Twilio Inc.

Good afternoon. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Twilio Q2 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you, Brian Vanneman, SVP of Investor Relations. You may begin your conference.

Thanks, David.

Good afternoon, everyone, and thank you for joining us for Twilio's second quarter 2022 earnings conference call. Our prepared remarks, earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at eventsinvestors.twilio.com. Joining me today for Q&A are Jeff Lawson, co-founder and CEO, Elena Donio, president of revenue, and Kazima Shipchandler, COO. As a reminder, some of our commentary today may be in non-GAAP terms. Reconciliation between our GAAP and non-GAAP results and further information-related guidance can be found in our earnings press release. The information provided and discussed today also will include forward-looking statements, including statements about our future outlook and goals. These forward-looking statements are only projections and expectations regarding future performance involving risks, uncertainties, assumptions, and other factors that are described in more detail in our most recent periodic reports filed with the SEC, including our most recent report on Form 10-K and subsequent reports on Form 10-Q, and any amendments to any of the foregoing, and are available on our website and at SEC.gov. Forward-looking statements represent our beliefs and assumptions only as to the date such statements are made. Actual results may vary significantly, and we expressly assume no obligation to update any forward-looking statements. With that, I'll hand it over to Jeff for some opening remarks, then we'll open up the call for Q&A.

Thank you, Brian. Before we delve into questions, I'm pleased to announce that Twilio's Customer and Developer Conference, SIGNAL, will be held virtually November 2nd and 3rd, 2022, in the North American and EMEA regions, and November 3rd and 4th, 2022, in APAC. Signal is our flagship customer developer conference. We explore the intersection of technology, innovation, and, of course, customer engagement. We've got a really exciting lineup planned. The main event will be held virtually, and we will host two in-person customer events, our Creator Summit and our new CDP Summit, dedicated to our marketing and segment customer audience. Our Virtual Investor Day will also take place in alignment with Signal, and more to come about that Investor Day soon. So with that, let's open the call for questions.

Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We'll take our first question from Derek Wood with Cowan. Your line is now open.

Oh, great.

Thanks. Elena, maybe I'll start with you. You've been there for a few months. Just wanted to kind of hear what sort of tweaks you're looking to make in the go to market and you know things around like account structure and product focus and um kind of you know what what things you have in mind as you build through the year and particularly how uh you're you're trying to design that to help kind of move more up stack uh with both the sales force and the the partner ecosystem

Thanks, Derek. Really appreciate the question. It's been an exciting and eventful few months here, and I'm super excited about the opportunity we had. Listen, there's a few opportunities we've identified to drive our focus and time toward the highest value outcomes in the business. We're in different stages of sort of executing across each of those. First and foremost, I feel like the organization, our processes, our systems, our tools are really ready to work harder for us. And I think what that means is that we should be working much more toward applying human touch to the moment in the customer journey that really require it and to the solutions and solution selling moments that really require it as well. So we're looking for efficiency there. We're also finding efficiencies in marketing. in ensuring our pricing's reflective of the value that we're providing, in exploring new and novel ways to tap into that vibrant partner ecosystem that you mentioned. All of that is leading to an opportunity for us to shift more of our selling capacity to software, while also making sure that we're leveraging more self-service capability for customers that don't actually require hand-to-hand account coverage. I think you know, the opportunity ahead is massive in those areas. I feel like we have tremendous assets to work with, both in our client relationships, but also in our team. And I've actually had our products into that as well. So I'm excited to begin to push on those levers more aggressively and to just watch our software selling motion to take off from here.

