six months, in some cases, to be able to get the value initially. And I think we're starting to see some in several instances, actually, where we've been able to achieve that in as fast as 30 days. I think Thomas has been an awesome addition to the leadership team.

Khozema Z. Shipchandler: With respect to all of our leaders I feel very very strong about our leadership bench overall.

Khozema Z. Shipchandler: But in terms of Thomas specifically, given his deep knowledge of the product just given his background where.

Khozema Z. Shipchandler: He focused both on sort of product as well as marketing, which is useful because the marketer often tends to be the buyer and some of these instances I think thats been a real accelerant in terms of the progress that we expect and I think just in general it's provided some stability and focus which is also something that we're very geared towards with respect to segment.

Khozema Z. Shipchandler: Quite frankly, with respect to all of our leaders, I feel very, very strong about our leadership bench overall. But in terms of Thomas, specifically, given his deep knowledge of the product, just given his background where he focused both on the product as well as marketing, which is useful because the marketer often tends to be the buyer in some of these instances. I think that's been a real accelerant in terms of the progress that we expect. And I think, just in general, it's provided some stability and focus, which is also something that we're very geared towards with respect to, Thanks so much. I'll pass it on.

Speaker Change: Great. Thanks, so much I'll pass it on.

Khozema Z. Shipchandler: Thanks.

Speaker Change: Thank you <unk>.

Meta A. Marshall: Thanks. Thank you. A moment, please, for our next question. Our next question comes from the line of Taylor McGinnis with UBS, a bit more color on what's driving the slower organic growth guide of 4% to 5% in 2Q. So it looks like crypto revenue in 1Q is actually higher than 4Q. So that combined with, you know, some of the other headwinds that you might be experiencing, you would think that that would lead to accelerating growth.

Speaker Change: Please for our next question.

Taylor Anne McGinnis: And our next question comes from the line of Taylor <unk> with UBS.

Taylor Anne McGinnis: Yeah, hi, thanks, so much for taking my question I'm, hoping that you could provide a little bit more color on what's driving the slower organic growth guide.

Taylor Anne McGinnis: 4% to 5% and QQ. So it looks like crypto revenue in <unk> was actually higher than <unk>. So that combined with some of the other headwinds that you might be lapping you would think that that would lead to accelerating growth. So can you just maybe comment on why that may not be materializing and at the start of QQ has there been any <unk>.

Meta A. Marshall: So can you just maybe comment on, you know, why that might not be materializing? And at the start of 2Q, has there been any deterioration in the macro or anything in the demand environment that may be driving some of that? Thank you so much.

Meta A. Marshall: <unk> in the macro or anything in the demand environment that might be driving some of that thank you. So much.

Taylor Anne McGinnis: So a couple of things to call out. We have largely left crypto at this point; we don't expect it to be a headwind in Q2. We do have some product-specific dynamics that we've called out before. So, as we've said, first segment revenue of 2% in Q1 from a growth perspective, we expect it to be muted for the. As Khozema said, we're working on a number of different initiatives there, but they'll take time to kind of show up in our financial... We also have some noise from the end-of-life of our Zip It will be about 100 basis points of a headwind in Q2, and roughly 80 basis points for the year.

Speaker Change: Yes, I'll start <unk> wants to add a couple of things to call out that we have largely lapped crypto at this point, we don't expect it to be a headwind in Q2.

Taylor Anne McGinnis: We do have some product specific dynamics that we've called out before so as we said so first segments revenue with 2% in Q1 from a growth perspective, we expect it to be muted for the year.

Taylor Anne McGinnis: Zama said, we're working on a number of different initiatives here, but they will take time to kind of show up in our financial results.

Taylor Anne McGinnis: We also had some noise from the end of life of our <unk> software product that will be a headwind to growth.

Taylor Anne McGinnis: Be about 100 basis points of a headwind in Q2, roughly 80 basis points for the year and then I would just say more broadly.

Aidan Viggiano: And then I can say more broadly, you know, we've continued to see volumes stabilize, as Khozema mentioned, in our communications business. And we are seeing year-over-year growth in most of the industries that we operate in, but we're not yet seeing total volumes kind of inflect or growth reaccelerate. And I'd say that trend is more evident with our internationally terminating traffic. So we've seen lower internationally terminating traffic volumes, which is reflected in... What we talked about was gross margins being a little bit higher, as I mentioned earlier. We're really reorienting the teams around gross profit, and we're maintaining price discipline as we pursue certain international markets. We saw gross profits grow by 10%.

Aidan Viggiano: Continued continue to see volumes stabilize as Damon mentioned in our communications business and we are seeing year over year growth in most of the industries that we operate in but we're not yet seeing total volumes kind of inflect or growth Reaccelerate and I'd say that trend is more evident with our internationally terminating traffic we've seen lower <unk>.

Aidan Viggiano: Nationally terminating traffic volumes, which is reflected in <unk>.

Aidan Viggiano: What we talked about with gross margins being a little bit higher as I mentioned earlier.

Aidan Viggiano: We are really reorienting the teams around gross profit and we're maintaining price discipline as we pursue certain international markets and so we saw gross profit to grow by 10%. We think that's the right way to run the business, but we are seeing lower traffic. There. So that's having a bit of an impact.

Aidan Viggiano: We think that's the right way to run the business, but we are seeing lower traffic there, so that's having a bit of an impact. But we're not standing still. As Khozema mentioned, we have a number of short and long-term growth initiatives underway. I'm not going to reiterate all of the actions and the opportunities that he talked about.

Aidan Viggiano: But we're not standing still it because as I mentioned, we have a number of short and long term growth initiatives underway I'm not going to reiterate all of.

