Twilio Inc.

I'm Brian Bannerman, Twilio's SVP of Investor Relations and Corporate Development. Thanks for joining us virtually today. We're hosting our Investor Day in conjunction with Signal, our annual customer and developer conference. Hopefully, you've had a chance to tune in to some of the broader Signal programming, including yesterday's keynote, where the team talked about some of the great examples of how companies are using Twilio products to better engage with their customers, drive higher lifetime value, and reduce acquisition costs. We held our last Investor Day during our 2020 signal, and a lot has changed since then. So we're excited to have you join us today to get an update on our business and the opportunity ahead. Before we begin, as a reminder, all financial measures are presented on a non-GAAP basis, except for revenue, which is a GAAP measure, unless otherwise specified. Reconciliations between our GAAP and non-GAAP results and further information related to guidance can be found at the end of this investor presentation. The information provided and discussed today also will include forward-looking statements, including statements about our future outlook and goals. However, reconciliation of non-GAAP forward-looking information to the corresponding GAAP measures cannot be provided without unreasonable efforts due to the challenge in quantifying various items. 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 of the date such statements are made. Actual results may vary significantly, and we expressly assume no obligation to update any forward-looking statement. Now, in terms of agenda, Jeff is going to get us started with the introduction and vision, followed by Eyal Manor, our chief product officer, who will go deeper on our innovation and product strategy. We'll then have Elena Donio, our president of revenue, provide more details on our go-to-market strategy. And Kozema Shipchandler, our COO, will close out the presentation with a financial overview of the business and a discussion of key metrics. After the presentation, we'll take a short break, and then we'll come back for an executive Q&A session with today's presenters covering the Investor Day session as well as our Q3 earnings, which we released this afternoon after market close. Throughout the webcast, you'll be able to submit questions using the built-in Q&A feature. So if you have questions at any time, please submit them there. I'll be moderating the Q&A, so we will aggregate the questions submitted. And during the Q&A session, I will announce who submitted the question, and then I'll read the question for the group. And finally, we will be posting today's presentation on our investor relations website following the conclusion of today's event. Now, with all that out of the way, let me hand it over to Jeff Lawson to kick things off.

Thanks, Brian. Hello, everybody, and welcome to Twilio's 2022 Investor Day. I'm Jeff Lawson, Twilio's co-founder and CEO. And look, I'm going to get straight down to business because I know there's a lot of discussion among the investor community around Twilio. I'm accustomed to Twilio being hard to classify because we don't fit cleanly into one box or another. But this is also part of what's given Twilio a unique opportunity in the market. Here are some of those dynamics. I mean, we're a developer-led and API-first company. We have both a usage-based pricing model and a more traditional SaaS-based pricing model with our software products. We have a platform approach versus a solution approach. We have both a product-led and enterprise go-to-market motion. And our messaging products have a markedly different gross margin profile than many of our other products. So as you can see, we have a number of unique elements to our business that don't easily map to any single comparable. So I hope today's presentation will help to shed more light on our business, our opportunity, and our path forward. So let's get to it. There are really four things that I want to focus on today. First, I want to discuss our messaging product. It's strong and can become even more efficient as it grows, and I want to show you how we intend to do that. Second, we see an even bigger opportunity with customer engagement, even though it's early for us. But I want to give you visibility into our path here. Third, I want to talk about why these two things, communications and data, are better together as a customer engagement platform and why we're going to win. And last, I want to outline our focus on operating leverage and profitability as a key priority for myself and the company. Okay, first messaging. I know there's a lot of discussion about gross margins and look, I get it. I acknowledge that historically we've guided to a 60% plus gross margin in aggregate for Twilio and that we'd achieve that level by mixing more and more software into our revenue mix. But the telecommunications ecosystem in our business has changed since we set that goal. So I want to shed some light on what's driving our recent decline in gross margins and why, as a business, we're more focused on driving gross profit dollars. Messaging is the biggest and fastest growing portion of our communications portfolio and has been the key contributor to our recent gross margin decline. Carriers charge a fee to access their customers. And we pass that fee along, both in the US and internationally. And internationally, it's generally higher. Those fees have gone up over time as this space has matured and taken off over the years. The international market has operated this way for several years. And more recently in the US, those fees, we call 10 DLC fees, were recently introduced. Because we pass these through to customers at no additional margin, our gross margin percentage has dropped. Furthermore, our international messaging traffic has seen strong growth, which has put further pressure on our gross margin percentage. We've outlined these dynamics in our