Greg Kleiner - Head of Investor Relations Jeff Lawson - Co-Founder and Chief Executive Officer Lee Kirkpatrick - Chief Financial Officer

Richard Davis - Canaccord Heather Bellini - Goldman Sachs Mark Murphy - JPMorgan Brend Barnicle - Pacific Crest Securities Bhavan Suri - William Blair Pat Walravens - JMP Securities Ittai Kidron - Oppenheimer Mike Latimore - Northland Capital Markets

Good afternoon. My name is Tison and I will be your conference operator today. At this time, I would like to welcome everyone to the Twilio Fourth Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the call over to Greg Kleiner, Head of Investor Relations for Twilio, the floor is yours.

Thank you. Good afternoon, everyone and welcome to Twilio’s fourth quarter and year-end 2016 earnings conference call. Joining me today are Jeff Lawson, Twilio’s Co-Founder and CEO and Lee Kirkpatrick, Twilio’s CFO. The primary purpose of today’s call is to provide you with information regarding our 2016 fourth quarter and full year performance in addition to our financial outlook for our 2017 first quarter and full year. Some of our discussion and responses to your questions may contain forward-looking statements, including but not limited to statements regarding our future performance, including our financial outlook, our market opportunity and market trends, customer adoption of our products, our momentum, the benefits from our business model, timing and focus of expenses, impacts and expected results from our acquisition of Beepsend and our ability to execute on our vision. These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should any of our assumptions as outlined in our earnings release and the documents referred to in that release prove to be incorrect, actual company results could differ materially from these forward-looking statements. A discussion of the risks and uncertainties related to our business is contained in our Form 10-Q filed with the SEC on November 7, 2016 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 of which such statements are made. We undertake 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. Also, during this call, we may present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short time ago. We encourage you to read our earnings release as it contains important information about GAAP and non-GAAP results as well as the reasons why we present guidance for non-GAAP financial measures of loss from operations and net loss per share, but not the comparable GAAP measures. The earnings release is available in the Investor Relations page of our website and is part of our Form 8-K furnished to the SEC. Finally, at times, in our prepared comments or in response to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly or annual results. Please be advised that this additional detail maybe one-time in nature and we may or may not provide an update in the future on these metrics. I encourage you to visit our Investor Relations website at investors.twilio.com to access our earnings release, periodic SEC reports, a webcast replay of today’s call or to learn more about Twilio. With that, let me turn the call over to Jeff.