Aidan Viggiano: The actions and the opportunities that he has talked about the last thing I'll say is that regardless of where we are in the growth range. We're going to continue to deliver the profit to cash flow. We have proven over the last year that we can drive significant profitability and cash generation in this business and while we're working to Reaccelerate growth, we're confident in our ability to get there.

Aidan Viggiano: The last thing I'll say is that regardless of where we are in the growth range, we're going to continue to deliver profits and cash flow. We've proven over the last year that we can drive significant profitability and cash generation in this business. And while we're working to reaccelerate growth, we're confident in our ability to get there on both profit and cash, as evidenced by the incremental guidance that we gave on total year-free cash flow today. And I would say we're also willing to be opportunistic and repurchase our shares when we believe they're undervalued. Great. Thanks so much.

Aidan Viggiano: And cash as evidenced by the.

Aidan Viggiano: And congrats what guidance that we gave on total year free cash flow today.

Aidan Viggiano: And I'd say, we're also willing to be opportunistic in repurchasing our shares.

Aidan Viggiano: When we believe they are undervalued.

Speaker Change: Great. Thanks, so much.

Speaker Change: Thank you <unk>. Please.

Taylor Anne McGinnis: Thank you. One moment, please, for our next question. Our next question comes from the line of Aleksandr Zukin with Wolf Research.

Speaker Change: Please for our next question.

Aleksandr J. Zukin: Our next question comes from the line of Alex Zukin with Wolfe Research.

Aleksandr J. Zukin: Yeah, hey guys, thanks for taking the question. I guess maybe any kind of changes in the competitive environment internationally and then domestically, again, sounds like a stabilization and messaging volume. Is that more of a mixed shift towards SMS and personalized messaging? Is that branded calling? Curious what's helping kind of drive that NRR stabilization.

Aleksandr J. Zukin: Yeah, Hey, guys. Thanks for taking the question I guess maybe.

Aleksandr J. Zukin: Any changes in the competitive environment.

Aleksandr J. Zukin: Internationally, and then domestically again, it sounds like a stabilization and messaging volume is that more of a mix shift towards SMS and personalized messaging as a branded call Im curious whats, helping kind of drive that enter our stabilization.

Speaker Change: And then just a quick follow up.

Operator: And then just a quick follow-up. Alex, I'm just going to repeat the question back to you because we had a little bit of difficulty hearing you. So the way that I heard you ask it was whether or not we were seeing any changes in the competitive environment, or domestically, that it sounds like to you that there was stabilization of messaging volume. And then, is there more of a makeshift towards SMS, personalized messaging, basically what's kind of driving NRR stabilization? Did we hear the question right? Yes, you did.

Speaker Change: Yes, Alex I am just going to repeat back the question because we had a little bit of difficulty hearing you. So the way that I heard you ask it was whether or not we were seeing any changes in the competitive environment.

Operator: International.

Operator: Or domestically.

Operator: But it sounds like to you that there were as stabilization and messaging volumes and then is there more of a mix shift towards SMS precise messaging basically what's kind of driving at.

Operator: Our stabilization here.

Speaker Change: Here the question right.

Alex: Yes sure Dan.

Khozema Z. Shipchandler: Okay, so in terms of the competitive environment, I'd maybe stick that one first. I wouldn't say that we've seen any real changes there. I think that, as Aidan alluded to in her prior answer, You know, we have seen a little bit of softness in terms of internationally terminating traffic.

Alex: Okay. Thanks, so in terms of the competitive environment, maybe just pick that one first I wouldn't say that we've seen any real changes there I think that.

Khozema Z. Shipchandler: As Ed alluded to in her prior answer.

Khozema Z. Shipchandler: We have seen a little bit of softness in terms of internationally terminating traffic I think from our perspective like we always want to maintain price discipline about the way that we think about those markets and so.

Khozema Z. Shipchandler: I think from our perspective, like, we always want to maintain price discipline in the way that we think about those markets, and so that's kind of what we've seen. Otherwise, volumes across the board have been more or less stable, but they haven't inflected, and I think that's kind of impacting some of the growth dynamics as we look forward. There's a bunch of new stuff in the hopper that we're kind of thinking about and executing on.

Khozema Z. Shipchandler: That's kind of what we have seen otherwise the volumes across the board have been more or less stable, but they haven't inflected and I think that's kind of impacting some of the growth dynamics as we look forward there is.

Khozema Z. Shipchandler: A bunch of new stuff in the Hopper that we're kind of thinking about and executing against it'll just take a little bit of time for that to show up in some of the growth numbers in terms of mix I wouldn't say that there is like anything significant happening in mix other than what we've already talked about in terms of.

Khozema Z. Shipchandler: It'll just take a little bit of time for that to show up in some of the growth numbers. In terms of mix, I wouldn't say that there's anything significant happening in mix other than what we've already talked about in terms of, As international weakens a little bit and you see strength in domestic, that's obviously going to have an impact on gross margins, but I think as it relates to more personalized messaging over time, I think that is certainly our expectation, especially as we pull in segment into more of our communications workloads.

Khozema Z. Shipchandler: As international weakens, a little bit and you see strength in domestic thats, obviously going to have an impact on gross margins, but I think as it relates to more personalized messaging over time I think that is certainly our expectation, especially as we pull ins segment into more of our communications workloads I think we're already starting to see it.

Khozema Z. Shipchandler: I think we're already starting to see examples of that with customers wanting to deliver much more personalized communications using data. I think you'll see more of that through some of the products that we kind of called off. I think agent copilot with unified profiles is one, but voice intelligence, which we've been kind of using within the confines of voice itself, is another.