recent earnings calls, but here's the important part. our gross profit per message has actually increased over the last few years. And we believe that's what really matters. Kozema will walk through this in more detail in his section. So NetNet, we believe that gross profit per message is a more meaningful signal for Twilio, even more so than gross margin percentage. So we're going to give you that visibility today. Now, with that principle in mind, I want us to go grab as much messaging volume in the world as we can with a stable gross profit per message. And when we do that, for you all to say, hey, that was the right decision. But we can be far more efficient in generating that gross profit. So off of those aggregate gross profit dollars, we intend to continue driving leverage, which means that more and more of those dollars will drop to the bottom line over time. And then drive the whole business with positive and increasing operating profit. As Kozema will show you, we expect to drive incremental non-gap operating profits year over year, starting in 2023 and beyond. These are the goals that we're orienting around, top-line market capture and bottom-line profitability. The gross margin percentage in the middle is really not what we're managing the business for. And then we can use our growing leverage in communications and the large customer base, more than 280,000 customers, as the launching point for Twilio's Act 2 in customer engagement. So that's what I want to talk about next. Okay, second, the opportunity and customer engagement. So until recently, brands never knew who their customers were. Think about it. They shipped products to the store that sat on the shelves and nobody knew who bought the product or if whoever bought it even liked it. But the internet enabled companies to build a direct relationship with their customers, to know who they are, what they want, and to cross-sell more products and even subscriptions, creating loyal fans. So now, every company can connect with their customers from their website, on their cell phones, via text, chat, or email directly. There have never been more digital interactions between companies and their customers than there are right now. But when those interactions aren't relevant to us, what do we do? We tune them out. We unsubscribe. We don't visit the site again. We delete the app. Therefore, companies who want to take advantage of this direct relationship have to remain relevant. Now compare this to the digital companies like Amazon, Netflix, or Google, who know us and are able to tailor every interaction to us. They take every data point and turn it into a better product experience, which in turn builds a better digital relationship. Think about it. Your and my Amazon homepages look completely different. Your and my Google search results for the exact same phrase generate completely different results. In fact, the more you use these products, the better they get for us. This is what's possible in the digital economy. And look, the stakes are high. If Amazon and Google become our one-stop shops, then every other company has to buy through them. Companies can't afford to be disintermediated. and pay a big percentage of revenues to continually reacquire their own customers for every purchase. If I'm selling shoes, then my biggest competition is my customers typing in G-O-O-G-L-E.com when they want a new pair of shoes or opening up their Amazon app. No, I want them typing in my site name or opening my app. And that's what's fueling the whole direct-to-consumer trend. But there's technology that's promised to enable these kinds of customer relationships, right? It's called CRM. But the reality is that CRM systems, SaaS, are bought by a bunch of different departmental leaders. The head of sales buys a sales cloud, marketing buys a marketing cloud, service buys a service cloud, et cetera. And these solutions are very siloed. They don't integrate well with each other, even if you've bought them from the same vendor. but they also weren't built for B2C. CRM comes from the B2B world where notes from salespeople are the source of truth about a customer account. But in B2C, there often is no salesperson. Think about it. When I go to Amazon.com, there's no salesperson creating an opportunity that I might buy a spatula today. No, in B2C, it's all about volumes of data collected in real time that tell an actionable story about me as the customer. The software industry has sold a solution that's not working. $69 billion was spent worldwide in 2020 on CRM. Yet, only 13% of consumers in the U.S. rate their customer experiences as excellent. SaaS is optimized for the buyers of the technology, not for the customer outcomes. It's interesting to me that the best companies at this aren't using these SAPs at all. They're built on internal customer platforms that start with the great use and activation of customer data. So the big question is, how do companies turn a one-time transaction into a long-term customer relationship? And the answer to the question of how do I turn transactions into relationships is data, right? Which brings me to my third point, why communications and data are better together. This is why we acquired Segment, to build strong digital relationships you need to understand your customers and to use that understanding to engage better than the competition. I mean, when I talk to customers, they often observe that this is the flywheel they're trying to create. The better they understand their customers through data, the better, more personalized each interaction can be. And when that's true, their customers are more likely to engage, browse the site, open the app, read the email, click the ad, all of which creates more data. This is a virtuous cycle that companies are seeking. When these parts of the technology stack and the customer lifecycle are integrated, the cycle breaks. Buying from different vendors, having to manually integrate. These things are