Thank you, Greg, and welcome everybody. 2016 was a tremendous year of innovation and growth for Twilio and the power of our platform business model drove another set of outstanding results in the fourth quarter. We finished the year on a high note with a Q4 performance far above our guidance. This strength combined with gross margins adjustments, Lee will describe, also drove our first quarter of non-GAAP profitability. Customers new and old are leveraging our platform to create experiences for their end users by integrating communications into the software that they are building. Base revenue grew by 73% year-over-year in Q4. This was driven largely by our continued successes with existing customers along with seasonal contributions from elections in the United States and Brazil. We also saw another strong performance in our key metrics with dollar-based net expansion rate of 155% and year-over-year active customer account growth of 44%. In total, we added more than 2,000 new active customer accounts in the quarter with strength in both the enterprise and technology first organizations. We kicked off a number of new efforts in the fourth quarter with companies such as Capital One, Atlassian, Paymentsense in the UK and one of the Blue Cross Blue Shield companies. Authy also added some wins with companies including Scotiabank, MercadoLibre and William Hill in the UK. We also entered into a new relationship with one of the largest U.S. airlines. This is another great example of how working with developers within a large organization can pay dividends. As the airlines technology evangelists help champion Twilio through this process culminating in a decision by the CIO. The initial use cases are targeted at internal facing functions like incident alerting and conference bridges with several other potential opportunities identified. You may recall my discussion last quarter of the enterprise plan, a product with a host of compliance, security and administrative features end at serving the needs of larger, more complex businesses. The enterprise plan was key to unlocking this opportunity. As a federal contractor, this airline has very specific data storage requirements that we can now address through the capabilities of our enterprise plan. We believe this unique combination of developer credibility and enterprise quality not only helped us close the initial transaction, but also identify potential opportunities to expand our relationship with this customer. Another customer, All Web Leads is a leading customer acquisition marketing business focused on the United States insurance industry and they were another important Q4 win. The core of All Web Leads’ business is the ability to attract, engage and qualify customer who need to purchase an insurance plan. An important part of that equation is the call center technology that drives tens of thousands of calls for their business every day and this is what we will be driving for them going forward. The power and flexible nature of our platform along with our scalability and monitoring capabilities are key to this win. Another example of our traction within the traditional enterprise is a new relationship we started with one of the leading service providers to the U.S. automotive industry. Just like Twilio was behind the scenes powering the communications behind many of the services you use every day, this company provides services to a majority of the new cars sold in the United States. Customer service is vitally important to this company's business as they serve tens of millions of drivers each year. By modernizing their call center operations on Twilio, we will be helping them to improve automation and self-service options to create advanced call controls and add messaging as a new communications channel. The end result will help to improve both the efficiency of their operations and the customer experience for their millions of end users. We won this deal in conjunction with our partner OneReach, another example of our traction with solution partners who help expand our presence in the market. On the product front, we announced a number of new offerings in the fourth quarter. First, dual-channel recording to improve agent productivity and enable advanced analytic in both sales and call center use cases. Second, interconnect for our programmable voice client offering to enable private Ethernet and MPOS connections to our cloud for our customers’ voice-over-IP calls. Third, a porting API to allow customers to more easily move their numbers over to Twilio in an automated fashion. And finally, we added support for SIP registration to our programmable voice product line for customers to connect their existing phones directly to our platform. In addition, the R&D team remains hard at work on a number of other offerings we have teed up for major releases this year like programmable chat, programmable video, programmable wireless and notify. We’ve admitted many customers into the beta programs of these early release products and are expanding the number of customers in the program continually. We are very excited to see what our customers can build with these new building blocks as we