Khozema Z. Shipchandler: Samples of that with customers wanting to deliver much more personalized communications using data I.

Khozema Z. Shipchandler: I think youll see more of that through some of the products that we kind of called off I think AI co pilot with.

Khozema Z. Shipchandler: Unified profiles is one but voice intelligence, which we've been kind of using within the confines of voice itself is another and I think increasingly youll start to see a lot more personalized communications I think thats the way that generative AI is really going to accelerate our business and some of the.

Aleksandr J. Zukin: And I think increasingly you'll start to see a lot more personalized communications. I think that's the way that generative AI is really going to accelerate our business, and some of the impacts that we see with customers fundamentally to reduce costs and generate better outcomes. And then on the OPEC side, obviously, some kind of moving pieces here in Q1 and Q2. But where do we as you guys think about the kind of balance of both getting the most leverage out of the model?

Aleksandr J. Zukin: Impacts that we see with customers fundamentally to reduce cost and generate better outcomes.

Speaker Change: Makes sense and then on the Opex side.

Aleksandr J. Zukin: Obviously, its some kind of moving pieces here.

Aleksandr J. Zukin: Q1.

Aleksandr J. Zukin: Q2, but where do we as you guys think about.

Aleksandr J. Zukin: The balance of both getting the most leverage out of the model and where you're actually hiring and investing incremental dollars.

Aleksandr J. Zukin: How should we think about the hiring targets for us for kind of the next kind of incremental.

Speaker Change: You too.

Aleksandr J. Zukin: A few quarters.

Aleksandr J. Zukin: And where are you actually hiring and investing incremental dollars? How should we think about the hiring targets for kind of the next kind of incremental year or Q4? Yeah, I can kind of take the question more generally. I think that we don't feel like we have significant headcount needs right now.

Speaker Change: Yes, I can kind of take your question more generally I think that we don't feel like we have significant head count needs right. Now I mean, obviously, we've got to kind of the normal process of back filling and stuff like that but we're not looking to do any material adds I would say that.

Khozema Z. Shipchandler: I mean, obviously, we go through kind of the normal process of backfilling and stuff like that, but we're not looking to do any material ads. I'd say that our priorities right now have been around R&D and just kind of replenishing the pipeline there. We have a number of really focused projects in both communications and segments that we do expect to bear fruit over sort of the medium to long term. And I think that over time, this will start to show up in some of the growth numbers.

Khozema Z. Shipchandler: Our priorities right now have been around R&D. It just kind of replenishing the pipeline. There we have a number of really focused projects in both communications and segment that we do expect to bear fruit over sort of the medium to long term and I think that over time. This will start to show up in some of the growth numbers I think other than that.

Khozema Z. Shipchandler: I think other than that, I wouldn't really expect anything around OPEX other than what we've called out in the past, which is, you know, we've got this bonus program that we've obviously rolled out across the business.

Khozema Z. Shipchandler: That I wouldn't really expect anything around opex other than what we've called out in the past, which is we've got this bonus program that we've obviously rolled out across the business that's kind of a near.

Khozema Z. Shipchandler: That's kind of a near-term impact on OPEX, but I think you understand the dynamics there and the way that that impacts stock-based compensation over time. But otherwise, I think we feel pretty good with the cost-based compensation that we've already got. And I think just one last thing I'll add is that we still see opportunity in terms of, like, geo-diversification of the roles that we're hiring. And then I think the last one is, like, automation, right?

Khozema Z. Shipchandler: <unk> term impact on Opex for this if you understand the dynamics, there and the way that that impacts stock based compensation over time.

Khozema Z. Shipchandler: But otherwise I think we feel pretty good with the cost basis that we've already got and I think just one last thing maybe I'll add as well.

Khozema Z. Shipchandler: We still see.

Khozema Z. Shipchandler: Opportunity in terms of like Geo diversification of of the rules that were hiring and then I think the last one is like automation right. We're obviously doing a lot with automation for customers and we would expect that a lot of those same workloads that we're offering externally should have positive benefits that accrue to twilio as well.

Khozema Z. Shipchandler: We're obviously doing a lot with automation for customers, and we would expect that a lot of those same workloads that we're offering externally should have positive benefits for the crew at Twilio as well. Perfect. Very safe.

Khozema Z. Shipchandler: Okay.

Speaker Change: Perfect very clear thank you guys.

Khozema Z. Shipchandler: Thanks.

Aleksandr J. Zukin: Thank you, guys. Thank you. One moment, please, for our next question. And our next question comes from the line of Ryan Koontz with Needham & Company. Thanks for the question. I wanted to follow up if I could on Aleks' last question there about the competitive dynamic and, you know, how would you explain kind of what's happening with registered and unregistered messages these days? I know you were a leader. Thank you all for joining us.

Speaker Change: Thank you one moment please.

Speaker Change: Please for our next question.

Aleksandr J. Zukin: And our next question comes from the line of Ryan Koontz with Needham <unk> Company.

Ryan Boyer Koontz: Thanks for the question I wanted to follow up if I could on.

Ryan Boyer Koontz: Alex's last question there about the competitive dynamic.

Ryan Boyer Koontz: How would you.

Ryan Boyer Koontz: Explain kind of what's happening with registered unregistered messages. These days I know you were a leader certainly in driving towards that and how is that impacting the competitive landscape today and is there any.

Ryan Boyer Koontz: What's also your perspective, I guess, on the opportunity around the political mess? Yeah, a couple of questions there, Ryan. So, let me, let me take the political one first.

Ryan Boyer Koontz: What's also your perspective, I guess on the opportunity around political messaging as it relates to the election coming up thank you.