Great. And I'm sure investors certainly would like to see that. And I guess for Kazama, the direction of gross margin coming back down in the quarter, I guess a little surprising given, you know, you guys raising pricing in the quarter, the thought that, you know, you'd see a higher mix of domestic messaging post the 10 DLC registration stuff. And even if I look at international mix at 35% of revenue was flat sequentially, so i i know it sounds like you're calling out international mix but are there other components at play perhaps within international where costs are going higher um can you just give a little bit more color on the puts and takes on gross margin and perhaps how to think about it directionally in q3 yeah i mean by and large the way that you characterized it is right that the decline in gross margin is is largely driven by our strength and international messaging i think one thing that you do have to bear in mind

you think about the 35 percent um sequentially quarter to quarter that's based on where the customer's address is or where traffic originates not necessarily where that traffic ends up terminating and so as we have both us customers as well as customers that reside internationally that continue to send messages internationally you're going to have a slightly lower gross margin Just as a result of the fact that international messaging margins are structurally lower and that's kind of what's been the drag on on our business. What I would say is that you know, in general, while that has kind of a margin rate effect, we do feel good about the growth and overall messaging and. it's still a major entry point for us with customers and it opens a lot of opportunities. related to what Elena talked about a moment ago. And so we still feel good about our 60% plus gross margin target longer term, but in the shorter term, we are taking on some business. Some of that in large part is international. And as long as it's profitable business and drives gross profits back into the business, we like that business and we're happy to take it on as long as it pulls through flex segment over time.

Got it. Okay. Thanks for taking my questions. Thanks, sir.

Next, we'll go to Madam Marshall with Morgan Stanley. Your line's open.

Great. Thanks. In the prepared remarks, you guys mentioned that you would not be immune from macro factors and just wanted to get a sense of how those are manifesting thus far and how you're being proactive with customers where you can help them optimize that spend.

Thanks. Thanks, Matt. Elena here.

You know, we feel like, in general, companies are continuing to prioritize investments that are responsible for driving revenue and efficiency. We're super fortunate in that we have products in all of those spaces. We haven't yet seen any kind of significant degradation in demand, but we do have some exposure areas that I think are worth mentioning. I think we have them in our prepared remarks as well, but In areas like SMBs, consumer and digital natives that we know could be impacted by a prolonged downturn. But with that said, we also have some spaces that we think will operate and continue to perform quite well. We've seen a couple of recent isolated areas of softness, more specifically in areas like crypto, consumer on demand, social. But again, that impact is not material. We don't think we're immune, but we also think our products sit in kind of a perfect space for continued investment. And so we're continuing to watch it really, really closely. We're continuing to watch top of funnel, cycle length, and things like that. And we'll continue to be really sort of diligent in our analysis and certainly as well in our response to the extent we see additional softness come to fruition.

Yeah, I'll just add to what Elena said that, you know, as she mentioned, the business has been resilient. And while we've seen some isolated pockets, we haven't really seen anything material yet. That said, you know, we're certainly not naive about the way that many of our peers are talking, the way that the macro environment appears to be playing out. And so we are readying ourselves for a variety of scenarios. And you probably noted that we've taken some actions With respect to slowing down hiring, except for some key areas, we guided based on having a real estate charge, which I think reflects our kind of remote first approach to the way that we're going to work going forward. And I think both of those things will drive profitability in the next year. And I think irrespective of the macro environment, we're intending to be profitable next year, no matter whether it has an impact on growth or not.

Got it. And then just, was there any FX impact that's worth calling out?

Not really. We have a hedging program and I think in general that kind of blunts the impacts of any FX. And so it tends not to be a material impact to our business.

Great. I'll pass on. Next we'll go to Will Power with Baird. Your line's open.

Okay, great. Um, I want to ask about the eight-figure flex win you announced in the quarter. That seemed like a really nice win for you. I'd love to just kind of hear more about the process. Is that a rip and replace? Is it one segment of the business? Maybe thoughts on who you were competing with there? Just kind of any learnings from that because it seems like a nice potential litmus test and maybe a nice reference account going forward.

Yeah, hey, Will, this is Jeff. You go, Jeff. Okay. Hey, Will.