move to the final stages of our lunch program. We were also pleased to have been included the bot frameworks launched this past quarter by two of the major platform providers both Microsoft Azure Bot Service and Amazon Lex framework. We have a number of clients experimenting in this field and I'm excited to see what comes out of it. You’ve heard me talk about our plans to further penetrate the enterprise market in past. In Q3, we launched the enterprise plan to both aid this effort and monetize the unique needs of larger organizations. More recently we announced that we received ISO 27001 certification, one of the most widely recognized and internationally accepted information security standards. This is a huge milestone for our company and something that is very important about our customers and our prospects. I also wanted to take a moment to discuss the acquisition that we announced today. I’m very excited to welcome the Beepsend team to the Twilio family. Lee will walk through the financial details in a moment, but at a high level the focus of this acquisition is their underlying routing platform and technology team, which we believe will benefit our entire messaging business by improving our Super Network. We looked at the product roadmap for our Super Network and we saw a great fit with Beepsend’s routing platform and the expertise of their team. In particular, their platform’s capability to segment traffic and monitor routes will aid our messaging business especially when combined with the quality data we receive from our proprietary routing platform. In addition to the technical benefits, we are also looking forward to the contribution from their team members as they bring a wealth of knowledge and relationships as we expand our international efforts. Before I turn the call over to Lee, I’d like to take a moment at the end of our first year as a public company to reiterate our vision for the road ahead. Our mission is to fuel the future of communications. As communications undergoes a once-in-a-lifetime transformation from its legacy hardware and physical networks to its future in software, we see a tremendous opportunity to influence and power that future. We make continual progress towards that goal of powering the software-based future of communications by doing two things. First, we work to migrate the existing communication workloads of the world on to Twilio. And second, we work to ensure that the future workloads of communication are invented on top of Twilio. We plan to accomplish this by following three steps. First, we see to build a broad platform that is widely applicable, priced aggressively and designed to enable developers’ creativity to flourish across the widest set of use cases imaginable. To do this, we will continue to provide high-quality offerings across a variety of lower-level building blocks like voice and messaging and we price these offerings to maximize their utility across a broad set of use cases some of which aren’t even invented yet. But that is just the first step. The second step is based on the most common use cases that emerge from that broad platform; we then execute a strategy to drive deep penetration in each. See, we’re listening to our customers, watching what use cases they built with our platform and bringing these learnings to a broader audience. As a result, we may offer higher-level APIs like our use case APIs, Authy and Notify, or we may work with partners such as Zendesk and Salesforce to drive a healthy ecosystem targeting a particular use case. That’s the second step. And then third, we repeat this process by further broadening our platform. This means that over time we will look to add new products to our platform like programmable video and programmable wireless and repeat the cycle again. We plan to invest across several areas in 2017 to execute the on this strategy. In product, we will invest to further our lead in this market by increasing the breadth and the depth of our product line to provide customers with more choices along with demonstrating the superior quality of the products we build. In sales, we will be adding more fuel to an engine that’s working quite well. We will be adding to both the key accounts and new business teams in an effort to expand our reach, penetrate our existing accounts and get our customers to production scale faster than ever before. In marketing, we will invest in furthering our mindshare with developers and becoming a trusted asset in the tool belt of every builder in the world. Overall, 2016 was a momentous year for Twilio in many ways. In fact, November was the 8th anniversary of launching the Twilio website, so it’s amazing to me all we have accomplished in the past eight years. I’d like to take a moment to thank all the customers, partners and investors for your ongoing trust in us and to all of the Twilions, thank you for your continued hard work and devotion to customer success. I’m incredibly proud of what we’ve accomplished in 2016 and I’m eager for what lies ahead in 2017. It is still day one of our mission to fuel the future of communications. And now, I’m going to turn it over to Lee to discuss our financial results.