Khozema Z. Shipchandler: So I think in 2024, generally, obviously, we're in the middle of an election season cycle, and we will generate some revenue from political customers, but we don't really anticipate an expected outsized impact as a result of the race. And so we're not going to accept any business where that policy is not being properly followed during this upcoming cycle. And we think that's in the best long-term interest of the business and in the best long-term interest of certainly the American consumer, but that has global implications as well because we're taking kind of the same stance in most markets.

Ryan Boyer Koontz: Yes, a couple of questions in there Ryan So let me.

Khozema Z. Shipchandler: Let me take the political one first so I think in 2024 generally obviously, we're in the middle of an election season cycle.

Khozema Z. Shipchandler: We will generate some revenue from political customers, but we don't really anticipate unexpected outsized impact as a result of.

Khozema Z. Shipchandler: The race.

Khozema Z. Shipchandler: Just as a reminder, we have registration requirements and an acceptable use policy in place that we expect all of our customers to follow especially as it relates to opt ins and that really just sort of insurers the quality of traffic on our network. It protects consumers and so we're not going to accept any business where that policy is.

Khozema Z. Shipchandler: Being properly followed during this upcoming cycle and we think thats in the best long term interest of the business and in the best long term interests of.

Khozema Z. Shipchandler: Certainly the American consumer, but that has actually global applications as well because we're taking kind of the same stance in most markets thats kind of a good segue to.

Khozema Z. Shipchandler: The dynamic that you asked in the first part of your question. The whole 10, DLC thing is entirely behind us.

Khozema Z. Shipchandler: We went through that process last year, I think we felt a very small impact as.

Khozema Z. Shipchandler: As a result of that.

Khozema Z. Shipchandler: And so I don't think that there'll be really any impact as a result until free.

Khozema Z. Shipchandler: A non issue as well because that got done at that point as well and then finally just in terms of competitive dynamics I don't really think.

Khozema Z. Shipchandler: Ulcers anything other than the.

Khozema Z. Shipchandler: The feedback that we receive from our customers is that, A., they want to work with a trusted provider, and so we think that we benefit from using compliance not just as sort of our regulatory posture but actually as a unique selling point of the business. And B, I think increasingly they want to work with someone who doesn't just prosecute that traffic in that fashion but also ensures that no fraud or anything of that nature is being committed as well, which is where our AI tools and the like can really play a role in helping our customers with their traffic and ensuring. That's really great, Khozema.

Khozema Z. Shipchandler: The feedback that we received from our customers is that a they want to work with a trusted provider and so we think that we benefit from using compliance not just to sort of our regulatory posture, but actually as a unique selling point of the business.

Khozema Z. Shipchandler: And B I think increasingly they want to work with someone who doesn't just prosecute that traffic in that fashion, but also ensures that no fraud or anything of that nature as being committed as well, which is where our AI tools in the light can really play a role in helping our customers with their traffic and mature.

Khozema Z. Shipchandler: Those claims.

Khozema Z. Shipchandler: Thank you. Just a real quick follow-up. On the A to P side, is that relatively stable now, or are they still inching up? I'd say it's relatively stable at this stage; there's nothing kind of new to talk about. I don't know, a couple years ago, I guess.

Khozema: That's really great. Thank you just real quick follow up on the Adp's. Besides that relatively stable now are those still inching up.

Khozema Z. Shipchandler: I'd say its relatively stable at this stage, there's nothing kind of new to talk about.

Khozema Z. Shipchandler: I don't know a couple of years ago I guess.

Khozema Z. Shipchandler: Got it, super. Thank you. Thank you. Thank you. One moment, please, for our next.

Speaker Change: Okay got it Super Thank you.

Khozema Z. Shipchandler: Thanks.

Speaker Change: Thank you one moment please for our next question.

Khozema Z. Shipchandler: Okay.

Ryan Boyer Koontz: And our next question comes from the line of Samad Samana with Jeffrey. Awesome. Thank you. This is actually Billy Fitzsimmons for Samad.

<unk>: Our next question comes from the line of <unk> with Jefferies.

William Fitzsimmons: Awesome. Thank you this is actually Bill Simmons first demand.

William Fitzsimmons: I'll keep it pretty quick. Interquarter, you gave us an organic growth target range and reaffirmed it today. Can you just remind us what that growth range kind of assumes in terms of macro dynamics as we progress through the year? Thank you.

William Fitzsimmons: I'll keep it pretty quick intra quarter you gave us.

William Fitzsimmons: Organic growth target range of it.

William Fitzsimmons: Today can you just remind us what that growth range kind of assumes in terms of macro dynamics as we progress through the year. Thank you.

Aidan Viggiano: Yeah, so we've seen relatively stable volumes, really, as we've talked about, and I'd say, as you think about kind of the range of outcomes between the low end of the range and the higher end of the range, I'd say if volumes, if we didn't see any erosion kind of overall in volumes, I would say that would kind of get you to the lower end of the range. Conversely, if we started to see volumes inflect off and we continue to execute on our cross-sell initiatives and expansion with ISDs and the different initiatives that we're working on, we could see, you know, volume and revenue at the higher end of the range.

Samad Saleem Samana: Yeah, So we've seen relatively stable.

Aidan Viggiano: Stable volume.

Aidan Viggiano: As we've talked about and I'd say as you think about kind of.

Aidan Viggiano: The range of our confidence between the low end of the range. The higher end of the range I would say if volume.

Aidan Viggiano: If we didn't see any erosion kind of overall volumes I would say that would kind of get you to the lower end of the range. Conversely, if we started to see volumes inflect up and we continue to execute on our cross sell initiatives and expansion with Isc's are.

Aidan Viggiano: The different initiatives that we're working on we could see.

