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spk01: Good day and thank you for standing by. Welcome to the Twilio Second Quarter 2021 Earnings Conference Call. 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 the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Andrew Zilli, Vice President of Investor Relations and Treasury. Please go ahead.
spk07: Thanks, Ashley. Good afternoon, everyone, and thank you for joining us for Twilio's second quarter 2021 earnings conference call. Our prepared remarks, our earnings press release, SEC filings, and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me today for Q&A are Jeff Lawson, co-founder and CEO, George Hu, COO, and Kozema Shipchandler, CFO. As a reminder, some of our commentary today may be in non-GAAP terms. reconciliations between our GAAP and non-GAAP results, and further information related to guidance can be found in our earnings press release. Additionally, some of our discussions and responses may contain forward-looking statements, which are subject to risks, uncertainties, and assumptions. In particular, our expected business benefits and financial impact from our acquisitions, particularly segment and zip-up, and our partnerships, including the associated transactions, Twilio's outlook for the quarter ending September 30, 2021, and our ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on the platform and the impact of those fees on our gross margin are subject to change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. A description of these risks, uncertainties, and assumptions, and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10-K and subsequent reports on Form 10-Q, and our remarks during today's discussion should be considered to incorporate this information by reference. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We're going to take no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today, or to reflect new information or the occurrence of unanticipated events, except as required by law. With that, I'll hand it over to Jeff for a brief statement, and then we'll open the call for Q&A.
spk04: Thanks, Billy. Before we get started answering your questions today, I wanted to touch on Twilio's commitment to helping a billion people get vaccinated equitably and globally. For many, It started to feel like life was returning to normal with vaccines readily available, at least here in the United States. Yet the Delta variant, which originated in a part of the world without the same level of access to vaccines, has now rippled through the entire world, infecting both vaccinated and unvaccinated people at higher rates than we've ever seen before. To me, this underscores the importance of vaccinating the world. and I'm particularly proud of the role that Twilio has chosen to play using our product, our time, our people, and our money to help ensure equitable vaccination globally. In March, we committed to the goal of helping reach 1 billion people with the aim of educating people and helping them get vaccinated. We've partnered with 450 organizations, and in just three short months, I'm proud to say our product has been used to help 297 million people get critical vaccine education, appointments, or reminders. In June, we also committed $10 million to Gavi, the vaccine alliance, in support of COVAX, which is the largest global initiative to vaccinate lower income countries against COVID-19. We're supporting the program's goal to purchase and distribute 1.8 billion COVID-19 vaccine doses to more than 90 low and middle income countries. And we expect to have greater influence on how the coalition uses technology to effectively distribute the vaccines. I was honored and surprised to find that we were the second largest private company to contribute to Gavi's global vaccination program and the largest company in the tech sector. As a shareholder, you're part of the good work that Twilio is doing. to all the Twilions out there. The work you do to build our product, to build this company are having an impact. So thank you. It's times like these when I see the impact that we can have, and I'm humbled and proud to lead you. And we will continue towards our goal of supporting 1 billion vaccinations worldwide. Now I'd like to open it up for questions.
spk01: As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. If you would like to withdraw your question, press the pound key. Your first question comes from Michael Turin with Wells Fargo Securities. Your line is now open.
spk07: Hey there. Thanks, everyone. I appreciate the opportunity to ask the question. I wanted to start off with a segment you mentioned in the prepared remarks, the pull forward question. there in in co-selling it seems like it's maybe six months uh ahead of what you're expecting are there any points of feedback or interest you can share to start and maybe in tandem with that the sequential growth i know we have a limited set of data it was was maybe a little lighter than we would have expected given just strong product synergies that we see between the two is it fair to assume this shift towards co-selling can can maybe just change the shape of that trajectory as you uh as you work through that going forward Hi, this is George. I'll take the first half of that question on the co-selling and then maybe could you talk about the growth piece? You know, certainly, as I mentioned in our previous call, you know, we are seeing interest in segment from our customers, I think, across a broad segment of our customer base. And we believe that by opening up segments to our entire sales force and letting the combined power of both sales forces really to educate the market as well as sell the product. We think we can really bring segments to as many customers as possible and maximize the opportunity. We're very, very excited about this opportunity, and I know our sales forces as well. Hey, Michael, this is Kazama. In terms of the guide, I mean, I guess what I would say is I think maybe you're reading a little too much into it. I think in terms of what we see for the third quarter guidance, It's a really strong growth rate of 50% to 52%, and I think on top of which we remain really optimistic about our performance in the near term as well. And, you know, we've provided guidance previously, for example, of 30% plus growth over the next four years and feel really, really good about that over the medium term. And I think the segment will just continue to enhance where we're going over the long term. My comment was more just reflective of just the sequential, I think it's 4% increase on segment Q2 to Q1. I think my thought was more it just seems like as you work towards co-selling, there's a reason to believe maybe the sequential growth rates could pick up there over time. The other observation, and then I'll hop off, is just international picked up quite significantly as well. Is that a result of some of the on-the-ground focused investments you've been talking about, Kozema, or were there specific regions to call out as contributors that drove the uptick and mix there as well? Yeah, so, okay, so two things there. So let me hit international first. I'd say on international... The uptick that we saw there is a benefit of our continued global expansion. As you'll recall, Michael, we've talked in the past about that's one of our focused areas of investment. On top of that, there's a small impact from value first. We did that acquisition. It was a very small contribution in late March, but obviously we got a full quarter in Q2, and that's 100% international revenue based on the way that we classify it there. Just back to the first part of what you said. I mean, the co-sell, certainly we're very excited about it in the way that George described. It won't show up in our financials, you know, for some period of time. And we haven't even started, right? I mean, basically just started a few weeks ago. And it'll just take some time for it to bleed into our financials. Appreciate all the color. Thank you.