Thank you, Jeff, and good afternoon everyone. We are pleased to report strong numbers as we closed out 2016. Results was exceed our guidance. Overall, these results were driven by our continued success in adding new customers and driving further expansion across our existing customer base. We demonstrated a combination of strong revenue growth, operating leverage and progress across our key metrics. Base revenue for the fourth quarter of 2016 came in at $75.2 million, up 73% year-over-year from the fourth quarter of 2015. This compares to our guidance of $68 million to $69 million. As Jeff mentioned, we saw seasonal strength from marketing campaigns related to the elections not only here in the U.S., but also in Brazil that contributed to the results in the quarter. Combined, we believe this activity produced a little over $1 million of revenue. Total revenue for the fourth quarter of 2016 was $82 million, up 60% year-over-year from Q4 of 2015. Overall, base revenue accounted for 92% of total revenue in Q4, up from 85% in Q4 of 2015. We continue to see strong growth across customers of all sizes. In fact, we ended the year with more than 2,500 customer accounts driving greater 10,000 in ARR, a customer segment that grew faster than our overall customer account growth. In terms of customer concentration, our top 10 customer accounts for 29% of total revenue in Q4. Our largest customer organization contributed 17% of the total revenue in the quarter. WhatsApp’s came in at 6% of total revenue. We have a range of customer of all sizes as we go further down the list extending out to the long tail. We continue to see strong growth across all customer revenue tiers. As of December 31, 2016, active customer accounts were 36,606, up from 25,347 as of December 31, 2015. These figures include eight variable customer accounts in Q4 2016 compared to nine in Q4 2015. Our dollar-based net expansion rate was 155% in the fourth quarter, demonstrating the power of our platform business and our continued ability to both retain and expand revenue within our customers. Before moving on to the profit and loss items, I’d like to point out that I will be discussing non-GAAP results going forward. Our GAAP financial results along with the full reconciliation between GAAP and non-GAAP results can be found in our earnings release. Non-GAAP gross margins in the fourth quarter of 2016 were 59%, up from 56% in the fourth quarter of 2015. There were a few factors that impacted our gross margins this quarter. A favorable mix of usage in higher margin geographies internationally, ongoing efficiency gains and some end of year refunds in accruals reversals that positively impacted gross margins specifically the end of the year refunds and adjustments I mentioned added roughly 90 basis points or about $750,000 to our Q4 results. So while we had a great quarter on the gross margin line, our plans do not anticipate margins continuing at this level. Please recall that we are currently operating our business to optimize for reach and scale to drive revenue growth rather than maximizing for gross margin. Gross margins may fluctuate in the near-term as we pursue the deliberate strategy to further extend our market leadership. Non-GAAP operating expenses in the fourth quarter of 2016 in total were $48.2 million or 59% of total revenue. This compares to $34 million for the fourth quarter of 2015 or 66% of total revenue. The combination of our revenue and gross margin upside drove a small non-GAAP operating profit in the quarter. Non-GAAP operating profit was $100,000 in the fourth quarter of 2016 compared to a non-GAAP operating loss of $5 million in the fourth quarter of 2015. This was better than original guidance of a non-GAAP operating loss of $4.5 million to $5.5 million. Our non-GAAP operating margin improved by approximately 1,000 basis points year-over-year from negative 10% to slightly above breakeven. Note that we ended with 730 employees. Our non-GAAP income per share in the fourth quarter was $0.00 per share based upon a weighted average diluted share count of 100.2 million shares. This compares to a non-GAAP loss per share of $0.07 per share in the fourth quarter of 2015, based upon a non-GAAP weighted average share count of 70.9 million shares, which assumes the conversion of preferred stock at the beginning of that quarter. There are a few new items in our reconciliation this quarter, so let’s take a moment to explain them. Expense related to our charitable donations to the Donor Advised Fund of DAF supporting Twilio.org is fairly straightforward and something I highlighted in our Q3 call. Now we are able to execute on this a little ahead of plan. We saw 100,000 shares on behalf of Twilio.org in the follow-on offering in October and this charge is related to the funding of the DAF itself. The second item, the sales tax accrual reversal is related to our ongoing effort to establish a basis upon which to appropriately charge state sales tax to our customers. As we’ve disclosed previously, we’ve been accruing these sales tax including penalties and interest on behalf of our customers as an expense. While we work with each state to determine the appropriate tax rate and put the systems in place to pass these taxes through to our customers. We accrued $3.4 million in the fourth quarter, which is reflected in our G&A line. In the fourth quarter, we made progress across several fronts. We reached agreement with one state resulting in a reversal of approximately $800,000. We are in advanced discussion with several other states plus we have sent proposals to all the remaining states in an effort to move this process forward. So while we’re encouraged by the progress we have made on this front, this is a complicated issue and we still have significant work to do. We ended the quarter with $306 million in cash and cash equivalents, compared to $252 million at the end of the previous quarter. The follow-on offering completed in October added $55 million net of expenses to this balance. Before turning to guidance, I do want to discuss the financial [indiscernible] of the Beepsend transaction that Jeff had mentioned earlier. As a reminder, the focus of the Beepsend transaction is the overall benefit their technology and team can provide to the Super Network driving efficiencies for our messaging business. The acquisition closed yesterday, so I’m going to take a minute to describe the financial impact of acquisition both in the short and long term. Beepsend has been running in the high six figures of revenue per month growing modestly and running close to breakeven. Accordingly, we expect the following impacts to our business over the balance of the year. In terms of revenue, we expect Beepsend to contribute roughly $1.5 million in the first quarter for period post-close and about $10 million for 2017 as a whole on a reported basis. Integration of estimates should produce a small operating loss in the first half, but the impact of the operating income should be negligible by the second half of the year. Longer-term, the benefit will largely be felt in the gross margin line in terms of efficiencies gains in our messaging business although this does not change our short-term priority on reach and scale that I discussed a moment ago. There are number of variable that impact our gross margin line in the short-term. Now let me turn to guidance. We are initiating our guidance as follows, so please note that these figures include the impact from Beepsend I just outlined. For the first quarter ending March 31, 2017, base revenue in the range of $78 million to $79 million; total revenue in the range of $82 million to $84 million; non-GAAP loss from operations of $6.5 million to $5.5 million; non-GAAP net loss per share of $0.06 to $0.07 based on 80 million weighted average shares outstanding. For the full year, ending December 31, 2017, we expect base revenue in the range of $351 million to $355 million; total revenue in the range of $364 million to $372 million; non-GAAP loss from operations of $17 million to $13 million; non-GAAP net loss per share of $0.19 to $0.15 based on $90 million weighted average shares outstanding. Our Q4 results capped off a very successful year. We had breakeven ahead of schedule in Q4 2016 driven by the overall strength of the business, along with some season and one-time items. Looking forward into 2017, our growth investments including some front loading and hiring would drive modest losses in the first three quarters before we achieve breakeven in Q4. So to wrap up, I’m very pleased in the performance of the team both in the quarter and in the year as a whole. We are executing well against our plans, the investor [ph] business remained strong, and we are very excited about the opportunity that lies ahead of us. I will now turn the floor over to your questions.