Aidan Viggiano: Volume and revenue at the higher end of the range.

Aidan Viggiano: What I would say is, and I said this before, regardless of where we are in the range, we're going to deliver on the profit and free cash flow. We're very intent and focused on that. We were kind of very zeroed in regardless of where we land.

Aidan Viggiano: What I would say as I said, it before but regardless of where we are in the range, we're going to deliver on the profit and free cash flow.

Aidan Viggiano: We are very intently focused on that.

Aidan Viggiano: They were kind of various <unk>, regardless of where we land on the revenue range.

Aidan Viggiano: Okay.

Speaker Change: Understood. Thank you very much.

William Fitzsimmons: I understand. Thank you very much. Thank you. One moment, please, for our next question. And our next question comes from the line of Michael Turrin with Wells Fargo. Hey, thanks, appreciate you taking the questions just on the communications customer metric that kicked down a bit. Q3 to Q4 and pick back up in Q1. So I'm just curious if any of that is definitional, just tied to the splitting of segments, or if that is a return to just the bounce back and customer activity on the core communication segment. No, it's not definitional.

Speaker Change: Thank you.

Speaker Change: I'm pleased for our next question.

Michael James Turrin: And our next question comes from the line of Michael <unk> with Wells Fargo.

Michael James Turrin: It is, I would say it's a bounce back given the two options that you gave me there. But what I would just say overall is that this metric represents, it's anchored to a minimum $5 monthly revenue spend. And so, you know, we have a large number of active customer accounts with relatively low individual spend that, in aggregate, do not drive a significant portion of the revenue. So it's nothing; it has nothing to do with definition.

Michael James Turrin: Hey, Thanks, I appreciate you taking the questions just on the communications customer metric.

Michael James Turrin: That had ticked down a bit Q3, Q4 and pick back up in Q1. So I'm just curious if any of that is definitional just tied to the splitting of segments or if that is the return to just the bounce back in customer activity on the core communications segment.

Speaker Change: No it's not definitional it is I would say.

Michael James Turrin: That the bounce back given the two options that you gave me there, but what I would just say overall with that.

Michael James Turrin: This metric represents it's anchored to a minimum $5 monthly revenue spend and so we.

Michael James Turrin: A large number of active customer accounts with relatively low individual spend that in aggregate do not drive.

Michael James Turrin: Significant portion of the revenue. So it's not it has nothing to do with definitional is a bounce back I guess in terms of the customer count, but I would just say the relative importance of this metric given the size and the scale of the business at this point that we're talking about $5 threshold.

Aidan Viggiano: It's a bounce back, I guess, in terms of the customer account. But I would just say the relative importance of this metric, given the size and the scale of the business at this point, and we're talking about a $5 threshold, I don't think it's probably the most relevant metric today, measuring just how much we've grown.

Aidan Viggiano: I don't think it's probably the most relevant metric today.

Aidan Viggiano: Just helpful actually.

Aidan Viggiano: B groh.

Michael James Turrin: And on segment, just how should we think about the timeline to get that piece of the business to a good foundational cost base? Thank you all so much for joining us today. From a cost perspective, Michael? I think so. Yeah, I mean, just when you feel like that, I mean, obviously, there are some moving pieces there.

Aidan Viggiano: On segment, just how should we think about the timeline to get that piece of the business to a good foundational cost space.

Michael James Turrin: But when you feel like the sort of the foundation is in place for at least the initial efforts and rebuilding that business. So why don't I start with the cost side, and then Khozema can talk more about all the actions that we're taking. What I would say is the business lost $21 million in the first quarter, but that was actually up a little bit versus the fourth quarter.

Michael James Turrin: To restart from obviously there had been.

Michael James Turrin: And evaluation period, so now going forward, how should we think about the timeline of where you've gotten to at least sort of a good foundational restarting point if you will.

Khozema: From a cost perspective, Michael.

Speaker Change: I think so yes.

Michael James Turrin: When you feel like that I mean, obviously there are some moving pieces there, but when you feel like the sort of the foundation is in place or at least.

Michael James Turrin: Initial efforts and rebuilding that business.

Michael James Turrin: So why don't I start with the cost side, and then <unk> can talk more around all the actions that we're taking what I would say is the business lost $21 million in the first quarter that was actually up a little bit versus the fourth quarter. We.

Khozema: We have a path to get that business to breakeven by the second quarter of next year. What I would say is we don't expect it to be completely linear right. We have a number of initiatives that we're working on because I haven't talked about that product from a product perspective getting to data warehouse interoperability. There is a number of things we're working on with regards to <unk>.

Aidan Viggiano: We have a path to get that business to breakeven by the second quarter of next year. But what I would say is we don't expect it to be completely linear, right? We have a number of initiatives that we're working on. Khozema talked about the product, from a product perspective, getting to data, warehouse, and interoperability. There's a number of things we're working on with regard to time to value. So, you know, we intend to incur some costs to deliver on those objectives, but we will get to breakeven by Q2 of 2025.

Aidan Viggiano: Time to value so.

Aidan Viggiano: We intend to incur some cost to deliver on those objectives, but we will get to the breakeven by Q2 of 2025.

Aidan Viggiano: It just – that decline to Q2 2025 won't necessarily be linear. So, we have plans in place, but I just wanted to put that out there so you can think about that and model it.

Aidan Viggiano: The decline for Q2 2025 won't necessarily be linear so we have plans in place, but I just wanted to put that out there. They are seeing I had to think about that and model that yes. The only thing I would add there Michael is that.