Yeah, we're really excited to have signed this largest Flex deal ever in Q2. I think it's a great sign of the continued momentum that we are seeing with Flex and broadly with our customer engagement solutions. The Fortune 100 retailer that we mentioned was already a customer of our communications APIs. So this also demonstrates the traction that we're making with our strategy of establishing relationships and then moving them up from our core APIs into, you know, more broad customer engagement solutions. So this multinational organization is making the connection between their brick-and-mortar stores and their virtual stores using Twilio Flex, video chat, and messaging. So it's really a solution that hits a lot of different channels. And their data-driven cross-channel solutions needs here are going to create a single view of the customer across their organization to provide a seamless, personalized, and just really a great, memorable customer experience that starts with their marketing, through their sales, and through their customer service. And so they're really reimagining the customer lifecycle in this sort of high-touch way from physical stores to virtual stores across all these channels. And when you kind of think about how many solutions are out there that can really really help power these new emerging and novel customer engagement, like full lifecycle solutions. There really aren't that many out there. So we were in the competitive landscape with a bunch of other known players, as you can imagine. But I think this is where Flex really shines in terms of being able to take a bunch of really interesting new and emerging requirements from a customer who's really looking to reinvent how they engage with the customer, not just when you need support but really across that full customer lifecycle. And they do it in multiple different channels, across multiple different venues that they have. This is where Flex really shines. We're really excited about this new customer. I think it's a fantastic win for the platform, and I look forward to continued customer success in the account.

That's great. I appreciate that. Maybe just to follow on real quickly on the macro aspect, Anything you can call out with respect to linearity across the quarter? Did you start to see more relative weakness late in the quarter, and how has that maybe trended past that? Anything you can call out just with respect to geographies, Europe versus elsewhere?

Will, this is Kazama. Not really. I think globally we had a pretty good performance across the board. I think we called out a couple sectors where we did feel it. We called out some sectors where saw some ups as well and so i think so far at least as we've said you know it's been pretty balanced for us and we haven't really seen any signs of anything material yet um we're obviously watching it closely and as i said a moment ago we're certainly paying attention to what our peers are saying and what's happening in the macro environment more broadly um but i wouldn't call out anything beyond what we did certainly not geographically okay thank you thanks

Next, we'll go to Samad Samana with Jefferies.

Your line is open.

Hey, good afternoon. Thanks for getting me in. Maybe first, just on the shifting of the selling capacity on the software side and looking to leverage more self-service capability for customers that don't need direct account coverage. Maybe, Elena, could you help us understand better? Is that even for the application layer, like Engage and Flex, that you're trying to do that as well in the segment? Or is that more for the traditional messaging side? Just help us understand who that's directed at in your base and what that customer looks like and how we should think about that going forward.

Yeah, great questions, Matt. Thanks. I think that that motion can apply to all of our solutions, but I think it's most effective in our... more transactional messaging deals. And so you'll see us push on it harder there, but we really believe that there's a motion across all of our solutions where they're discoverable by developers, where developers have a moment where they can experience the solution, they can play with it, they can build around it. And then that can lead to bigger and bigger deals and engagements with clients. That said, we also know that with these solutions, there's pipelines being built and deals going down in the market every day. And we want to make sure that we're meeting customers where their sales cycle is taking them and with what their process looks like. we'll have enterprise selling motion across all of that as well but we believe that there's really sort of exciting opportunity for us to push harder on self-service and messaging but that doesn't mean that we won't also have those motions working really well across segment and engage as well as flex great and maybe because i'm a follow-up question for you just on on the guidance

Does the 3Q guidance include political messaging revenue contribution, or is that going to be excluded as you think about organic growth? Just trying to make sure that we kind of keep all of our ducks in a row on the organic guidance and what's included in that.

Yeah, it'll be included. We're not excluding political from the organic guide, but I would say that it tends not to have much of an effect or as much of an effect in Q3. It tends to be more of a Q4 phenomenon. So I wouldn't expect much of an uplift relative to political in the overall guide.

Understood. Thanks, everybody. Appreciate it. Thank you. Okay.

Next we'll go to Michael Turin with Wells Fargo Securities.

Hey there. Great. Thanks. Good afternoon. I appreciate you taking the question. I mean, look, there are clearly a number of moving pieces in the model. and the macro currently. We've been fielding a number of investor questions just around the 30% organic revenue growth level. And even with all the moving pieces, you did come in above that this quarter. The guidance suggests fairly close to or above those levels next quarter. Can we just spend some time on the organic profile of the business, the puts and takes of what's playing through currently? And if some of the urgency and adoption patterns you were seeing normalizes, are there points of focus for the sales team just to kind of drive towards or lean into in the current backdrop? Thank you.