spk01: Your next question comes from Derek Wood with Cowan. Your line is now open.
spk07: Oh, great. Thanks for taking my questions. And nice to see a reacceleration and organic growth. Just to get a pulse, what would you say the strongest outperformance areas were in the quarter, maybe on a product basis? And then it sounds like you guys have seen a lot more momentum with SI partners. Can you talk about what kind of use cases these partners should open up new doors for you? Is it predominantly in the contact center? Or, you know, what other kind of solution areas do you see them becoming more instrumental? hi derek it's kazama i'll take the first part and then i'll hand it off to george on on the partner side of it just in terms of the quarter overall i think as with you know several of our prior quarters we experienced broad-based strength across a number of facets of the business and you know one that i typically point out is that our messaging product continues to deliver really outstanding results and i think segment as well had a really really great quarter On top of that, you know, we have really strong net expansion. We have good new customer growth. And I think for us, you know, we've been talking for a while now about this significant secular shift that's taking place and how that's really driving customers towards Twilio and our customer engagement platform. And there's just so many things that we can do to accelerate the digital transformation. I think we're seeing a continuation of that. This is George. You know, on the SI front, you know, we've always believed that Toledo is a great fit as a builder platform for SIs that builds custom software. Really, Flex and the contact center opportunity, I think, has really been the engine that's powered a lot of our discussions with customers with SIs. And as you see in that kind of prepared remarks, and I think that's going to continue to be true. But, you know, this kind of Production SIs through the contact center building relationships is also opening us up to other types of customer engagement opportunities where Twilio was a part of a broader solution, whether it's around a marketing solution or other types of customer engagement solutions. And, George, if I could squeeze one more. I mean, your headcount was up almost double year on year. Of course, there's some acquisitions that contribute to that. But I'm just curious to get a sense for how much growth you've built in the sales capacity roles. And if you're planning to continue to be pretty aggressive in hiring in the second half. Well, you know, at a macro level, obviously we don't comment on our specific sales capacity or the numbers, but we do continue to invest in it. I think that UCR overall growth is, you know, our overall investment in people is really broad-based, and distribution is part of that. So, you know, we are excited about the opportunity. I think we continue to invest into it, and we believe that there is still a large untapped opportunity in customer engagement out there in the market today. Okay, thank you.
spk00: your next question comes from taylor mckinnis with ubs your line is open hi yeah congrats on the quarter and thanks so much for taking the question so when you think about the uptick that you guys saw in dollar based net expansion rate i'd be curious if you're seeing any um interesting mix shift trends yet of different products maybe driving driving up beyond just messaging And then secondly on that, since messaging growth was so strong last year, can you speak to what you're seeing and hearing from customers, I guess, on the potential for the messaging business growth levels to be more sustainable in the back half of this year relative to what we've seen so far in the first half this year?
spk07: Yeah, I'll take the first part of the question, Taylor. This is Kazima, and then I'll hand it over to George for the second part. In terms of the first part of the question, you're right. We have seen really fantastic growth on the messaging side of the house. We've been really excited about the progress in that product and the way that we've been able to grow it. In fact, that product has been re-accelerating over many of the prior periods. That's been super exciting to see. We think that leads to some additional growth opportunities in other channels. I think the one area that we're equally excited about is that our application services revenues, you know, so those that are not associated with a telephony-based cost structure, those continue to grow at accelerated levels, you know, certainly above and beyond what we see in any other products. And so, for example, that will include Flex or that will include Segment. I think over time, you know, those products are going to continue contributing in a more meaningful way. We just have this sort of really good problem is how I would characterize it in that our core business is growing at such a fast rate. It's going to take some time for the other pieces to start showing up in our financial statements. But on balance, I'd take that problem all day long. George? I think that my answer would be very confident with what Kazima said. Certainly messaging, even at its size and scale, continues to be a strong performer for us. I think that when we talk to customers, there are still a ton of customers out there and companies that they're looking for and finding new ways and use cases to use messaging, whether it's for reaching customers, operations, customer service, security. So I think globally messaging is going to continue to grow as a market and an opportunity for us.
