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

Bhavan Suri - William Blair Richard Davis - Canaccord Mark Murphy - J.P. Morgan Heather Bellini - Goldman Sachs Pat Walravens - JMP Ittai Kidron - Oppenheimer Nick Altmann - Northland Capital Markets Brian White - Drexel Jonathan Kees - Summit Redstone Will Power - Baird

Good afternoon and welcome to Twilio Q2 2017 Earnings Conference Call. My name is Kelly and I will be your conference operator today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. I'll now turn the call over to Greg Kleiner, Vice President of Investor Relations and Treasurer. Mr. Kleiner you may begin.

Thank you. Good afternoon, everyone and welcome to Twilio's second quarter 2017 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 2017 second quarter performance in addition to our financial outlook for our 2017 third 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, impacts and expected results from changes in our relationship with our largest customer, our market opportunity and market trends, the growth of our customer base, customer adaption of our products, our momentum, the benefits from our business model, timing and focus of expenses, our delivery of new products and new product features 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 May 10, 2017 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 responses to your questions, we may offer incremental metrics to provide a 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. I'll now turn the call over to Jeff.

Thanks, Greg, and welcome everybody. One of the founding principles of Twilio was creating better communications experiences with a near universal business need. Today, virtually every type of company is changing the way they engage with their customers and we saw that first hand this quarter. Companies that are wide variety of traditional verticals including fast food, automotive, super market, media, education, and video games chose to adopt Twilio to improve their customer engagement in Q2. Our relentless focus on customer success along with the product and go to market efforts we've been putting into place to build upon our developer-first approach continues to drive our growth. We feel great about the momentum of the business as we head into the second half of the year. The business performed well in the second quarter, as we saw further growth with both new and existing customers. Our base revenue grew by 55% year-over-year in the second quarter. Without Uber, base revenue grew even faster, 65% compared to Q2 of last year. We also planted important seeds for future growth by adding more than 2,700 active customer accounts in the quarter. We recently held our SIGNAL Conference, where we showcased our customers and outlined our vision for the future of this market. We had a number of fantastic speakers including customers like Salesforce, Netflix, Lyft, and Weight Watchers, who participated in our general sessions and many more in breakups over the course of two days. SIGNAL is a celebration of our customer's success and of what's possible by leveraging the power and functionality of our platform. With roughly half of our headcount in R&D, we invest a tremendous amount of money to innovate on behalf of our customers, and these investments provide tangible benefits for our customers that our team loves to put on display at SIGNAL. We often talked about the concept of agility with resiliency within Twilio. It's the idea that you can deliver both rapid innovation and high quality without sacrificing one for the other. Our engineering teams are on track to ship approximately 30,000 production deployments of Twilio software this year with a new feature or product coming every 3.5 days on average. And all of these improvements come while maintaining an industry-leading five nines performance across not only API availability, but more importantly on API success rate. This devotion to providing value to our customers continues to drive our business and expand our leadership position. We announced at SIGNAL that we now have roughly 1.6 million developers registered on our platform, up from 1 million at SIGNAL just a year ago. This continued developer momentum is parlaying into further traction with a wide variety of companies, including the traditional enterprise. For example at SIGNAL this year, we created an executive briefing center for the first time to discuss the strategic role of communications and to introduce companies to the Engagement Cloud, the new layer of our software stack. We had a packed schedule resulting in some great discussions with both new and existing customers, including some global brands engaging with Twilio for the first time. SIGNAL is also a forum for us to chart the future of our growing platform of products. We had a total of 42 product announcements around SIGNAL this year, including Twilio Functions, our serverless computing product, new analytics products, our voice recognition product we built in conjunction with Google, and support for several new third-party communications channels like Alexa, Slack, Twitter, and email for companies who want to communicate with their customers in a growing list of new mediums. We also introduced a machine learning product called Understand that will allow our customers to capture the meaning behind their customer interactions and drive actions based on that meaning. Importantly, this natural language understanding product will work across platforms like voice, sms, chat, and other messaging channels plus digital assistance such as Amazon Alexa, allowing customers to add natural language interactions to whatever channel they want to use to engage with their customers. But the biggest highlight of SIGNAL was the launch of the Engagement Cloud, the next layer of our software stack. Part of our core strategy is to provide a broad platform with lower level building blocks and watch how our customers use them. As we looked at all of the things that our customers build on Twilio, nearly all of it involves some form of customer engagement. The Engagement Cloud is a set of higher level APIs that encompass best practices and accelerate our customers' ability to adopt Twilio. You've heard us talk about used case APIs in the past while the Engagement Cloud formalizes this concept. In broad terms, the Engagement Cloud is designed to help our customers build better ways to engage with their customers. When we looked at all the ways in which companies communicate with their customers, they typically fall into three