the impediments and the customer feels disconnected as a result. They get bad marketing, frustrating customer service calls, lack of context and personalization. That's what so many companies are fighting. And it's the secret to the digital giant's success. This is exactly what a customer engagement platform provides and the reason why we're so excited about the general availability of Twilio Engage. Engage is our first software application that natively brings segments leading customer data platform and Twilio's world-class communications APIs together into a single integrated platform. We believe this native integration is what differentiates Twilio from anyone else in the market. Eyal and Elena will walk you through Engage in more detail in their parts of the presentation. But beyond just engage, it's important to understand why data and communications, the two key parts of customer engagement, are better together. Companies have had to choose historically between best-of-breed SaaS that didn't work together or to build a ton of workarounds. The platform approach solves that, and this is why I think we'll win. We've been building a platform to solve customer engagement pain points since day one of Twilio. Our first platform was cloud communications across voice, messaging, email, and more. Our second platform was for the contact center with Twilio Flex. Our third platform is via the communications app for frontline sales reps, Twilio Frontline. Our fourth platform is for customer data with Twilio Segment. And now our most recent platform for growth automation for marketers with Twilio Engage. We started with communications, then we added the data layer, which informs the communications. So the more consumers our customers bring in, the more interactions they have and the more data they have. The more data our customers have, the more personalized the interactions get and so on. We're leveraging data as a platform and not just a database. It's used to inform every single customer interaction across the customer journey. not just in one silo, but across marketing, sales, service, inside the product, and more. This is what the digital giants have built, and this is what we're enabling for every other company to build. Now, this is the opportunity that we're building for. However, it's not yet growing as quickly as we'd like due to some internal missteps. Elena will talk about some of the recent go-to-market changes we've made to improve our execution there. But from my perspective, these are unfortunate but common acquisition integration challenges. Despite that, we're uniquely positioned to win. We're cloud first, data first, developer first, platform first. We're a leader in CPaaS, a leader in CDP, and a leader in customer engagement platforms. We have the foundation to win. Now we just need to execute. Finally, my fourth point, our focus on operating profit and driving leverage. In the past, we'd oriented the company primarily towards revenue growth with an eye on OPEX. That's what we've said multiple times at our IPO and earnings calls, etc. And we've delivered great growth over the last several years. But we've also heard from you, our investors, that growth is not the only thing that matters, especially as we've reached this scale. And we agree. which is why earlier this year, we committed to delivering full year non-gap operating profitability starting in 2023. When I look at our communications products and messaging in particular, I see a really good portfolio, but one that can be a lot more efficient in how we grow. So that's what we're focused on. We're focused on gaining leverage in our communications portfolio while we're investing more aggressively in our customer engagement software and data software. We aren't immune to macroeconomic effects, and we're seeing short-term choppiness as the uncertainty as the economy continues. But despite headwinds, we are very much focused on non-gap operating profit in 2023 with increasing leverage in the years to come. I see a lot that we can do internally to find that efficiency. And as CEO, I and my team are fully committed to our operating profitability. Kozema is going to show you our company operating profit goals and our annual targets for operating leverage increases. Elena will also discuss some of the changes we've made to our go-to-market motions to drive more leverage across her team and continue to build momentum around our software sales. And Eyal will show you that innovation continues. So in closing, we and many other businesses around the world are facing short-term macro headwinds and resulting choppiness. But despite that, we are committed to non-gap profitability starting in 2023 because we see ample internal opportunities to drive operating leverage and efficiency. And despite all the macro that's going on, I've never been more excited about the opportunity ahead as we continue our journey to build the world's leading customer engagement platform. Our mission is to unlock the imagination of builders. And when the world changes as rapidly as it has for the past few years, the world and our customers have more challenges than ever. And therefore, we have more opportunities to help them solve those challenges. I'm excited to partner with our amazing customers as they continue to build their customer engagement strategies to become more efficient themselves and to build relationships with their customers. We have the right team and the right roadmap in place to capture this market and execute on our plan. And lastly, I'm also excited to gain alignment with all of you, our investors, on the nature of the messaging business and how we're investing in the customer engagement opportunity. Thank you all for attending today, but also for being vocal supporters of Twilio and even constructive critics at times as we build this incredible business together. With that, I want to pass it along to Eyal, who will go deeper on our product strategy. Eyal.

EYAL MANO, CHIEF PRODUCT OFFICER AT TWILIO Hi. I'm Eyal Mano, the Chief Product Officer at Twilio. I've joined Twilio exactly one year ago. Before that, I spent 14 years at Google driving innovative products to scale. I first helped build the ads business to reach phenomenal growth. Then I led the large portfolio of Google Cloud Platform products from inception to a scale of $19 billion in revenue. Since joining Twilio, I've hired senior product and engineering leaders, the best in the business, from companies like Salesforce, Meta, and Microsoft, all extremely experienced at scale with background in data and API. I joined Twilio because of its focus on innovation. Twilio has fundamentally changed the way businesses communicate directly with customers. It is Twilio's builder mentality and track record of delivering exceptional products that attracted me, and I'm honored to be a part of its leadership team. Today, we're going to talk about Twilio's customer engagement platform and its strong foundation in both communications and data, which is the way of the future. Our ability to bring together the leading CPaaS solution and the leading customer data platform in market share per IDC is what will allow us not only transform the customer engagement space, but win it. Importantly, you'll hear how we're going to deliver it for our customers and investors, and that's by focusing our investment on the highest impact product areas for the future, where we know Twilio can add differentiated value, positioning us to win in the market. Since its founding, Twilio has been at the forefront of innovation and has repeatedly capitalized on secular trends. Twilio virtualized the complexity of telcos and democratized communications for every developer. With Twilio, businesses could finally text consumers or make calls at scale easily. With the explosions of online services, companies had to respond rapidly to changing customer expectations. Some customers preferred texting or chat, while others preferred email or voice. So we introduced Flex, a programmable contact center built for this new world of tailored experiences and omnichannel communication. More recently, we've seen customers expecting personalized experiences. This is where data comes into play. To create a unique profile of each customer, data must be unified across the customer journey for personalizations at scale. So Twilio acquired Segment, the industry-leading customer data platform. This brings us to our most recent launch, Engage. Twilio Engage brings together the unified profiles and the communication layer for marketers to build data-driven customer experiences. And this is just the beginning. While all of these solutions create immense value on their own right, together they make up Twilio's future for customer engagement platform. The combinations of communications and data make Twilio's greater than the sum of its parts. Our customer engagement platform is how all of our industry-leading products come together. With one single unified platform, we're able to maximize the value unlocked for our customers. Our platform combines the deliverability and reach of Twilio CPaaS offering with a data-first foundation of our CDP to create a differentiated offering. This provides businesses with the power to build one-on-one relationship at scale through real-time context and intelligence, low code orchestration, easy-to-use APIs, and extensible software products like Engage and Flex that give business users the power to meaningfully connect with customers on any channel. I talk to our customers every week, and I hear that these are the critical elements a business needs to create ideal experiences with their customers. This innovation is redefining how the industry views data-driven customer engagement. One reason Twilio's customer engagement platform is so powerful is because it already integrated into Twilio's CPaaS portfolio. It harnesses the throughput, deliverability, and reach of our communication APIs. We enable businesses to communicate with consumers at an enormous scale globally. We power 144 billion messages and host 54 billion voice minutes annually. And we send over 127 billion emails monthly, reaching consumers in over 180 countries. To make it easy, we also provide advanced compliance management to ensure companies can connect with their customers without needing to sort through the complexity of the evolving regulations on their own. We're able to achieve those wins because of Twilio's builder mentality. We provide differentiated experience with easy-to-use APIs that developers love, making product-led growth a core tenant of our product strategy and an area we will continue to invest in. We tightly integrated the strengths of our CPaaS with our CDP, the second pillar of our customer engagement platform. With Segment, we have the world's leading customer data platform, which empowers businesses to gain deep understanding of their customers. Our CDP collects, contextualizes, and activates first-party data, eliminating silos across the customer engagement stack through our ability to make real-time customer profiles accessible to all business teams in any tool of their choice. Segment collects first-party data across touchpoints, data generated from websites, applications, and even data warehouse. The privacy and security feature we've built help our customers comply with privacy laws like GDPR. This data is then synthesized into one unified customer profile that can be activated in real time. With over 400 integrations, open architecture, and easy-to-use APIs, companies are able to use that data to build a customer experience that connects to any other system they use. For example, Domino's Mexico used Segment to collect customer data and create eight distinct customer cohorts. They created a customer journey that was unique and personalized based on each group's behavior and triggered ad campaigns in Google and Facebook with targeted messages at the right time. This data-driven approach drove 23% increase in Facebook conversions and a 700% ROI increase on Google ad spend. The data in segment helped Domino's understand their customers more deeply. It seems simple, but it's not. The quality and accessibility of real-time unified data is crucial to get this right, and our CDP solves for all of that. Customer data inform personalized engagement, and the engagement with each message builds a better understanding of consumers, creating a flywheel that makes each part of our solution stronger together. Delivering on our vision requires ruthless prioritization and focus. As we continue to drive innovation, we're also working toward non-gap operating profitability in 2023. We've taken a hard look at the work we're doing in R&D and whether it's fully aligned with our vision for the customer engagement platform. We are investing strategically into our core CPaaS products to improve margins and maintain our market leadership position. To reduce costs, we're adding additional self-service capabilities and modernizing our infrastructure. We are focusing on speeding up development in segment, flex, and engage, where we can deliver differentiated solutions by combining our data foundation and communication channels. This includes fully integrated CDP data into our engagement software. And all of this will generate increased value for Trilio and for our customers. The market opportunity for our customer engagement software exists because we help businesses solve real problems. Businesses need to be able to measure the ROI of every interaction they take. And this has become even more critical in the current challenging microeconomic environment. Today, they face three main challenges in accomplishing this. First, even as the privacy landscape has shifted, over 81% of businesses still rely on third-party data. In fact, the number of businesses relying exclusively on first-party data to power personalization has increased six points year over year. In order to craft personalized messaging or targeting, companies will need to shift to first-party data and deprecate third-party cookies. Second, today we understand more than ever that personalization is tied to revenue growth. with over 60% of consumers saying that they will likely be a repeat buyer after a personalized shopping experience. However, to drive that personalization, companies need a unified profile of their customers. Legacy software stacks, including CRM, keep this data siloed. That means that customer data available to business teams is often out of date, especially when it comes to customer intent. This creates barrier to delivery tailored experiences in real time. Finally, consumers want to make the decision of how business engages with them. They want to be able to communicate with businesses directly on channels they use every day. We see that 70% of companies that invest in engagement tools see an increase in revenue. When I speak to customers, I hear over and over that Twilio's customer engagement platform solves these challenges for them. Twilio Flex is Twilio's contact and service center platform, is a great example of the value delivered by Twilio's customer engagement platform. To deliver tailored experiences, we saw our customers start to build alternative contact centers using our APIs. They wanted to drive revenue and customer satisfaction scores and create loyal customers and not just improve operational efficiency. So we created Flex, software that allows companies to create a unique differentiated experience for their customers that could be customized to their own specific workflows without having to build from scratch. Flex can adapt to individual business needs and integrate with their CX stack, including with partners like Google Cloud, Call Center AI. Our approach also allows companies to provide agents with all the context and customer data they need to personalize their responses and drive better customer outcomes much faster. So when NewBank, one of the world's largest digital banking platforms, wanted customer service to set them apart from traditional banks, they chose Flex to serve their 54 million customers, saving 113 million hours of wait time and achieving an NPS score of over 90. With Twilio Powering Communication, Flex customers like HubSpot and Bosch have the ability to reliably scale to serve millions of their customers globally. This is the strength of Trilio software. This is why we're excited for our future and the opportunity that lies ahead. As Jeff mentioned, the combination of CPaaS and CDP is even more powerful when offering differentiated marketing experience, which is why we're so excited that Engage is now generally available in market. While Flex was originally designed to reimagine the contact center, Engage brings marketing into the digital first era. With Engage, marketers no longer need to rely on the entire data team to target the right group of customers or personalized content. Engage removes data silos because it's built on top of the segment CDP. Engage enables marketers to create customer journeys built on real-time data, triggering personalized messages at critical moments, like abandoned shopping cart reminders or an onboarding message that helps the customer pick up right where they left off. You'll hear more about how customers are using this new product from our president of revenue, Elena, in just a moment. But with Engage and with Flex, we are creating high-margin avenues for future growth for Trilio by solving real business problems for our customers. As we look forward, we are committed to continue and help businesses deliver exceptional customer experiences. This means continuing to build one unified, reliable platform with global reach, a platform that is built on modern infrastructure and accelerated by Twilio's foundation in product-led growth and self-service. Our unified platform allows Trilio to act as a strategic business partner to businesses, advising them on their end-to-end customer engagement strategy because we have the unique ability to provide solutions across the entire customer journey. The customer engagement platform unifies the customer and communication data. Customer profiles that include communication history can drive more relevant engagement, deeper relationship, and improve ROI for our customers. And that is Twilio's sustainable competitive advantage. Last but not least, our software will bring intelligence to the customer engagement stack. Using AI, Twilio will make recommendations on how business should act on their customer data and the journeys those customers should take, whether that means predicting the right next step for a customer or generating a lookalike audience. So as you've heard, we are extremely excited for the future of Twilio's products and for what our teams will continue to build on these pillars. And more personally, I'm honored to charge forward and execute against the opportunity ahead with a team of incredible product leaders. Next up, Elena will share with you our plans for getting all of these great products into the hands of our customers.