Yeah, let me start. This is Kozama, and then I'll hand it over to Elena to talk through it in a bit more detail from a sales perspective in particular. So I'd say just to start off with, as we mentioned, that so far at least, we're not really seeing any material impacts in our business relative to You know kind of the macro picture and obviously we're watching that macro picture quite closely we monitor our business very closely. it's usage based and so we're getting you know signals day to day about that, but, as I said so far we're not really feeling anything material. In terms of you know Q2 like we feel really good about the way that Q2 and, frankly, the first half played out and and we feel quite good about the setup in the second half as well. You know, we're guiding, obviously, to 30 to 32 in a reported and then, you know, 29 to 30 organically, despite, you know, kind of a bleaker macro picture, perhaps, than where we were six months ago. And, you know, I'd attribute that largely to, you know, the business remaining resilient. And, you know, while we have seen some pockets of softness, we're just not seeing that in kind of a broader brush yet. In Elena's prepared remarks, you know, what she alluded to was that we are seeing, you know, some longer sales cycles, but that's being offset in part by, you know, volume gains in some other areas. And so I think sitting here today, based on what we know, what we see, we feel pretty good about certainly our first half results and the setup for Q3 as well. That said, you know, there's a lot more work for us to do given the magnitude of the opportunity in front of us. And so given that, let me turn it over to Elena to talk through that.

Yeah, I mean, I think for us, like our focus is still very much on making sure that we are harnessing the demand that's out there and just making sure we're introducing the best of everything we have to offer into the market. As I mentioned earlier, we are kind of continuing to kind of move our focus on stock, make sure that we're investing in those areas to drive long-term growth with a high, high focus on profitability growth. um i think co said it well like we're not seeing any significant degradation of demand we've seen cycle lengths um just in a couple very very small pockets um push out a little bit um we're not hugely concerned in that it hasn't become a pattern it's just something that that we're watching really closely but i feel good about the setup going forward i feel good about how the team is focused and moving in the right direction. And we'll continue to watch it and make sure that we're responding accordingly and adjusting our message to out to the market accordingly. Again, we think that our solutions are really well suited to this point in time. And so even if budgets get for the short period of time scrutinized or held as people are sort of holding their breath, waiting for additional economic data. We also feel really comfortable that when the exhale happens, we're there waiting and that we present a really phenomenal opportunity, particularly in our solutions that allow people to know, engage, sell to, sell through their own customer base, that we stand to benefit from that in the end.

Okay. All right. We'll go to our next question.

Next we'll go to Nick Altman with Scotia Bank. Your line is now open.

Great. Yeah. Thanks guys. Good to hear that you, you know, reaffirmed your commitment to profitability in 2023, but just given there's a handful of one-time costs related to the office closures and the sabbatical program that are sort of pressuring 3Q and

um how should we be thinking about ebit margins as we sort of exit this year and then kind of going into 2023 yeah um that's a fair question so uh thanks for for asking it i think the way that we're thinking about it is is that irrespective of kind of the macro environment that we intend to be profitable in in 2023 and We've thought through a number of different scenarios that could play out that even if there were growth impacts, we still intend to be profitable in the coming year. And in addition to that, we continue to see this massive opportunity, as Elena has been talking about, with respect to the software aspects of our business, in particular segment flex. In terms of the two dynamics that we called out in our prepared remarks, so one of them being the the real estate. The real estate charge, that's a one-time, it's non-cash. It'll start to show up in our operating results next year. And then in terms of the second one, that's also a non-cash charge. And then there'll be some kind of carryover period to period, but it'll be relatively de minimis in the scheme of things. What we're guiding to for the time being is profitability into the next year. We're not guiding to a margin rate associated with that EBIT number. But what we're committed to doing is delivering profitability into the next year.