spk00: Great. Thank you so much.
spk01: Your next question comes from Madam Marshall with Morgan Stanley. Your line is open.
spk02: Great. Thanks. I wanted to take a second to just ask about M&A strategy. You know, for the past couple of years, it's been more around platform extensions. And then since the beginning of the year has kind of included more kind of service improvements or continuity acquisitions or investments. And so just how are you viewing and balancing those strategic imperatives and, you know, what you can do organically and inorganically? And I have one follow-up.
spk04: Hi, Amanda. This is Jeff. I'll answer the question. So, you know, I think the way we look at it is we know what our customers, you know, where our customers want us to go in terms of our product road map. And sometimes that manifests in capabilities that we're going to go build, and sometimes it manifests in, like, geographies where we're going to deepen our presence. And when we look at those, if there is a, you know, a company that has built what we have on our roadmap and if buying them would accelerate our ability to serve our customers and our time to market, then, you know, that's something that we consider. And, you know, we're always running an active game board just to see what options are out there as we evaluate our roadmap. and look at our options. And I think it's just the smart thing to do is to say, hey, our customers are pulling us a roadmap to go here, and these are on a roadmap. And if there's something that actually accelerates us with a great team, great technology that can be added, then those are the type of opportunities that we pursue.
spk02: Great, thanks. And I mean, maybe for, it could be for anybody, but just, you know, as people are embarking on digital transformation initiatives, you know, clearly you're kind of still seeing a DB&E that's fairly similar. Just trying to get a sense of, you know, are you seeing any changes to the cohort analysis kind of where customers are making bigger investments up front? Or is it still, you know, I want to try out one product and then build from there? Just getting a sense of how, you know, digital transformation initiatives by corporations have kind of changed the initial purchase or initial experimentation with Twilio?
spk07: This is George. I think that Twilio has always really thrived off of a land and expand type strategy, given that we work with builders. The builders start with one use case and then they expand to other use cases. I think certainly during the height of the pandemic last year, we saw a different set of use cases emerge and maybe a little bit more urgency around some particular use cases. But it didn't really change the fundamental shape of how we work within our customer accounts. Twilio typically is a product that developers learn, they love, they build, and then they introduce to other developers and they expand from there. And I think that's really the magic of the platform and something that we're going to continue to build on in the future.
spk02: Great. Thanks. Congrats.
spk01: Your next question comes from Rishi Jaluria with RBC. Your line is open.
spk03: Hey, Jeff, George, Cosima, thanks so much for taking my questions. I just wanted to ask two related questions on Zipwhip. I guess first, I appreciate the color in the prepared remarks. Can you maybe give us a little bit more detail on the plans with the asset? And, you know, there's always a general question of why buy versus build, or I guess in this case, partnering. So that would be helpful. And then, you know, in terms of the guidance, I understand the puts and takes of deferred revenue right now, but can you just maybe give us a general sense for what the unaffected size and growth rates look like so we can be a little bit more accurate in our models? Thanks.
spk04: Hey, Rishi, this is Jeff. I'll give you the first part of that answer, and then I'll hand it to Ko for the second part. So essentially, why did we decide to acquire Ziploc? Well, look, we're really excited. They are a real innovator in in toll-free messaging, which they brought to the market with their great relationships that they have with the carriers. And in particular, the CEO, John Mauer, has a great track record of helping carriers to productize things like toll-free messaging. And it's noteworthy that they are the sole channel for toll-free messaging in North America. And so it points to the strength of the relationships they have, the fact that they are the only way to get into toll-free messaging, in North America. And so we just closed the transaction a couple of weeks ago. So, you know, now we're starting to get to making our joint plans of, you know, how we're going to integrate and what that looks like. And I think there's a lot that we can do together, especially in the world of trusted communication. You know, when we think about where communications is going, calls, but messages as well, making every call, every text message coming from a trusted identity, not just some phone number, but like a business name, And with a padlock, it's like your web browser where you know that, you know, it's trusted, that when they say that they are, you know, the pharmacy or your kid's school, you trust that that's true. That's the world we're building towards. That's the next big innovation. And it's with great partnerships in the entire ecosystem and with the carriers that we can execute on these big, bold ideas. And I think Ziploc will be a big part about how we continue to evolve the ecosystem in order to make the experience, of actually texting and calling with each other and with businesses to be much better. Nowadays, you can get a text message and you don't know if it's authentic. And that's scary. It's like, is this person calling? Is this my friend or is this Kaiser Soze? Who knows who this is? And we see a world where every text, every call is validated and has that secure padlock. And I think that ZipWeb can be a big part about us building about this world of trusted communications. And I'm going to hand it over to Ko for the second part.