Khozema Z. Shipchandler: Yeah, the only thing that I would add there, Michael, is that this management team has been quite good about meeting targets that we set out for ourselves, and nothing's changed about our ability and confidence in being able to get to non-gap breakeven by Q2 2025 of next year. In the meantime, there are a number of other things that we also committed to that were more operational in nature – data, warehouse, interoperability, delivering a combined segment Twilio offering, making sure that we had a number of additional things like that on our roadmap for the coming months, improving our time to value. And against each of those operational areas, we're actually making quite good progress.

Khozema Z. Shipchandler: This management team has been quite good about meeting targets that we set out for ourselves and nothing has changed about our ability and confidence in being able to get to non-GAAP breakeven.

Khozema Z. Shipchandler: By Q2 'twenty five of next year in the meantime, there are a number of other things that we also committed to that were more operational in nature due to warehouse interoperability delivering a combined segment twilio offering making sure that we had a number of additional things like that on our roadmap upcoming <unk>.

Khozema Z. Shipchandler: Improving our time to value and against each of those operational areas, we're actually making quite good progress.

Khozema Z. Shipchandler: And, you know, again, as you alluded to, there are some dynamics here in terms of both revenue and cost. And some of the revenue dynamics are going to just take a little bit of time given the nature of how bookings have to kind of catch up, but we are seeing green shoots.

Khozema Z. Shipchandler: Again as you alluded to there are some dynamics here in terms of both revenue and cost and some of the revenue dynamics are going to just take a little bit of time, given the nature of how bookings have to kind of catch up but we are seeing green shoots we are seeing interesting new customers and I think as we continue to execute on the.

Khozema Z. Shipchandler: We are seeing interesting new customers, and I think as we continue to execute on the operational items that are important to the future of the business, I think we feel increasingly confident that the segment is a really important asset to Twilio, that data is going to play a really critical role in terms of the way that we're going to deliver customer outcomes. And I think you saw the first one of those with this agent copilot that we released using segment and comms in Q1. Thank you, Beth. Thank you. One moment, please. And our next question comes from the line. Ryan MacWilliams with Barker.

Khozema Z. Shipchandler: <unk> items that are important to the future of the business I think we feel increasingly confident that segment is a really important asset to twilio that data is going to play a really critical role in terms of the way that we're going to deliver customer outcomes and I think you saw the first one of those with this Asia co pilot.

Khozema Z. Shipchandler: We released using segment and comps in Q1.

Ryan Patrick MacWilliams: Thank you Bob.

Ryan Patrick MacWilliams: Thank you.

Ryan Patrick MacWilliams: We're pleased for our next question.

Ryan Patrick MacWilliams: And our next question comes from the line of.

Ryan Patrick MacWilliams: Ryan Macwilliams with Barclays.

Ryan Patrick MacWilliams: Hey, thanks for taking the question. This is Pete with Ryan MacWilliams. Just a question on the sales side. How has sales efficiency and rep execution trended recently? Is the efficiency level in line with the internal, You have a little bit of a bad connection. Can you try again?

Ryan Patrick MacWilliams: Hey, Thanks for taking my question this is Pete.

Ryan Patrick MacWilliams: Just a question on the sales side.

Ryan Patrick MacWilliams: Maybe how sales efficiency and execution trended recently.

Ryan Patrick MacWilliams: Efficiency levels.

Ryan Patrick MacWilliams: Okay.

Ryan Patrick MacWilliams: You have a little bit of a bad connection to you can you try again.

Operator: Is this better? Yeah. Perfect. Yeah, just a question on the sales side. How has sales efficiency trended recently? And is this in line with internal expectations?

Ryan Patrick MacWilliams: Okay.

Speaker Change: That's better.

Ryan Patrick MacWilliams: Yes.

Aidan Viggiano: Maybe if you could delineate between sales efficiency on the segment side versus the communication side, this would get a full picture. I think on the communication side of the house is in line with where we expected it to be there's a team executing we have reoriented that team to gross profit dollar generation for the most part I'd say probably 80% of the team is measured on that and they're performing kind of in line with expectations you know on the segment side you know we are kind of in a bit of a rebuild here I'd say you know bookings came in, I would say a little later than we'd want to be, like, longer term in the segment business in Q1, but the team has a number of actions in place, and Khozema's kind of talked about them several times now, so I won't reiterate them, but it's going to take a couple quarters for Thomas and the team to get that business back and humming to kind of where we want it to be, and it'll take some time for that to show up in the financial. I think sales efficiency generally has been pretty good. I mean, we obviously took some very significant cost action.

Operator: Perfect and then just a question on the sales side.

Aidan Viggiano: <unk> sales efficiency trended recently and it's in line with internal expectations, maybe if you could do any between sales efficiency on the segment side versus the communication side. This would get a full picture.

Aidan Viggiano: Yes, I think on the communication side of the house.

Aidan Viggiano: In line with where we expected it to be theirs.

Aidan Viggiano: Executing we have reoriented that team to gross profit dollar generation for the most part I would say probably 80% of the team as measured on that.

Aidan Viggiano: And they're performing kind of inline with expectations on the segment side, we are kind of in a bit of a rebuild here.

Aidan Viggiano: Bookings came in.

Aidan Viggiano: I would say a little later than we'd feel like longer term in the segment business in Q1, but the team has a number of actions in place and because name has kind of talked about them. Several times that I won't reiterate that but it's going to take a couple of quarters for Thomas and the team to get that business back and humming to kind of where we want it to be and it will take some time for that to show up in the <unk>.

Aidan Viggiano: Financial metrics I think sales efficiency generally has been pretty good I mean, we obviously took some very significant cost actions last year as revenue line continues to grow as Dave mentioned, we're anchoring everybody against the gross profit dollar metric and we think that's important to be able to incentivize the sales force and so I think that combination.