Okay. Okay. That's helpful. And then it just sounds like there's a sort of a greater pivot to segment, engage, and flex. And I'm just curious sort of what's driving that? Is there something you're seeing in the end market where You know, maybe maybe, you know, the end market for those products is becoming a little bit more attractive or sales productivity selling those products is picking up a bit. Or is it more sort of, you know, you guys are pivoting to selling those products with, you know, a higher gross margin profile than the overall business?

So I'll say a couple things, and then Jeff might want to weigh in as well on that one, since it's such a sort of large, sort of strategic question. But I would say a couple of things. First, you know, messaging and communications end up sort of being the last mile of the things that originate up in the marketing space, in the customer care space, et cetera. So we think it's a very, very natural progression that where we started with a fantastic business in communications, that we then help customers make sure that those communications are the right communications at the right time through the right channels to the right individuals to make the whole flywheel turn better and faster. And so it happens to have the characteristics of helping us create a better economic profile from a margin perspective for the business long term. But we also think it's just a really, really natural move from a customer perspective. Jeff, I don't know if you have anything you'd like to add to that.

Well, thanks, Lane. I think you said it really well. Maybe I'll just add two bits of color to your answer. First is customers come to us, whether they want voice or messaging or email. I mean, they're coming to us for our communications channels because they have some business goal they're trying to achieve. And typically, it's they're trying to do better marketing. They're trying to improve their sales process. They're trying to make They're product more engaging. They're trying to provide better service and support, right? They're trying to, you know, one of these areas in the customer journey is where they're focused. And so they're using communications to achieve that goal. But when we talk to customers and we learn what it is they're trying to do, we always see these opportunities to say, well, how can I help you achieve that goal faster, better? And, you know, doing a bunch of the heavy lifting that customers may be trying to do on their own. And so when we see these trends emerge, lots of customers coming to us for, you know, better contact center or a lot of customers coming to us for, you know, identity verification or coming to us for better marketing across channels. You know, these are all opportunities for us to go help our customers and get our customers to success faster and to bring them a higher value product. And so that's a win-win. And so when you think about what we've been doing, we started with the sort of bottom-most layers of like the channel APIs. And as we learn about customer needs and broad-based customer problems, we can then go into solving those problems for our customers. And everybody wins. And as Elena mentioned, obviously that increases our gross margin profile to be solving software problems, but also accelerates our customers' time to value in their success. The second thing I'll say from a strategic standpoint is as we grow our business and we grow our revenue, we want to make money because we help our customers craft and send and engage with better communications with their customers, not just more communications. I think we all would look at our phone and our inbox and all that and say, you know, we've got a lot of messages. We've got a lot of email. But really what businesses want is more engaging communications, more engaging customer journeys. And so we see that as a really big opportunity to really get at what our customers truly want, what their real aim is, is to have more engaged customers, not just more communication. So I think it really hits our strategic goals. I think it achieves our customers' strategic goals. And I think it's what end users want as well. And so I think everybody wins as we continue to drive into more software solutions to drive smarter outcomes and better customer relationships for our customers.

Got it. That makes a lot of sense. Thank you.

Next, we'll go to Mark Murphy with JP Morgan. Your line's open.

Yes, thank you very much. I am curious, maybe for you, Kazima, how would you assess the response to the SMS pricing increase? I'm wondering if customers view it as reasonable and to be expected in an inflationary environment, or do you think that volume growth would degrade sales

slightly as you as you roll that price increase through and have a quick follow-up yeah hey mark we haven't really seen much of a detrimental impact to the business i think volume is broadly held up uh we haven't seen a lot of resistance to it i think it's pretty reasonable in an inflationary environment and as we've talked about in the past we feel really really good about our technology and we do feel like it deserves a premium relative to the competition

Okay. And then as a quick follow-up, could you describe the trend on the video portion of the business? I think, Jeff, you've had several innovations there, included an application for hosting conferences and virtual events. I think you've had embeddable video. Can you help us understand what kind of experimentation are you seeing and maybe any help on just the trajectory or the prioritization of video?