categories; system, department, and individual. Let me explain, first, system communications. That's where a company is providing an automated alert or notification such as your dentist appointment is tomorrow or here's your pin code to login. Next is department communications, that's where a consumer is looking to talk to someone within a department at a company, such as the sales team or the support team. And then last is individual communications. This is where a consumer is trying to talk to a specific person representing a company, not just anybody, like their driver or their banker. And the software interaction within the Engagement Cloud works differently at a higher layer, with the lower level building blocks of our programmable communications platform, developers instructing our platform how to do something, like send an SMS to a particular number, we call these imperative APIs. Products at the Engagement Cloud layer operate around the concept of what the developer is trying to accomplish, like notify the end customer that their package has shipped, but the hard part of that equation is now abstracted and our software figures out the best way to send that message. We call these declarative APIs and they do more heavy lifting for our customers allowing our customers to get to production faster. So I mentioned there are three categories of engagement that companies have with their customers. Within the system category, we have Authy and Notify as part of the Engagement Cloud. Within the department category, we have cash growth [ph] and at SIGNAL, we announced the newest addition to the Engagement Cloud family, Proxy, to address the individual category of engagements. See over time we've seen a number of companies from major retailers to dating websites to ride sharing companies want to enable their employees or contractors to interact with customers from their own mobile devices, but to do so securely and they built the so-called a proxied communications with Twilio. And now Proxy provides that functionality out of the box. Building out the Engagement Cloud is a substantial software undertaking, once again demonstrating the capabilities of our R&D team to deliver further innovation on our platform and value for our customers, agility with resiliency. With the Engagement Cloud, we make it easier for our customers to get to production faster and focused on the particulars of their company not on reinventing the wheel. The Engagement Cloud also expands the market of potential buyers and allows us to up level the conversation with our customers to the strategic value of how they engage with their customers, the Engagement Cloud layer of products provide us with yet another point of differentiation in the market. Overall I'm incredibly proud of the experience that our team delivered for our customers and prospects in attendance at SIGNAL. We're taking the SIGNAL space to London again next month, so stay tuned for more announcements. In terms of new business in Q2, we saw strength once again across new and existing customers as businesses of all shapes and sizes are adopting our platform. Some highlights include Lululemon, Reddit, Aircall and GoJack. On our last call, I mentioned the addition of George Hu is our new COO and he's certainly hit the ground running as the new leader of our go-to market effort. He's added a level of alignment and focus that will serve us well as we look to continue to expand our market presence. We will continue to invest to support our go-to market efforts given the results that we're seeing. Another new win from the last quarter was with Weight Watchers. To-date Weight Watchers is an entire lifestyle program, helping members to eat better, move more and shift their mindset to live healthier lives. Over the last three years, Weight Watchers has undergone a significant technology transformation to build a more agile, flexible, cost effective and modern systems to support its members and grow its business. In the contact center, customer engagement that used to live in a single brick and mortar call center is now augmented by part time readers and coaches in distributed locations. In addition to these distributed agents, they also need to expand their footprint from one channel voice to many channels. So Weight Watchers has embarked on a multi-face call center modernization project to enable them to manage their entire workforce efficiently for each interaction, ensuring that a Weight Watchers expert is available 24 say whenever and however a member needs support. The flexibility provided by our building blocks approach along with the highly scalable and global nature of our platform were keys to this new relationship. You may have also seen in the news recently that Pinterest is using Authy to offer two-factor authentication to their more than 150 million monthly active users around the world. This effort is aimed at minimizing fraud and account takeovers along with protecting the growing social commerce taking place on the site. The multi-channel capabilities and the completeness of the Authy solution were keen to their decision to move forward with us. In addition, one of Europe's largest entertainment companies has added our messaging products to their existing call center footprint to improve not only agent satisfaction but to further raise their NPS score with customers as well. They now allow customers to answer basic questions over SMS with a bot and then escalate into a full two-way conversation with an agent when needed. The value of our software and the potential gives them to expand from SMS into other channels and used cases were key to this new relationship. So before I pass the call over to Lee, I do want to know one other recent item, the addition of Jeff Epstein to our Board of Directors. Jeffrey has a wealth of operational and financial experience, operating in the software industry at global scale. Many of you may know Jeff from his time as the CFO of Oracle and but he has a long history of financial leadership across DoubleClick, King World Productions and Nielsen's Media and we're thrilled to add to our Board. Overall, Q2 was another successful quarter across many fronts. I'm always energized by the SIGNAL experience and what the means for our customer relationships, both existing and prospective. The combined effort of Twilions around the globe has put us in a unique position to further our mission of fueling the future of communications. We're at day one of a massive opportunity. And now I'm going to turn it over to Lee to discuss our financial results.