spk07: Hey, Rishi, we're not disclosing any anticipated financial impacts right now. You know, it's very consistent with how we've operated with prior acquisitions. As Jeff alluded to, we're still working through the integration plan. There's the purchase accounting impacts that we'll have to deal with as we consolidate. And so we just want to, out of our guidance, to keep it clean, and we'll obviously provide an update when we report on Q3.
spk03: All right, wonderful. Thank you, guys.
spk01: Your next question comes from Matt Stottler with William Berry. Your line is open.
spk07: Hey, guys. Thank you for taking my questions. I guess first, I'd just love to touch on, you mentioned segment journeys. I wish you had a really interesting development. You're obviously kind of building consumer journeys for marketing applications, things like that, but it seems like if you think about the way that we interact with brands for services and products, even on a daily basis, I mean, the breadth of the opportunity here seems pretty substantial, right? So, I mean, we'd love to get some kind of early feedback on interest that you're seeing and, you know, what people are looking to build with this and how you expect that opportunity to develop going forward.
spk04: Yeah, thanks, Matt. This is Jeff. You know, I think you're right to look at Segment Journey as an exciting addition to our platform, and Interestingly, it's not a very big step from where Segment was, which is helping companies take all the information that they see about their customers. How are they browsing the website? How are they using the mobile app? What products have they bought? How have they engaged with the company? And using that to improve the customer engagement model across all the different touch points. And if you think about it, one of the interesting tailwinds that's going on right now is how privacy and the moves that are going on in the world to increase the amount of privacy that consumers have, which is a very positive thing, makes it so that every company can't rely on, you know, shady cookies and third-party data and all this stuff that, you know, as consumers, we're saying we don't want, and governments are now saying, yeah, we're not allowing it. And the major platforms, whether it's, you know, the browsers or iOS, are actually cracking down on some of these tactics from yesteryear. And that is forcing every company to have to get better at looking at their first-party data and to understand their customer. And Segment, for a long time, had taken a hard stance to say, we will only deal in first-party data. We are not going to dive into that sketchy realm of weird data brokers, all this kind of stuff. And so they have a great track record of focusing on privacy-enabled great customer engagement and helping companies look at all their first-party data and then build a better customer journey. So what are all the things we know about this customer that if we use that knowledge to engage with them in their customer journey, we can help them succeed in doing so help the company better serve its customers. And that's why I keep harping on this idea that the task of building a customer relationship is really two things. Number one, it's understand your customer. Pay attention. What are all the things that they're doing? When they're on your website browsing for men's T-shirts, don't send them a marketing email for women's hats. That doesn't make any sense. That just shows you're not paying attention and you don't care. And then second, guide them through that customer journey. And the way we've seen some of the leading companies think about this is at every step of the way, if you use the knowledge that you have about your customer to help make them a better customer, help move them towards that ideal customer that every company thinks about, then that is the intelligent – that's what intelligent customer engagement looks like. And that's what we're helping – companies build. And so I think segment journeys is a natural step in that direction. It allows companies to take all that information. They already used personas to build a 360-degree view of the customer and then take where the customer's at in that journey and layer them into segments that then you can use to go drive what's the next step in that journey. And that's what the journeys product is doing. It's a fantastic product. It was very much conceived of in cooperation with customers and brought to market with customers at every step of the way showing us what they need.
spk07: Right. Got it. Got it. And then maybe just one more to follow up. You know, going to the last quarter, you talked about the, you know, the changes in the R&D org structure of the company and kind of split into the three separate, you know, kind of organizations, if you will. Any commentary on the progress there, how those teams are working together, and then early feedback on that change? Thank you.
spk04: Absolutely. Thanks for the question. Overall, the reorganization is going well. We believe the changes that we made, a reminder for folks, we're consolidating many business units under three discrete leaders that report to me, we believe that this change will better align the business to help Toyo continue to grow and scale. And we're also finding that it's enabling a greater amount of engagement in the company, visibility at the executive level with what's happening, and driving alignment and clarity and roadmaps more efficiently than before. And so all in all, I think the change has been going well, and our teams are gaining greater clarity, insight, and alignment as a result of it. You know, when you're growing a company as fast as you are, You can't just keep doing the same thing. There's always points in time when you need to consider the org chart and consider how the organization has changed. That's just one of these moments, and I think the organization has been well-received, and the teams are executing well.
spk07: Great. Thanks again.
spk01: Your next question comes from Samad Samano with Jeffries. Your line is open.