[Operator Instructions] And your first question comes from the line of Richard Davis [Canaccord]. Your line is open.

Thanks very much. Just a quick question. Do you have any access to the content that passes through your APIs, so let’s say you could like glean information that might be send back into algorithms that might provide kind of prescriptive information back to your clients? And the reason I’m thinking about that is with voice and video conversation which is occurring in real time that might be something you could do, it was just maybe a technical question, but I’m just curious.

Thanks, Richard. This is Jeff, I will answer the question. So it depends in many ways on how customers use our product, right. So for voice product, if you do recordings, we have a marketplace of partners who can do analysis to provide more insights into the content of what was said, things like sentiment analysis, speech recognition, et cetera. We – for messaging, there’s partnerships there as well with companies that are adding value to messages, things like sentiment analysis, we announced this at our conference last year, so, yes, in general. Other products of ours that we may not had access to, for example, our peer-to-peer video product, that is fully encrypted between endpoints and so – that’s the way it is today. We don’t have access to the media. But it really end up being up to customer sort of how they use our product and whether they give access to us to plug-in algorithms that can add value to that content or whether or not they don’t want those algorithms to be used. But we do see adding value in the form of algorithms that are analyzing content and providing more value to business as a very interesting area especially with what’s happening in the world of artificial intelligence.

Got it. That makes sense. Super, thank you so much.

And your next question comes from the line of Heather Bellini [Goldman Sachs]. Your line is open.

Great. Thank you. I just wanted to follow-up on the – your comment about AI and machine learning. When you think about the company’s APIs, when do you see that is starting to be a driver of top line growth and actually being built into the application set that your customers are using?

Thanks, Heather. Really good question. I mean, I think, artificial intelligence, the way we look at it is a technology that’s going to affect many parts of business, in some ways it’s like mobile or the web, right, they end up being used in many different ways to redefine problems and bring new kinds of solutions to market. And so we are already using AI for a number of initiatives under the hood, things that are behind the scenes that help Twilio to operate and especially within our partner ecosystem, we are starting to offer AI powered solutions to our customers in the form of the marketplace that we launched last year where we do a revenue share with those partners between our customers. And things call analytics, dual-channels recordings, things like this are tools that we are exposing to enable more and more intelligence to be driven out of the content that’s being generated on Twilio, but also for – our original operations of Twilio to understand our customers better.

Great. And just a quick follow. You have been investing in your enterprise sales force, can you give us a sense of how much of a focus if you will continue to the same level of investment in the enterprise sales force in 2017? Thank you.

Yeah, Heather. We are seeing really good response in terms of the enterprise. Again, I would say this is our developer first model at play where developers are the ones bringing Twilio into the enterprise just like they’ve brought us into a number of different types of technology first companies and things like that. And when the developer brings us in to an enterprise, we often do have a more light weight sales process that goes on [indiscernible] customer go from that prototype to a finished shipped product, but it’s really not that hero kind of sale that you might think of in the traditional enterprise software sense, but we are definitely investing in that because we are seeing it bear fruit. But I think overall our investments in enterprise sales the team and that motion [ph] is going to be commensurate if not dwarfed by the overall growth of Twilio that we see with our strong dollar based net expansion rate and everything else.

Great. Thank you.

And you next question comes from the line of Mark Murphy [JPMorgan]. Your line is open.

Yes, thank you. So, Lee, the strength in the Q4 gross margin and also reaching non-GAAP breakeven operating margin, definitely shows that P&L is trending in the right way. And so I’m curious, you are also guiding a bit below consensus in terms of the bottom line for 2017. I guess I’m just wondering what’s the best way to reconcile that – the positive trend that we see in Q4 versus that one element of the 2017 guidance? And then I have a quick follow-up after that.

Yeah, sure, Mark. Yeah, so, first of all, we are extremely excited by the performance in Q4 both on the top line and in terms of the gross margins and it does show the power of the platforms and then the business getting – in running all of its cylinders. We are committed to growing revenue and acquiring customers and that’s our focus. So we will be investing in both the platform and in the sales teams. We will be doing a bit of front loading and some hiring at the beginning of next year, so we have a leadership position, we want to continue to take advantage of that, so we will be investing in the first part of the year, but we are still sticking by our commitment to breakeven in the fourth quarter of 2017.