Yeah, absolutely, Mark. So we've got our video platform started off the first several use cases were more small group conferences and then big group conferences. And then last year we launched Toya Live, which provides for live streaming experiences, interactive streaming experiences. I think this is still an area for us of experimentation. To be honest, I think the video market is still sorting out. I think there was sort of the market that existed and then COVID came along and there was a flurry of activity. And there's been some experimentation by entrepreneurs, by bigger companies. But it's really small for us in the grand scheme of things. And I think it's a really interesting investment area because I do think that video is ripe for some more disruption, more interesting applications, whether it's live shopping, whether it's live interactive conferences, etc., But it's just small for us in the grand scheme of things, and it's one of those long bets that we have.

Thank you. Next, we'll go to Brent Braceland with Piper Sandler.

Hey, thanks for taking the question. Thank you, and thanks for taking the question here. I appreciate you haven't really seen any sort of macro headwinds, the business, but we are absolutely seeing churn pop up in other customers, particularly customers, vendors that have exposure to kind of that SMB, smaller customer cohort. I know your software is free, right? So you only pay for what you consume. But as you think about the environment shifting here, have you seen any sort of change in the consumption patterns, the messaging patterns, the smaller customer set? Obviously, The return to travel is something that is real. Lots of people are traveling, and so there's got to be some offsets. But I'm just wondering, as you think about maybe the smaller customer cohort, are you starting to see any sort of change in volume or messaging patterns that might be maybe offset by larger customers? Thanks.

Yeah, it's a good question. This is Kozama. Let me start, and then I'll have Elena comment as well. So maybe just to take a step back, I think one of the things that we've been doing quite actively is analyzing the business along the line of a number of dimensions, as we alluded to in our kind of prepared remarks. And we have been looking at it based on customer size. That's one of them. We've been looking at verticals. We've been looking at use cases. And at least so far, we're just not seeing much of an impact based on those cuts. Now, we did call out a couple pockets of softness. um in in elena's uh section of the of the prepared remarks where you know we commented that for example in crypto or social or uh you know on demand related activities that we're seeing a little bit of slow down but on the flip you know we are seeing um some strength as well in financial services and and i.t related spending that said you know as you alluded to in your question we do have a usage-based business where we get paid effectively on the basis of every event. And we are looking at it very closely. And we're certainly planning for a variety of different scenarios that could unfold. We just haven't seen them in our business just yet. And irrespective of how those things play out, we're still planning to be profitable into the next year. And that's kind of how we're running the business day to day. But let me let Elena comment more on, you know, SMBs, because I think that was kind of the basis of your question.

Yeah, thanks. So I don't have a ton to add. I would just say it's very natural to sort of assume that as economic difficulty sort of creates this kind of a moment that the investments that SMBs are making goes down, some may not be around over the next number of quarters or years. But we're also excited about the fact that it's also a window for new innovation to kick back up and new companies start to get involved and to send messages and utilize software. So we're definitely watching it. But I will tell you, and we don't break this out, but I would say in my organization, we call the group that looks after SMBs our growth team. We're pretty pleased with their performance thus far. So that's, I guess, the only thing I'll add is that definitely still watching, excited about the progress that team is making, but really sort of where we've seen softness has been much more sort of use case or vertical oriented in the areas that you'd expect and that we talked about in our prepared comments. That's it.

Perfect. That's helpful, Keller. Thank you.

Next, we'll go to Ryan Kuntz with Needleman Company.

Thanks for the question. I want to reflect on Zipwhip if we could, and I really appreciate it's an innovative and unique product. Can you tell me, is it fully integrated to the company now, and how do you see it performing out of the A to P fees, and what are your expectations for the business going forward in terms of any synergies with that? Thank you.

Yeah, I mean, we're not breaking it out per se, but I think we feel great about the Zipwhip product. I think we feel even better about the Zipwhip team. I think they've integrated really nicely into the business. I think a number of different thought leaders that came with that team as well that are helping us innovate. The business performance, as I said, is going really, really well. Obviously, there's an A2P fee component there, too, which we break out for you all. But I really have nothing but very positive things to say about how ZipWhip has been performing.