spk05: Hi. Good evening. Thanks for taking my question. Congrats on another great quarter. Maybe one on... I know on ZipWhip, I was wondering if you could maybe talk a little bit more about the strategic value of having that direct carrier connection. And I know you're not guiding for it from a revenue perspective, but anything you can give us around what maybe ZipWhip's growth looks like would be helpful just as we think about contextualizing the acquisition.
spk04: Well, I can speak to the value of having direct connections. I don't think we're disclosing any particular growth rate numbers or anything like that. But, look, in general, the more direct relationships you have, the better situated you are to cooperate with the carriers and build great products together. And I think that when, you know, in places like North America where there's, you know, three carriers now and there's a lot of opportunity, having those direct relationships is tremendously valuable. And we've been watching and seeing how the Zipwith team and John being that team have done a great job of building those relationships and bringing products to market with the carriers. And so, you know, I just think that that's an important part of building up the ecosystem. Simple as that.
spk05: Understood. And then maybe just, you know, if we kind of take a simplistic approach and just think about net expansion, it applies revenue from new customers or new businesses really strong in the quarter, I think even stronger than the last quarter. So I was wondering maybe, Kazem, if you could just give us some context around, you know, if there's a specific area of strength in terms of revenue Was it more on the traditional messaging side? Are you seeing kind of a step up in other products just to maybe help us think about the new revenue from new customers in the quarter?
spk07: Yeah, I mean, I think the way to kind of think about it, this is a little bit crude, but basically if you take the DB&E number and then look at that number and the difference between that and our organic growth rate, that will give you a sense of, how new customers contributed. And then obviously, on top of that, you've got the organic stuff. In general, I mean, I would say that it's broad based strength across the board. I mean, what we're finding is, is that the messaging product has really, really done well during the last year or so. And the real acceleration of that product is something that we're incredibly proud of as a company, no doubt. On top of which, As I mentioned earlier, we're seeing great traction as well in the application services areas of the business. We've talked a lot about segment, but even in some of the other categories, inclusive of Flex and SendGrid as well, our email product, we're doing really, really well. I wouldn't point to any one thing other than to say that, you know, the messaging product in particular has been delivering great results, segment had a great quarter. But across the board, across industries, verticals, whatever, we're just seeing broad-based strength.
spk05: Great. Appreciate you taking my questions. Thanks, guys. Sure. Thanks.
spk01: Your next question comes from Fred Heffmeyer with Macquarie. Your line is open.
spk07: Thank you very much. I think I first wanted to just ask about your IoT business. It's something I don't think that we've necessarily been talking about much, but it's also quite interesting here. So I'd like to ask, can you just give us a general overview of where your IoT business stands and perhaps some initial customer perceptions around SuperSIM? And generally also, do you think that segment could play a role in how businesses consider data collection utilization in the IoT space?
spk04: Absolutely. This is Jeff. And I'll start by saying we're really happy with the IoT business. We actually just hired a new leader, Andrew Cohen, who came from Samsung. He's a fantastic leader. And I think what we're seeing in the opportunity is that especially as the world is moving to 5G, there are so many more areas that have yet to be digitally enabled in terms of physical objects in the industrial sense, in the smart city sense. I think we as consumers think of IoT is like our smart devices in the home, like our watches and our thermostats. And that is just like that is version 0.1 of what IoT is really going to be about. And so this is an early stage of, I think, a long game that's going to be a big outcome. And so we're excited by what we can bring. And what's really cool about the SuperSim, and, again, customers led us to the observations, the problem that SuperSim solves, is that as you deploy a device globally, you don't want to have to have a different vendor, a different set of chips, a different set of SIM cards and carriers behind the scenes based on where that device ends up in the world. You really want to manufacture a device once, put the same hardware, software, and connectivity into that device, and ship it out to your global supply chain. And that drastically reduces the complexity. But also, it means that in the field, that device can get better every day. That's the power of software. And so that's what we're seeing the super sim and a really powerful opportunity to make it so once devices leave the factory, they continue their connectivity stories, the performance of that connectivity, the cost that connectivity is getting better all the time, because it's expensive to manufacture. So imagine you've got an IoT you know, humidifier or truck or garbage dumpster or trombone, you don't want to have to remanufacture that thing every time you get better connectivity technology. You want to be able to continually, silently upgrade it in the background. That's what SuperSim enables companies to do because their connectivity is not something that is set into the device. It is something that they can continually evolve in the cloud. And so we took that whole layer of connectivity and really moved it to a software value proposition that runs in the cloud. I will say I think the IoT world is a little challenged right now because of manufacturing and global supply chain issues that we've seen in every industry. You know, it has set back some of these IoT use cases as they've struggled to get supply chains and things like that set up. And that's something I think we've seen across, you know, the industry of IoT, especially industrial IoT and things like that. But I expect that that's not a durable trend and that will, in the long stream of things, the 5G rollout, and the narrowband implementations that use far less energy and that are far more oriented towards a wide breadth of devices, a much lower price point will actually enable a whole slew of innovation in the years to come.