Okay. And then as well, Jeff, I’m just wondering what has the reaction been in the industry to the announcement that Avaya filed for Chapter 11 bankruptcy and from your perspective is that a sign that the rate of change to newer models is accelerating and also do you think it could open up a higher volume of the next generation call center opportunities for Twilio?

Yeah, well, obviously, we are not commenting too much about a particular company and their situation other than the fact that [indiscernible] trucks driving around. I think this just sort of shows, the migration that’s for – that’s going from the legacy of physical on-prem implementations to the cloud as well as to the more less flexible monolithic applications in a very flexible building blocks that Twilio offers. This migration from a 150 year legacy of hardware and physical networks to a future which is software I think creates an enormous opportunity for Twilio in a number of different segments in the market and the call center is certainly one of them. Both for the – if you think about the modernization of the exciting call center right where we extend their existing investment with new functionality as a first flipping the door or with the sort of net new like either ripping a place or net new call center where essentially we are taking down the entire thing like you saw for example in ING Bank. And so, we do think the call center arena is a nice area for us, it’s very well suited in our technologies and one we are seeing a lot of great companies both enterprise all the way down the market being able to build nor by need solutions powered by Twilio.

Thank you.

And your next question comes from the line of Brend Barnicle [Pacific Crest Securities]. Your line is open.

Thanks for taking the question here. Jeff, I wanted to get your view relative to some of the new platforms coming out obviously you are in the final stages here, I imagine you’ve got a lot of customer feedback. As it relates to the programmable chat, programmable wireless, programmable video functionality, where is the most customer interest at this point?

Thanks, Brend. You asked me to pick my favorite child, are you?

Yes, I am.

We are seeing a tremendous amount of interest in all of those products, I mean, albeit from different use cases in different parts of the market because each of those products does different things, but we’ve got thousands of developers who’s singed up to get access to these new products and now we are really excited to be giving those developers access and really seeing what they build. Some of them have use cases that we excepted that they would build and then other ones are just areas where we have no idea that Twilio will be – these products will be useful for this new case that developers are really showing us the way. And I think that as we progress through the year, we will have more detail on these option of these products as we approach GA. Most of the products we mentioned I think – actually think all of them are still in developer preview or beta stages, so it’s still the early stages of getting developers hands on those products and getting the apps that they build out to production scale, so that we can learn and then push them out to a GA availability to everybody.

Make sense. One quick follow-up for me, as you think about the success of higher level APIs like Authy and Notify, what’s your appetite to kind accelerate investments above the stack here in higher level API functionality to further differentiate the platform, do you have an appetite to get more aggressive there and further differentiate the platform based on the success of those products so far?

Yeah, absolutely. In the road show and previously we talked about the notion of use case APIs as a way of making it easier for developers to get their use case live and scaling in production even faster than before. Notify is a great example of this as is Authy and – we think it’s a great strategy. It’s really a win-win because when we build a use case API for a developer, they get their job done faster right, they are live and in production faster than if they had to build it themselves, so they are happy and then Twilio is happy because with our usage base revenue model, the faster we get the customer live and in production, the faster obviously we see revenue from the customer. So it feels like a great win-win for us, we think it’s a great strategy. And if you think about the multi-step process I outlined earlier in the call, step one is building broad horizontal platforms and then step two is for the most common use cases, develop a strategy to really go deeper and to make our customers’ lives even easier if they are building those most common use cases and to build our presence in that area of the market. And Notify and Authy, these are just two examples of that.

Got it. Thank you.

And your next question comes from the line of Bhavan Suri [William Blair]. Your line is open.

Hi, guys. Thanks for taking my question and congrats. Just quickly touching on the competitive environment, Jeff, have you seen any change in the competitive environment out here, what we have – the introduction of a number messaging players and obviously Blackberry's interesting announcement which was today but some comment on what you're seeing competitively would be great?

Really the answer is, no. We feel pretty good about our leadership position. We feel we’ve got to develop our mind share. We’ve got a great product across many different product categories. And so, we are not seeing a change in the competitive environment out there, nothing we haven’t seen before.

Got it. And then a quick follow up from me. Expanding, as you look at those net dollar expansion there, it’s great. Just sort of what level do you think they stabilize at? And then as you look at the enterprise, if you take ING for example, there is broad based deployed, what is the expansion on account like that, not them specially, but a large account like that look like sort of at maturity or is there so much room there to go from just one broad based application similar use cases that that’s an area of expansion. How should we think about sort of at a mature enterprise account what expansion could look like at some level? Thank you.