Thank you, Jeff, and good afternoon, everyone. Overall, the core tenant of our growth engine performed well again in the second quarter. We saw further expansion within our existing customers and welcome a healthy number of new customers to the fold. In addition, we continue to invest for growth, particularly in product innovation and scaling our go-to market efforts as we look to extend our leadership position. I'm going to take a different approach in my prepared remarks today, you've all presumably read the press release at this point, so I'll focus my commentary on additional color and data points. Base revenue growth was quite strong once again coming in at 55% year-over-year. Our growth rate was dampened however by declines in revenue from Uber that we previewed on the last earnings call. Uber accounted for 9% of total revenue in the second quarter compared to 12% in Q1 2017, and 13% in Q2 of 2016. In dollar terms, revenue from Uber was roughly flat in Q2 this year versus Q2 last year. Removing Uber, base revenue grew by 65% year-over-year in Q2, this additional impact on a dollar base and expansion rate, which was 131% in the second quarter or 137% without Uber. Uber's impact will continue to dampen our base revenue growth and expansion rate until we lap these larger figures in mid 2018. Our top-10 customer accounts were 21% of total revenue in the quarter. Go-Jek was the second largest contributor to total revenue coming in at 5% in the quarter. The next largest customer was around 3% and the list scales down gradually after that. With 6 variable customer accounts in the second quarter compared to 7 in Q1 of this year and 9 in Q2 of last year. As you look further down the P&L, the gross margins were down a bit sequentially as we outlined on our last call. There are number of inputs into gross margin and one of the items that had positively impacted gross margin in the last two quarters the mix of international traffic provide a less uplift than in the prior two quarters. We expect this trend to continue in the third quarter. Please recall that we're currently operating our business to optimize for region scale to drive revenue growth rather than maximizing for gross margin. Gross margin may fluctuate in the near term as we pursue the deliberate strategy to further extend our market leadership. You will often note in our recon table, a $12 million release related to sales tax accruals. We struggled with some additional jurisdiction and made some progress a little faster than expected in some other jurisdictions. This resulted in both the release of prior accruals and the accrual within the second quarter being nearly $2 million below our prior assumptions. We still have significant work to do here and will continue to accrue in the remaining jurisdictions going forward until this process is completed. We ended Q2 with 887 employees. Before turning it over to your question, I did want to spend a moment discussing Uber's impact to our guidance. The situation has played out largely as we expected it as we outlined on the last call. We did lose some of the lower value book messaging used cases and readjusted pricing in other areas based on their rapidly growing volumes. Most of these changes are implemented in the latter part of Q2 and are therefore partially reflected in this quarter's results. Embedded in our third quarter guidance is a full quarter of impact of these changes. This will translate into a larger sequential decline in revenue from Uber in Q3 than what occurred in the second quarter. We currently forecast a more modest sequential decline in the fourth quarter. This revenue forecast is consistent with our prior expectations and guidance. We expect that Uber will remain a significant customer for us going forward as we partner with them to support their needs globally for both existing and new initiatives. Overall, we continue to be pleased with the performance and the business as evidenced by our revenue growth, expansion rate and customer additions. We're very excited about opportunity in front of us and the progress we are making in our mission to field the future of communications. I will now turn the floor over to your question.

[Operator Instructions] Our first question comes from Bhavan Suri from William Blair. Please go ahead.

Hey, guys. Congrats. Really nice job obviously on the business there and thanks for taking my question, I guess just touching on this and maybe it's for everybody here for a second, as you move up market and you look at the traditional enterprise and you sell into that, how receptive is that group right now to a platform or are they still sort of picking the individual offerings, SMS, or just voice, or are they starting to approach this as a cloud and especially given the Engagement Cloud and Notify, just wanted to get some color on how those guys are adopting solution?