Aidan Viggiano: Last year, the revenue line continues to grow. As Aidan mentioned, we're anchoring everybody against the gross profit dollar metric, and we think that's important to be able to incentivize the sales force. And so I think that combination of things has yielded a lot of the operating leverage that we've seen over the last year, which we continued into Q1. And obviously, a lot of that is now starting to translate to really significant cash flow, which feels quite good. Very helpful. Thanks, guys.

Aidan Viggiano: One of things has yielded a lot of the operating leverage that you've seen over the last year, which continued into Q1 and obviously a lot of that now are starting to translate it really significant cash flow, which feels quite good.

Aidan Viggiano: Very helpful. Thanks, guys.

Aidan Viggiano: Okay.

Ryan Patrick MacWilliams: Thank you. One moment, please, for our next question. And our next question comes from the line of Arjun Bhatia with William Blair. Thanks for taking the questions. Just one quick one for me.

Speaker Change: Thank you one moment please for our next question.

Arjun Rohit Bhatia: And our next question comes from the line of our June <unk> with William Blair.

Ryan Patrick MacWilliams: Okay.

Arjun Rohit Bhatia: Hey, guys. Thanks for taking the question just one quick one for me.

Arjun Bhatia: When we're thinking of some of the segment plans that you had laid out with the, you know, deeper integration into comms, and I think you touched on some of this a little bit, but curious, like, how long before we start to see results from some of that flow through to enhance the comms business? Is that something that's a 24 outcome or, you know, with some of the product work still to be done, something that maybe we should expect in 25 and beyond?

Arjun Rohit Bhatia: When we're thinking of some of the segment plans that you had laid out.

Arjun Bhatia: <unk> integration is behind Us and I think you've touched on some of this a little bit but curious like how long I know there's quite.

Arjun Bhatia: Quite a bit still left to do here, but how long before we start to see results from some of that flow through.

Arjun Bhatia: To enhance the comms business is that something Thats, a 24 hour armor.

Arjun Bhatia: With some of the product works silicon designing something that maybe we should expect a portfolio.

Arjun Bhatia: And beyond.

Arjun Bhatia: Yeah, I mean, I think we have to delay a little bit between when it shows up in our financials versus, you know, how customers are starting to get value from it, but you know, we cited an example in our earlier remarks about how when a customer fielded the combined capability of segment inside of communications, that was a specific contact center environment, it was a really powerful outcome, right? They were able to reduce their costs by about 30%. They were able to increase their deflection rate by about 70%.

Arjun Bhatia: Yes, I mean, I think we have to delay it a little bit between when it shows up in our financials versus how customers are starting to get value from it but we cited an example.

Arjun Bhatia: In our earlier remarks about how.

Arjun Bhatia: When a customer fielded the.

Arjun Bhatia: The combined capability set.

Arjun Bhatia: Segment inside of communications that was the specific contact center environment.

Arjun Bhatia: It was a really powerful outcome right they were able to reduce their cost by about 30% they were able to increase their deflection rates.

Khozema Z. Shipchandler: And, you know, what's at the core of this is fundamentally how do we deliver a better outcome for a customer at a materially lower cost point for them overall? So, I think that, in general, we feel pretty good about the customer delivery. And, again, we'll use examples like that to kind of prove that this adds really demonstrable value to customers. We'll continue signing new logos on that basis over the next several quarters, and then those bookings will just take time to turn into revenue. But, so far, so good, and I'm certainly very encouraged by some of the early examples. A perfect couple.

Khozema Z. Shipchandler: About 70% and what's at the core of this is fundamentally how do we deliver a better outcome for our customer at a materially lower cost point for them overall now some of that value, obviously accrues to us because we will be able to kind of upsell using AI. Some of these different products that we're we're trying to.

Khozema Z. Shipchandler: So I think that in general.

Khozema Z. Shipchandler: We feel pretty good about the customer delivery and again, we'll use examples like that to kind of prove that this adds really demonstrable value to customers will continue signing new logos on that on that basis over the next several quarters and then those bookings will just take time to turn into revenue, but so far so good in them.

Khozema Z. Shipchandler: Certainly very encouraged by some of the early examples.

Arjun Bhatia: That's good to hear. Thank you. Thank you. One moment, please, for our next question.

Speaker Change: Alright perfect helpful. Thank you.

Arjun Bhatia: Thank you one moment please for our next question.

Michael J. Funk: Our next question comes from the line of Michael Funk with Bank of America. Yeah, thank you for the question this evening. So on the international softness that you cited, I'm curious how much of that is due to a shift in traffic, so to RCS and WhatsApp, for example, versus a reduction in traffic volume. Yeah, I wouldn't say it's due to a shift in anything. Actually, Michael, I think that it's just a little bit soft from a kind of demand and environment perspective in terms of that international termination. I think in terms of RCS, more specifically, we haven't really seen significant activity there yet. We certainly expect RCS to play a role down the line.

Arjun Bhatia: And our next question comes from the line of Michael Funk with Bank of America.

Speaker Change: Yes. Thank you for the questions. This evening.

Michael J. Funk: So on the international softness that you cited I am curious how much of that is due to a shift in traffic.

Michael J. Funk: So to Rcs and Whatsapp for example.

Michael J. Funk: Versus a reduction in traffic volume.

Michael J. Funk: Yes, I wouldn't say, it's due to a shift in anything actually Michael I think that there's just a little bit soft from a demand environment perspective in terms of that international termination.

Michael J. Funk: In terms of Rcs more specifically.

Michael J. Funk: <unk> really seen.

Michael J. Funk: Significant activity there yet.