spk07: Thank you, Jeff. And then another question, can you give us an update on how your relationship with Cineverse is progressing? Are you at a point where you're materially routing HTTP messages through Cineverse with your wholesale agreement?
spk04: I'll take that. So, you know, just for background, we've worked with Cineverse for a long time, so they've been a partner of ours for many years. And so there hasn't been, you know, we didn't need to, like, make a material change to our business as a part where really that deal was about cementing our relationship. But the other thing I'll point out is we haven't closed the partnership yet. That's still pending. And so a lot of that work still is forthcoming as we close that partnership that we previously announced.
spk07: Got it. Thank you very much. Congratulations on the quarter. Thank you.
spk01: Your next question comes from Alex with Wolf Research. The line is open.
spk07: Hey, guys. Thanks for taking the question. I've got two sort of metrics-focused ones I think would be pretty helpful. Just, you know, going back to Michael's original question about segment, if we normalize in Q4 for segment, the sequential growth from Q4 to Q1, you know, something in the high teens, maybe 20%, and it's stepped down to, you know, 4.5%. could we just get a better understanding for what is their heightened seasonality with this business later in the year because it would help us you know not get ahead of ourselves to just understand the seasonal kind of patterns of that business and i've got a quick follow-up is the follow-up on segment you want to ask that question now as well no no the follow-ups on a to p okay okay well let me let me take the segment question first alex so I would say in general, you know, there's not like per se a seasonal dynamic that I would necessarily point to. I think in general, I mean, we feel great about the way that the acquisition is performing. As we've noted several times during the course of this call, you know, we feel quite good about, you know, the way that that business is progressing, some of the products that they've announced. I think anything that you're seeing in terms of the sequential is just a little bit of noise, ups and downs from quarter to quarter, all of which I would just expect to normalize going forward. Again, we feel very optimistic about the way that that acquisition is headed and some of the things that we can do with that business. So I really wouldn't read too much into anything that you're saying sequentially. Okay. And then on A to P fees, we appreciate, I think, that you guys talked about the AT&T contribution, but is it possible to just get a better understanding for the Verizon A to P fees, maybe this quarter and last quarter, so we can – because if we do the math, it does look like the underlying growth organically X A to P is accelerating Q1 to Q2, but I'd love to just understand a little bit better if that's actually the case. I mean, I think in general that's the case. I think we're not really breaking Verizon out anymore. I mean, it's kind of in the base rate. And as we look at comparisons from last year to this year, it's apples to apples, which is why we've broken out the AT&T and T-Mobile aspect only. And we've obviously given you a number there as well. Yes, if you were to take all of that stuff out, what you would see is that we're growing very nicely organically, with or without the fees, and that there is re-acceleration there. Perfect. Thank you, guys.
spk01: Your next question comes from Brent Becklin with Piper Center. Your line is open.
spk06: Thank you. A question for George or Jeff on demand for two-way messaging via Twilio Conversations versus traditional one-way SMS messaging APIs. You know, in the new wins this quarter, you highlighted a couple of conversation use cases. What is the benefit to the model as customers move from SMS to conversation? Is it primarily higher volumes, or does it also include higher pricing? And we're really just trying to understand how fast could the industry move? There's personally nothing more frustrating to me as a consumer than to get a text from a brand without the ability to actually reply back. And so I'm certainly encouraged to see conversations being brought up more, but love to get any color on adoption and how that would kind of change the messaging volumes for Toyo as well.
spk04: That's a great question, Brent. This is Jeff. I'll answer it. You know, if you think about the – the strategy of how companies have gone about adding messaging to their product experiences. You know, natural first step was to add notifications because it's easy and it's high value. But then, of course, consumers expect that to be a two-way dialogue. And they reply. And what do you usually get back? You get back sometimes nothing. Sometimes you get back, you know, text and data rates may apply, call this phone number. But really the customer experience that companies are expecting is is to be able to reach a person or system that answers a question. And that's why we've been focusing on products like conversations that can turn those one-way messages into two-way conversations. And then on top of conversations, we've built flags for the contact center and front line for the workers with a front line of serving customers. And so to create all the vehicles for a company to have two-way conversations, the door is often open. to be able to have that conversation with a company by that first outgoing alert notification, that thing that kind of opens the door for you. And I think for us, what we see is the more value we can add into the channel, A, customers get more value out of it because their customers are happier, but B, it allows us to build great software products that enable those companies to actually be successful with 2A messaging because it's non-trivial to build those types of experiences. And so whether it's with the contact center, Whether it's a frontline worker, someone out in the field, someone doing a delivery, or what we're seeing a lot of is for sales use cases, having salespeople with an open messaging channel open to their customers. These are valuable places where companies can now turn a message, but over the fullness of time, turn it into a relationship. Because if you think about you and your friends or family, in that phone, that history of all your messages, That is a good summary of your relationship. That is how we are actually building relationships digitally as consumers. And companies want to be a part of those conversations too. They want to be a part of that relationship. And that relationship is not transactional and it's not just a bunch of alerts. It's actually a two-way dialogue. And I think that we're going to look back and we're going to see that history of conversation that you have with a company. That starts to become the new customer relationship. It's right there in that thread. And that's what we're helping companies create. In fact, I was talking to a major financial services company recently, and they really saw that vision of that's how we're going to build relationships. And so I think that's a common conversation that I'm having with executives at many companies who really see that future coming. And we're helping them deliver it with flex, with frontline, with conversations, and all the things that we're working on.