Got it. Thanks, Sam. Next, we'll go to Ryan McWilliams with Barclays. Your line's open.

Thanks for taking the question. Now that the Cineverse agreement has gone into effect, would you expect any material benefit to gross margins in the next quarter? And do you think there might be any better visibility into gross margins going forward after this agreement?

Yeah, I mean, as you pointed out, that we concluded the Cineverse transaction, and we feel good about having them as one of our partners. We did business with them for a long time, and strengthening that relationship through an active investment felt like a great next step for us. We have a commercial agreement alongside the investment that we took, and that provides some benefits to the business. We're not guiding the gross margins into the out-quarter. We're committed to our long-term model of 60% plus over time, but I think rather than that necessarily happening just through a price increase or the Cineverse arrangement, it's largely going to come through the growth in our software business, which is in part one of the reasons that we're so excited about it. So Cineverse is definitely accretive and will be helpful over time, but I wouldn't read too much into it having an impact in the next quarter or so.

Thanks. And there's quarterly fluctuations in direct revenue. It might not be the best indicator of segment momentum, but Is there any color you can give around how a segment's doing at this point, and also maybe any update where we are in regards to the Engage rollout?

Thanks. I missed the first part of the question. Did you say deferred?

I was just saying deferred might not be the best metric to gauge segment momentum, but is there any color you can give around how a segment's doing at this point?

Yeah, segment's going really well. And it's been performing well for a long time for us. I mean, we're really, really excited about the addition of that product and that team as well into the company. Obviously, it comes with a nice software attach. I think it's very additive to what we're trying to do and have been doing for some time with our communication stack. And I think we bring that all together with Engage. And Engage is still planned for a later in-year launch, as we've been saying for some time, and we're super excited about the way that that beta program has been going. I think we've been oversubscribed there for a while. Elena would probably know better than I, but I think we feel good about that momentum, feel great about the way this segment's been performing. Obviously, that business is integrated fully, and yeah, we're excited to launch Engage soon.

Okay, next we'll go to Sidi Panigrani with Mizuho.

Your line's open.

Hi, this is Avi Navon for Sidi. Thanks for taking my question. I guess the first kind of question would be just, with Google delaying recently their deprecation of third-party cookies now, again, from 2023 to 2024, have you seen or maybe do you expect this to change the demand environment a little bit around CDPs, customer engagement more broadly, and maybe that transition away from third-party? And do you see some of the urgency kind of diminished for some of your customers that are coming in?

Yeah, you're absolutely right. Go ahead, Jeff. We're talking over each other.

We're in different places if you haven't figured that out yet. Thanks for the question. I think what we see is it's taking a little bit of pressure off of companies. I mean, if you think about it, like 2023 is not that far away. So in some ways, it's actually pretty reasonable to give a little more time for such a big change in the internet ecosystem to roll through. That said, I mean, we did a survey, and it was like, I think it was 70%, some number like that, of companies were not ready for this change. Now, that creates demand for our products, but you also can't imagine that that number of companies are going to magically flip a switch and completely flip their technology stack in just months' time. And so I think it's giving a little bit of pressure relief now, but it still is a great environment for the CDP given that customers actually do have a little more time to actually make these thoughtful changes, and we are already seeing some fantastic stories from the customer base emerge that really is giving our customers confidence that this first-party data approach is not just going to be tenable. It's a big change for folks, but actually it's going to be tremendously beneficial. A couple of the stories that we've shared publicly is – You know, Allergan using Segment was able to get a 41% reduction in their cost of customer acquisition, which is, you know, those are amazing numbers. Another great customer story was from Domino's, who in Mexico was using Segment to build smarter customer audiences. And as a result of that, doing better ad buying, and they saw their return on ad spend increase 700%. That's pretty amazing. And especially in a macro environment like this, where every marketer doesn't have the CMO wheeling over a wheelbarrow of cash to go spend on ads, people have to be incredibly efficient and provide ROI on all of their ad spend. So these types of stats, even ahead of having to make these changes, companies who are getting ahead of the curve are already showing these amazing returns not just in getting back to parity with where they were before a lot of these privacy changes went in place, but actually accelerating and going beyond and showing tremendous increases in the efficiency of their ad buys. I think that is going to drive a lot of the demand, in addition to the kind of forcing function at the tail end, which is Google saying, come on, you guys got to get off this thing. So the forcing function isn't bad, but I actually think even better driving force is just the high ROI customers see when they use our CDP to understand their customers, create better profiles for their customers, then use those profiles to build better, smarter, more accurate audiences to go then place more effective ads on the likes of Google and Facebook. And so I think it's a variety of factors that are driving it. It's not just the cookie thing. The cookie thing certainly helps, don't get me wrong. But I think that especially in an environment like this where ROI is the name of the game, that segment has a fantastic story.