Thanks, Bhavan. This is Jeff, I'll answer the question. I think the thing to think about as we enter the Enterprise, the developer first approach is still leading the charge, right, developers inside of the organization are finding Twilio, are starting by building out prototypes and then we follow up with our customers and help to make sure the early traction that we are getting inside with the developer first approach then turns into the final solution that gets implemented for the customer, and what's interesting is that we've been able to up level conversations with customers with the Engagement Cloud, it really gives customers a roadmap of how they can continually use Twilio to implement more and new advanced things and really open up a broader picture of what is their engagement strategy with their customers and what are the many ways in which Twilio can help do that and those are taking place at various levels of the organization. The Engagement Cloud products are obviously new, so it's still playing out, but we do feel that the Engagement Cloud products make it easier for customers to get their applications they build to production, they can get there faster. They don’t have to reinvent the wheel because we're bringing best practices to the table for them and that just helps them get their job done faster which customers appreciate.

I guess, just a quick follow up here. Obviously, Uber is something you commented on and gave a little more granular color on the call. When you look at the used cases and you're in conversations with the company obviously on a regular basis. When you look at them and you said sort of the bulk sort of messaging you had to maybe read it out and sort of fancied on, what are the critical used cases for Uber where you feel that's something that's so important between quality of service and everything else, but those remain very, very steady for you to give you sort of that confidence of lower sequential growth rate in Q4 and then more important sort of an uptick to potentially grow it next year, just a little more color on that. Thanks.

Yeah, absolutely, I mean there's a number of used cases that play in a company like Uber and the way they look at those used cases and what they value differ based on how used case works as well as where in the world it is. For example, if you're doing a blast notification, your bulk notification to many thousands of drivers to get out on the road or something like that, you know there's a different quality of service required than the SMS telling you that your ride is arriving, right. You expect that to be timely, you want it to get there, and it impacts the customer experience if it doesn't get there on time. Whereas when you're blasting out many thousands of messages that there's some that don't get there, it's just a different quality of service that you expect from that sort of bulk type used case. And overall, we think there's a lot of used cases and lot of opportunities inside of Uber and a lot of opportunities both on existing and new used cases and we're working very effectively with the team there.

Great guys. Thank you for taking my questions.

Your next question comes from Richard Davis from Canaccord. Please go ahead.

Hi. Thanks very much. You kind of touched on this a little bit, but kind of to what extent should we expect to see Twilio kind of used as a platform to make calls between extensions and even kind of via some of these connected end point devices like home and echo and things like that?

Yes, absolutely, Richard. So we announced at SIGNAL just a couple of months ago our new channels product, which actually is our method of interconnecting with a wider variety of new channels. We actually on board these new channels very efficiently, so as new ones are coming online and as they actually change because there are constant changes happening, hence we’ve become very good at onboarding and maintaining these channels, and this opens up new opportunities for customers to use a variety of our products in a cross-channel way. So Notify is a great example of this. Notify uses multiple channels for notifications so that a developer can harness the value of where their end users want to be notified. He can actually experiment with new channels as they come online very quickly because it's built into the platform. And I'd like to note another good interesting used case, they're both for notifications but also something that we're looking to power with our Understand products. So that a customer who builds a natural language understanding model using our Understand product will be able to power communications over say an IVR, you know if you call a company and say tell us what you want to do but also be able to have the same styles of interactions across Alexa and other similar platforms there, but they essentially build those models and build that application once and power it across many different platforms. So we're very excited about the opportunity that these channels bring.

Great. Super. Helpful. Thanks so much. I'll let other people ask questions. Appreciate it.

Your next question comes from Mark Murphy from J.P. Morgan. Please go ahead.

Yes, thank you. And I'll let my congrats on a fantastic quarter. Jeff, it's been an interesting couple of months with one of your competitors suffering from I believe a 22-hour outage and another one of your competitors seemingly closing its doors to new customers and new projects and meanwhile your new customer additions continue to strengthen. So I'm curious from your perspective, has the competitive environment become a bit less intense or has it changed in any way in recent months? And just also how frequently are you winning new customers who have in fact suffered from poor quality with a competitor and therefore are turning to Twilio?