Hi, this is Lee and I will take that. The expansion rate applies both for our technology, development accounts and for large accounts like ING. We have multiple store of expansion occur across those. So we see that plays out both in the technology first type company like a Square or a large enterprise like ING. These are perfect expansion rates. At some point as we scale, they will stay at this level forever but we see them at very high industry leading rates in the foreseeable future.

Got it. Thank you guys. Nice job.

And your next question comes from the line of Pat Walravens [JMP Securities], your line is open.

Oh, great, thank you. So the gross margins are great, we won’t expect that for next year but long term you’ve told us that we can be at least in the 60% to 65% range. So I guess two questions on that, one, can you see the path to higher than that long term? And also, if you can walk us through what are the levers that you can pull overtime on the gross margin front? I think that would be really helpful. Thank you.

Hi, Pat. This is Lee. So we see do in the long term, operating model, gross margin in the 60% to 65% range. No, we will not commit to something higher than that at this time. We do have significant levers on those. So we talk about it. One is just the product mix. So as we bring on more of the use case products, API products that Jeff talked about, those have a much higher margin profile or IP only product such as our client voice, IP chat and video product also have a higher profile. So that product mix is probably the largest driver and then we continue to see benefit from the efficiency and scale as we expand our operation.

Okay. And is there getting more volume discounts from the underlying carrier part of that or not really?

Yes, that’s part of the scale. So as we expand and move into new geographies and increase our volume, we do continue to see better deals and that’s part of the super network just driving efficiency through the system.

Great. Thank you.

And your next question comes from the line of Ittai Kidron [Oppenheimer], your line is open.

Hi guys and congrats on a great quarter. Jeff, I want to go back into the enterprise, maybe you can help us think how penetration here would impact some of the metrics that you are providing? Should we see – I mean longer term, do you expect the average potential from an enterprise customer to be higher or lower than a cloud based born type of an application? Or does it due to average revenue per customer you think longer term? Or is the margin profile of an enterprise customer longer term you think is different?

Thanks, Ittai. The way I think about enterprises, I mean, one of the thinks that makes them enterprises is just their scale, right. And so the larger the company is larger the customer is, the more potential use cases you are likely to find with that customer, right. So a company that’s got one operating business unit may have n number of use cases but a company that’s a large enterprise has 10, 20, 50 or 100 operating business units just as hundred times as many use cases. And so every kind of company can really use our platforms to improve their communications. We are very big believers in that whether it’s for internal communications or external with your own customers, every company has an opportunity. And the bigger the company, the more communications occur and therefore the bigger opportunity for Twilio. And so Twilio’s process is just about getting that first use case and a customer and then expanding out from there, and that’s where we see the power of our usage based model and the developer first model.

Very good. And following up, Lee, on the gross margin side, I understand the dynamics there. But every year for the last three year, gross margin has increased. I know you weren’t specific in your guide unless I missed it, but should we think about 2017 gross margin to be at least directionally higher than what 2016 is?

Yes, I would make that assumption. Again, we are running the business to increase revenue and increase the customers. So we manage the gross margin line tightly but we are not optimizing for the gross margin in the near term or not worried about having some linear increase in fashion. The priority is to take advantage of our leadership position and grow the business.

But if you are not seeing much newer competition, why do you need to do that?

Yes, I mean how we think in terms of gross margin, how we look at it is, we are leading in a new space. We want to make sure we are out there in price to bring on more use cases and bring more customers on to the platform. So we are not looking to optimize gross margin in the near term. And then in the longer term as we introduce our use case APIs and other products, video only products, that’s when we’ll start seeing the gross margin expansion.

Very good. Good luck.

And your next question comes from the line of Mike Latimore [Northland Capital Markets], your line is open.

Hi, thanks. Just wondering if you can give the latest developer account and also comment are there any seasonal factors that influence first quarter here.

Yes. This is Jeff. I’ll take the developer account number. The developer account number is not one of the metrics that we plan to provide at regular intervals. It’s kind of one of those special milestone type numbers that will probably be more likely to announce in our conference which is signal which occurs in May. But we do feel really strong – we feel really great about the developer growth. In fact December was our biggest months – one of our biggest months ever in form of new developer account registrations, and so we feel great about our strength with the developer world and the way that translates into the number developer accounts on our platform. And I think we’ve got a second question?

Yes. Are there any seasonal factors in the first quarter here in the industry verticals that have positive or negative seasonality?

Yes, this is Lee. Typically we don’t see – we see seasonality of questions, individual customers across our broad customer base of 36,000 customers, it did averages out. We did have a seasonal factor in the fourth quarter as we pointed out related to marketing campaigns for election revenue and that will not repeat in Q1.

Thanks. Nice quarter.

And your next question comes from the line of Jonathan Keith [ph], your line is open.

Great. Thanks for taking my question. Congrats on the strong quarter and actually congrats Jeff for your country award. I think that project is challenging and [indiscernible] the community. My question is actually on international ironically probably too polarized domestically here politically. You talked about the wins over the UK and you also talked about how it was a boost for GM for the quarter, gross margins. Can you give, the first one is housekeeping, can you share the break out between U.S. and rest of the world? And also my main question is, can you talk about your investing, you talk about investing for growth for revenue and number of customers. How much of that is focused internationally? Not specific numbers, so you can give us a sense in terms of at least qualitatively how big of a focus international is for your agenda? Thank you.

Yes. I didn’t quite get the first part of your question in terms of the break out.

I’m sorry. The breakout between U.S. and rest of the world in terms of revenues?

Yes, sure. So in terms of headquarter based revenues, 17% of our revenue was outside of the U.S.

Okay. Alright.

And you have second question?

Yes. You didn’t hear me clearly here. My main question is really, can you talk about how much you’re investing overseas? You are talking about investing to grow top line and to grow the number of customers to maintain your leadership position. I guess internationally I see more of a leadership position from one of your peers. How much of – you don’t have to give the numbers here but just at least qualitatively how much of your focus will be on overseas and may be versus that at domestically?

Yes. So I look at really the two categories. Our investments in our platform are programmable communications cloud, that’s a global investment. When we improve the platform, that’s global. When we invest in our Twilio Super Network, that also is a global investment. So our significant investments there apply worldwide. In terms of go-to-market, we did start in the U.S. and we are expanding our go-to-market relationships globally. I’ll make one last comment, even though 17% of our business is from company’s headquarters outside the U.S., significant more amount of our volume is global volume. So customers that either terminate or originate their communications outside the U.S. So this is a very global company.

Alright. Thanks. Thank you for that.

And your next question comes from the line of Brian White [ph], your line is open.

Jeff, in December, you announced that Twilio was part of the new Amazon Lex service and you hinted they were upcoming collaborations. How should we think about Twilio’s opportunity to collaborate with Amazon in 2017?

Thanks, Brian. We’ve had great relationship with Amazon for a long time both as a vendor to Twilio, as an investor in Twilio and also now as a customer of Twilio. And as a refresher, we [indiscernible] power as the most messengers part of the simple notification service. We are excited to be part of their Lex launch in Q4 and we see significant opportunities to continue growing the relationship with them but nothing that we have any specifics to talk about at this time.

Okay. And the Beepsend acquisition, I just want to be clear, what’s the logic behind this and I didn’t hear a price.

So the logic behind it, when we looked at our Super Network and we looked at where we were going and our product roadmap for the Super Network, we looked a lot of this that we wanted to get done. We took a look around in other companies that were out there and Beepsend really stood [indiscernible] as a company that we kind of new from being in the ecosystem together and that’s really great technology to do things like routing analysis and also have a great team whose been in this market for a long time and it brings up a great amount of expertise. And so that’s why we thought it was a great [indiscernible] there and we are excited to bring the Beepsend team on board at Twilio because we think they’re going to accelerate the Super Network roadmap even faster than we’ve been moving. I think you had a second question?

This is the right price or should we anticipate an uptick? I notice goodwill amortization saw a pretty significant uptick in December quarter and I think that’s probably the RTC deal, so is there a price you can talk about or an increase in intangible amortization in the March quarter from this acquisition, Beepsend?

Yeah, first, you are correct, the goodwill in the fourth quarter was from our acquisition of [indiscernible] Spain, we have not disclosed the price, but it’s not a material transaction.

Okay. Thank you.

And that concludes the Q&A session. Thank you for calling in and listening to today’s conference call. You may now disconnect.