Yep, definitely. That makes a lot of sense and I appreciate the color there. And maybe just one quick follow-up on kind of the political messaging volumes this year. Have you seen any indication about how it's trending versus historically as whether, you know, you'll see more volume this year based on maybe kind of the just the political environment in general or maybe kind of just waiting to see, you know, how that trends into Q3 or Q4?

Yeah, this is Kazema. I think it's kind of a wait and see. I mean, we haven't seen anything idiosyncratic yet. I mean, we've modeled some, you know, for Q3, and it tends to pick up a little bit more in Q4, but nothing that I would call out.

Great. Thank you again for the questions.

Next, we'll go to Patrick Walravens with JMP Securities. Your line's open.

Thank you very much.

So, Jeff, going back to Engage, the October 2021 press release said it would be GA and Q1, and now it's Q3 and Q4. So you guys obviously don't have the expected time. I'd love to hear why. And then just secondly on the engaged topic, you know, with that, you're going to be competing more, at least that's the perspective from some investors, against some of your great customers, you know, like a Braze or like a Klaviyo.

How do you manage that? Hey, Patrick. Yeah, happy to answer those questions.

So first of all, GA launch is still expected for the second half of this year. We've got great customers on board with the beta, and as I think Coach said earlier, two-minute customers running into that beta, which is a good problem to have. And as often happens in the beta, you learn about which are the most valuable parts of the product, which are the parts that are most differentiated. And it directs your roadmap. And that's exactly what's happening here. We're learning great things from our customers. And I think our customers are telling us that we are on a great path. And it shows that there's real latent demand for the solution that Engage is providing. The second of your questions is like, how are we managing the partner ecosystem? And it's a great question because it's not a direct competitor necessarily to those other solutions. And there could be some areas of overlap for sure. But there's a lot of different ways to approach building omnichannel marketing. And our approach is to really start with the data. And our point of view is that the hardest part for a marketer to get right is actually having the right data and best profiles to drive what they're going to do. There are other solutions that are more focused on, say, the campaign or analytics, and those are great areas to focus on. But ours starts with data and then activating that data. And what's interesting is that we've seen actually in some of our early beta customers that what they want to do is use Twilio to drive building that data and then activate it. And they may activate it with a campaign of their own that they build on Engage. That's maybe an email campaign or a text campaign. But they may also want to trigger campaigns that are in other marketing tools. And so we've seen opportunities to actually deepen our partnerships because like, look, we're here to help power our customers tech stack. And I think that bringing data in and activating that data is frankly really a net new area of the tech stack. And so that's an area of investment. I think marketers are going to increasingly spend money on having the best data and the speed of that data, having real time event level data for all their customers. But then the things they do with it, sometimes they'll be activating those on Twilio directly. Sometimes they'll be activating them on internal tools. We've seen customers wanting to trigger like internal alerts or internal chat applications. We've also seen customers want to trigger activations in other third-party tools. And that's part of the ecosystem that we're building with Engage. And Engage is a really, really flexible engine to take customer data, and in real time as that data is changing, activate that data to trigger flows. And so there's a real partner opportunity there too that we continue to work with our partners to bring to life as we're bringing the product to GA.

Okay, that's super helpful. Thanks, Jeff. There are no further questions. This concludes today's conference call. You may now disconnect.