spk01: Your next question comes from Will Power with Beard. Your line is open.
spk06: Okay, great. Thanks. Yeah, I guess maybe two questions. First, I think probably for Jeff, I guess first, thanks for all the company's vaccination efforts. Obviously, great to see. I want to ask you about Twilio Live.
spk07: It was mentioned in the prepared remarks. I'd just love to better understand the market that's trying to address any kind of early use cases you could point to and really just kind of how you're thinking about the opportunity for that product.
spk04: Absolutely. Thanks, Will. You know, if you think about what is happening, you know, the first use cases for live media on the Internet were largely, you know, one-to-one or one-to-few. And now we're seeing the number of use cases for broadcast-scale live experiences really grow. You know, a lot of that is because of COVID. But you also look at interesting use cases where, like, you can have a large-scale audio experience. And many companies are looking at, hey, how can I have thousands of people involved in a live audio conversation? Or how can I do a webinar and have live interactive video with many, many, many people? And so Toyo Live is the answer to this emerging market of live interactive video experiences. You're starting to see things like commerce opportunities happen online with live video. You've got the whole audio market. So one of our launch customers for that was Reddit Talk. So Reddit wanted to add a voice talk feature into their community. And so they used Tutorial Live to do that. And so that was one of the reference customers at the time of launch. And we're just seeing, I think there's, we're at the very beginning of a lot of new experimentation into, okay, live media on the internet, you know, not just, you know, one to two, one to three, one to five, but actually at scale, like broadcast scale, but interactive, is actually starting to become a reality. And I think COVID accelerated a lot of the experimentation into what's possible. And so we're looking forward to powering many of those new ideas, including, you know, for example, Reddit.
spk06: Okay, that's great. Thanks for that, Keller. And then I guess maybe just for Kozema, any thoughts around how to frame the gross margin outlook as we head into Q3?
spk07: I guess you'll have a full quarter impact of the HUP fees. But aside from that, any other puts and takes to be thinking about to help us kind of model that moving forward? Not really, Will. I mean, I wouldn't say there's any real change in our long-term framework around gross margins. I mean, you know, we're still targeting 60 to 65%. We've not really ever been focused on it per se in the short term. And, you know, there's some noise in here, obviously. There's Our messaging product, which we feel great about, the fact that it's had such a strong performance, but mixes us down a little bit. Obviously, international and the increase there from 29 to 32, and then the fees clicked us a little bit. But I wouldn't say that there's anything really different in the long-term outlook in the way that we're thinking about it.
spk06: Okay. Thank you.
spk01: Your next question comes from with Mizuho. Your line is open.
spk08: Well, hi. Thanks for taking my question. I just want to dig into the flex adoption and contact center. And also, I'm wondering, how are you looking at the cloud contact center opportunity now, given that UCaaS vendors and this kind of convergence of UCaaS and CCaaS vendor with recent consolidation? How are you looking at the opportunity there?
spk04: Absolutely. This is Jeff. So first of all, with Flex, thanks for the question. We're really happy with how Flex is going. I know we don't break it up separately, but if you looked at Flex independently, I think you'd look at its momentum and say it's one of the fastest growing fast products on the market. And I'm particularly proud of the fact that we've got the wide berth of customer adoption that we have from the digital disruptors that we saw early in the adoption cycle, Shopify, Lyft, Robinhood. through the Fortune 500, you know, incumbents in the markets who are adopting Flex as well, like, you know, the major bank that we mentioned, I think, back in Q4, or Allianz, or today's announcement of a major retailer, or the Philippine Airlines, right? And so we're seeing broad adoption by a wide set of companies. We're really happy with it. Now, for the second part of your question about the greater trends that are going on, look, I was guessing someone would ask that question. First, I'd say it's the market is still in the early stages of moving to the cloud. It's only around 15% or so of the market that's in the cloud. And so, you know, 85% of the market, give or take, is still on-prem, on legacy solutions. And so that's what I think we're looking at as the big opportunity. But, you know, I also think the combination of, like, UCaaS and contact centers is an interesting one because I see the market changing a little bit. I think that, you know, UCaaS is typically thought of as a call center. It's like the desk phone. And what we're seeing the contact center become is much more of a customer experience, customer engagement point. Creating great customer experiences is a driver of top line. And it's becoming closer to the revenue side of the business. How do we serve customers as opposed to the cost center? How do we save money? And so it used to be that IT and the cost center side of the business was like the desk phones and the contact center. But I actually think that when you start looking at digital channels, and serving customers over these digital channels, the nature of the contact center is changing from that IT cost center to something that's much closer to the revenue and the chief digital officer, the thing that is going to drive happy customers, repeat customers, and more business. And so I think that's a trend that we're well-situated to attach to, given our other products, given where we sit and who we sell to inside of companies.