Michael J. Funk: Certainly expect Rcs to play a role down the line I think if anything it will probably be accretive to the business, but that's not what we saw in international volumes.

Khozema Z. Shipchandler: I think if anything, it'll probably be accretive to the business, but that's not what we saw in international volume. Now, that's very helpful. And one more quick one, if I could, you know, thank you for the color on agent copilot, embedding segment, and more of the comms products. For clarification there, are you charging additional or separate for the embedding of segments?

Michael J. Funk: No that's very helpful and one more quick one if I could thank you for the color on agent co pilots embedding segmented more of the comms products for clarification. There are you charging additional or separate.

Khozema Z. Shipchandler: Where are the embedding of segment or is it more of a key there or to get customers more familiar with segment and hopefully drive drive churn lower.

Khozema Z. Shipchandler: Higher usage and engagement and interest in that product over time.

Michael J. Funk: Or is it more of a teaser to get customers more familiar with the segment and hopefully drive, drive, turn down, higher usage and engagement and interest in that product over time? Yeah, ultimately, it'll result in a price upsell. There are a lot of details.

Khozema Z. Shipchandler: Yes, ultimately it'll result in a price up sell.

Michael J. Funk: A lot of details, but just to answer your question in short it will fundamentally result enterprise upsell. There is a number of like kind of packaging and pricing considerations that kind of go into how we will ultimately take some of these products to market, but the short answer is it will ultimately result in increased price.

Michael J. Funk: But just to answer your question in short, it'll fundamentally result in a price upsell. There are a number of like packaging and pricing considerations that kind of go into how we'll ultimately take some of these products to market. But the short answer is, it'll ultimately result in increased prices. Okay, but in the short term, as you initially launch, there is no price increase, it's simply embedded in the product, but over time, there'll be separate SKUs or pricing, is that correct?

Michael J. Funk: Okay.

Michael J. Funk: Short term as you.

Michael J. Funk: Initially launch.

Michael J. Funk: There is no price increases simply embedded in the product, but over time there'll be separate SKU there pricing is that correct.

Michael J. Funk: But when it's in private beta, we typically offer it for like a teaser period where there's not as much of a price increase. But once it kind of goes out of private and it's fully GA, and the customer is actually using it beyond kind of the test period, then there is fundamentally a price increase that goes into effect. So it's not meant to be just protective; it's meant to be value-enhancing, and therefore, with the price up.

Michael J. Funk: And it's in private beta we typically offer it for like a teaser period, where.

Michael J. Funk: Theres not as much of a price increase but once it kind of goes out of the private.

Michael J. Funk: And it is fully <unk> and the customer is actually using it beyond kind of the test period. Then there is fundamentally a price increase that goes into effect. So it's not meant to be just protective it's meant to be value enhancing and therefore with the price uptick.

Michael J. Funk: All right, that's very helpful. Thank you. Thank you. One moment, please, for our next question. And our next question comes from the line between Peter Weed and Burns.

Speaker Change: Alright, that's very helpful. Thank you.

Peter Weed: Thank you.

Speaker Change: <unk> for our next question.

Peter Weed: Our next question comes from the line of Peter we'd with Bernstein.

Peter Weed: Thank you. You know, one of the things that you changed in communications here recently was grouping and collecting some of the marketing together with communications. And I'm wondering how much they may either be benefiting or dragging on the communications business if we, you know, just looked at what would be isolated and what we might have been looking at in the communications business more historically. I think the question was, when we moved over from flex and marketing campaigns to communications, is there like a, well, just to be clear, like, when we talk about communications, we talk about it on an apples-to-apples basis.

Peter Weed: Thank you.

Peter Weed: One of the things that you.

Peter Weed: <unk> Communications here recently, he was group and one question on some of the marketing.

Peter Weed: In with communications and <unk>.

Peter Weed: Wondering how much.

Peter Weed: They may either be benefiting or dragging on the communications business.

Peter Weed: Just looked at.

Peter Weed: What would be isolated and what we might have been looking at in the communications business more historically.

Peter Weed: I think your question was when we moved over to flex and marketing campaigns to communication as well.

Peter Weed: Just to be clear when we talk about communications.

Peter Weed: We talked about it on an apples to apples basis. So all our history has kind of been recast it for flex and marketing campaign moving over so there's no like artificial benefit from that reorganization Oh sure.

Peter Weed: So, all of history is kind of recast for flex and the marketing campaign moving over. So there's no, like, artificial benefit from that. Oh, sure. Yeah, I get that. I'm more like, before it was moved over, we kind of knew how it was going.

Khozema Z. Shipchandler: And I just don't know if they are, you know, the reason that is, you know, ticking up from an NRR or if NRR for communications would be picking up more aggressively. And those are more like segments where they've got, you know, a below 100% NRR and are actually dragging down communications. No, I wouldn't say so. I'd say it would be roughly in the same position. They're not dragging down the communications business, but they're not necessarily benefiting it either in terms of pulling up the NRR.

Speaker Change: Get that more like I'm, just thinking about before it was moved over we kind of knew how is going and I just don't know if they are.

Khozema Z. Shipchandler: <unk> of that is ticking up from an <unk> or would enter our for communications be picking up more aggressively and those are more like segment, where they've got a below 100% and Aurora and actually dragging down communications.

Khozema Z. Shipchandler: I wouldn't say, it's I'd say, we'd be roughly in the same.

Khozema Z. Shipchandler: Physician theyre, not dragging down there not necessarily benefiting that communications business either in terms of pulling up the NR.

Peter Weed: Okay, thank you. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may now disconnect.

Speaker Change: Okay. Thank you.

Khozema Z. Shipchandler: Okay.

Speaker Change: Thank you ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect.