Twilio Inc.

Good day, everyone, and welcome to the Twilio second quarter earnings conference call. At this time, I would like to hand the call over to Mr. Brian Vanneman for opening remarks. Please go ahead, sir.

Thanks, Lisa. Good afternoon, everyone, and thank you for joining us for Twilio's second quarter 2023 earnings conference call. Our prepared remarks, earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me today for Q&A are Jeff Lawson, Co-Founder and CEO, Elena Danio, President, Twilio Data and Applications, Kazamin Shipchandler, President, Twilio Communications, and Aiden Migiano, Chief Financial Officer. Due to an issue with our external website vendor, the prepared bars were only recently posted to our IR website. Thus, the team will be reading these live at the outset of the call. As a reminder, some of our commentary today will include non-GAAP financial measures and key metrics. Reconciliations between our GAAP and non-GAAP results and further information related to guidance, definitions, and key metrics can be found in our earnings press release and the appendix of our prepared remarks, both of which can be found on our IRR website. 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 subject to known and unknown risks, uncertainties, assumptions, and other factors that are described in more detail in our most recent periodic reports filed with the SEC, including our annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q, which 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 except as required by law. I'd also like to highlight that following our recent reorganization into two business units, beginning this quarter, we will be reporting our revenue and non-GAAP gross profit results in two segments, Twilio Communications and Twilio Data and Applications. With that, I'll hand it over to Jeff to open the prepared remarks.

Thank you, Brian. We closed out a strong second quarter, over-delivering on both our revenue and profit targets, and generating record quarterly non-GAAP income from operations of $120 million. We begin the second half of the year energized by the progress we've made to date in communications, confident that we've laid the foundations to re-accelerate growth in our data and applications business over time, and optimistic about AI's potential to be an accelerant for Trilio's vision. We also remain committed to continuing to deliver against our profitability targets in any financial environment. We've made substantial strides on our path to gap profitability and have substantially increased the operating margin profile of our business. In Q2, we reduced gap loss from operations by over 50% year over year. We drove a continued reduction in stock-based compensation and delivered $72 million of free cash flow in the quarter. we are executing well against our commitments. And as a result of our strong performance in the first half of the year, we're raising our full year non-GAAP income from operations guidance to $350 to $400 million. A business transformation as big as what Twilio is taking on takes time. It requires tactical focus in the short term and a bold vision for what's possible in the long term. Twilio's act one, communications, has been a success in terms of scale and efficiency. Our communications business continues to deliver against the objectives we've set, driving efficient growth while we target ongoing operating leverage in the coming years. And now we're building Act 2 based on our belief that Twilio's data asset, when combined with the power and reach of our communications platform and accelerated by AI, can unlock value for businesses that we are uniquely positioned to deliver While I don't expect the road ahead to be linear, we've embarked on a massive market opportunity, one that has the ability to transform the status quo for customer engagement. Now to where we are today. In communications, we delivered a strong quarter and are encouraged by continued signs of stabilization across our customer base. The efficiency actions we took have proven to be the right ones, and the business is delivering with a more streamlined operating profile. Following our largest email deal in Q1, the team signed our largest ever messaging deal in Q2, an exciting milestone for Twilio at this scale. As a part of our efforts to focus on doing fewer things better, we also recently completed the divestitures of Twilio's IoT and value-first businesses. The usage-based nature of our communications business makes it sensitive to macro conditions, so the team continues to manage towards gross profit growth and driving leverage. Kazema will share where the team is focused on driving further efficiencies while capitalizing on our growth opportunities for the second half of the year and beyond. In data and applications, we're continuing to focus on executing against our go-to-market rebuild efforts. We now have sales ramped in our most critical areas, and we are optimistic that our bookings will improve towards the end of the year and that revenue growth will reaccelerate during 2024. Elena will share more about our progress here as well. In June, we previewed our vision for customer AI, which we have designed to layer predictive and generative AI capabilities across our platform at every customer touchpoint. As I shared last quarter, I believe the real value unlock for artificial intelligence will be pairing large language models with first-party data sets. We believe this is where Twilio is most differentiated through our data asset segments. Segment's customer profiles will become even more data rich with AI, accelerating our data and communications flywheel. By training large language models for customers with their data that lives inside Segment, Twilio will help customers enter the AI race multiple steps ahead of their peers. Twilio's ability to drive that level of differentiated customer value proposition has the potential to be a significant tailwind for our business. We're also excited to be building an ecosystem of partners and integrations, including Google, Databricks, Frame AI, and OpenAI to power some of customer AI's generative capabilities, as well as AWS to power predictive AI use cases within segments. I can't wait to showcase several of the products that will advance our customer AI vision at Signal on August 23rd, just a few weeks away. I'm proud of the team for navigating through a lot of change. as we reorient the company over the last several quarters. This is a team that has executed well against our plans, as evidenced by the speed in which they have adapted to the new structure of the business, driving greater efficiency, and having delivered over $220 million of non-GAAP operating income through the first two quarters of 2023, exceeding our financial targets and building a foundation that sets us up to continue to achieve our goals and capitalize on the tremendous opportunity ahead. I remain confident that we have the right team, the right plan, and solutions to deliver meaningful value to our customers and look forward to sharing our progress today. Now, I'm going to hand it over to Elena.