spk08: Great. Thanks for the callers.
spk01: Your next question comes from Ryan Kuntz with Medium. Your line is open.
spk07: Thanks for the question. I wanted to circle back to your international revenue strength and characterize the adoption of digital customer engagement across these different customer sets. How do you view the international markets relative to the U.S. in terms of adoption there? Do you see some of them more advanced in the U.S., or are they all playing catch-up?
spk06: Thank you.
spk07: Hi, this is George, and I think it really depends on the technology, I would say, for any of our technologies like, you know, SMS and email certainly. You know, North America is at parity or ahead of any other place, I would argue. But, you know, some of other platforms like WhatsApp, we definitely have seen more advanced adoption in some of our international markets. So I think it just really depends on the part of the portfolio. That's helpful. Thanks. Appreciate it.
spk01: Your last question comes from Mark Murphy with JP Morgan. Your line is open.
spk05: Yes, thank you. I'll add my congrats on a strong quarter.
spk07: Jeff, I wanted to ask you about the frontline product. We've been intrigued by the potential for a new kind of an app that would connect frontline workers with consumers. And we understand there are more non-desk workers in the world than desk workers. So Understanding it's still early, how do you see that product progressing, and do you feel like you've been able to build some pretty good pipeline in that area?
spk04: Yeah, thanks, Mark. So that is one of the observations that we launched the product with, which is that there are more non-desk workers than there are desk workers. And I think an interesting thing that we've also observed about the market is that There's two types of humans basically who interact with customers in most businesses. One are people who sit usually in a place and all they do is interact with customers. That's usually what you call the call center or the contact center. Maybe they're in a building with cubicles and maybe now they're sitting at home, but basically they take call after call after call or chat after chat or whatever, right? And what we're seeing in frontline is there's another large category of workers who that isn't their full-time job. They've got many things that they're doing, yet when a customer needs help, they need to basically drop what they're doing and help that customer. And that's, I think, where Frontline is also finding a really interesting set of use cases. And as I mentioned before, there's a lot of areas where, you know, sales is a really interesting area where salespeople who often are busy doing many things but need to communicate, need to engage with a customer, now are doing that with a tool like Frontline. And it's on the go. It's in their pocket. It's a mobile app. It's easy to use. It feels as native as their phone. And when you do that well, you can embed the CRM information right in that experience to power that person with all the information about that customer. And the company gets to track and ensure compliance of all those communications that are going through that experience, as opposed to if someone just used their their mobile phone and their their native personal phone number to actually communicate with the customer so we're seeing a lot of interesting uh areas uh use cases and types of companies really excited with the the um company that we're able to talk about today the healthcare company that was using frontline for sales communications and i think they're uh you know the product isn't even ga yet but to have a major fortune 500 healthcare company already starting to deploy frontline i think indicates that there are a broad set of use cases that we're seeing from not just them but other companies as well that will, um, that where these frontline workers need to be empowered with great customer engagement tools, less, they just do it less effectively in an uncompliant way using their personal phone. And I think they're, we're just scratching the surface and excited to bring that product to GA.
spk07: Thank you so much, Jeff. And a quick one for Cosima on the ADP fees. Um, do you think the carriers who have increased those fees are sort of one and done with the increases, or is there a chance that there will be some kind of ongoing lift there in the future? And just I guess I'm inferring from the strength of results that it's pretty comfortable in terms of customers absorbing that cost just because the ROI remains so high. Is that a fair way to think about it? Yeah, I mean, I think the ROI is incredibly high when you think about the things that we're doing with customers to be able to enable their use cases. It's hard for me to say one way or the other as to whether or not it's one and done. I mean, certainly based on what we know and see today, we don't see anything in the future, but it certainly doesn't preclude them doing something else. But, you know, all of our financial modeling is not based on any additional fees at this time. Thank you very much. Thanks, Mark.
spk01: Ladies and gentlemen, this concludes this conference call. Thank you for participating. You may now disconnect.
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