Yeah, thanks, Mark. As a company we're very focused on our customers not as much on the competition. And as such you know that's where you get our focus on agility with resiliency, the idea that we deliver innovation that benefits our customers but we do so while -- the rapid pace of innovation while maintaining a high level of quality and resiliency in our product and that manifests as five nines API availability and five nines success rate and things like that. I think that that ability to deliver innovation with resiliency is a core strength of Twilio. And to answer the second part of your question, yes, we do see customers who come to us from other platforms, and due to the struggle that a vendor might have because either lack of innovation or the availability of their solutions, and so customers do come to us and value the things that we've invested in that make our platform extremely reliable but also an engine of innovation for them.

Okay. As a follow-up, Jeff, what stage is your typical customer adds in terms of adopting SMS text versus push or in-app notifications? And if you were to look among those who have introduced push or in-app notifications, is it more commonly working out favorably or unfavorably for Twilio?

Yeah, there is notification, Notify our product which supports push notifications. It's a relatively new product for us just recently went into a beta earlier this year. And so it is obviously a newer product for us. And so the adoption is a pressure than SMS which has been out for many years. But as far as how it works out, we - our goal is to focus on our customers' needs. And we feel that if we focus on helping our customers notify their customers in the appropriate way, our job is to offer choices to our customers and give them maximum flexibility. And the way this result is look if the end customer wants a push and our customer should offer push that's the solution that we should offer and I'll point out that this has the capability of actually bringing net new push and SMS workloads on to Twilio as customers are looking for a solution that can encompass both their push desires as well as SMS desires and SMS is a very large mature market where that business may not even be with Twilio today but it's actually an acquisition strategy for us as well.

Okay. One final one if I may, I'm curious. Jeff, just how rapidly you think you can - how rapidly do you think your mix can shift toward enterprise businesses you mentioned quite a few of them this quarter that are your non-text types of companies. Is it possible to see a future where the enterprise revenue stream would surpass that of the text-based companies?

While enterprise relatively speaking is a smaller part of our mix today but growing faster than the overall. And so it's a segment we're very excited about. We think the enterprise opportunity is very large when you think about lot of that is with traditional enterprises and products that they bought traditionally. And so we see this as a very large opportunity for both segments, but enterprise is an exciting one that is growing extremely fast for us.

Your next question comes from Heather Bellini from Goldman Sachs. Please go ahead.

Great. Thank you. Hi, Jeff. Just a couple of questions, I was wondering if you could share with us what products are driving the most customer engagement right now if you could share with us the top one or two I know you've gone into some detail across the board but if you can zero in on that? And how do we think about the pace of expansion of multiple products into your installed base? And then I just had a question about ARPU as a follow up.

Actually as far as which products drive the most engagement, SMS and voice are our most mature products, it's our most mature channel. So those are the ones that dominate because of their maturity inside of Twilio. We've offered those products for many years as opposed to some of our newer products. And as far as the ramp up goes, we introduce a product and you do have the time it takes for a developer to get up and running that product to build what they see as their requirements and understand what they can do to match it to their customers' need, build it and then deploy. And so the ramp is one that takes developer to do their job of building the solution as well as end customer adopting it. That ramp built in and that's why newer products sometimes do take a little longer to turn into revenue. But there's still very good investments that we see playing out over a long time but it does take some time for a developer product to get into market to the extent where it would be highly visible on our revenue line.

Yeah and I guess that's what I was coming to. Some of these newer products that you're mentioning, is it 12 months or a 24-month process before we start to see that bubble up and become more apparent in the revenue stream? Is there some time frame that we should think about?

Well, I think you're not far off there, the thing to think about some of these products are more standalone. So you have to kind of build starting - the new used case starting from scratch let's say, other products, for example, our marketplace attachments to your existing usage as well. You already have used case and you can add on a product to get more value on the thing you've already built, Marketplace Insights is another example of that. And then other products actually the adoption of them pools again in revenue from our other products. So for example TaskRouter, when you're building a call center, TaskRouter is the core of that initiative, but generally speaking pull the employees revenue along with it even though we've got a new customer traction going out with a new product, the spend on employees may equal or even exceed that of the spend on the new product. And so it is hard to separate these two things. Although what I can tell you for sure is that TaskRouter, the fact that it was their helps us acquire the customers and helps them get on board with our used case speaking of the revenue maybe split between the new product and the old product.

Okay. Great. And then just one last follow up, is there anything you could share Jeff about how we might want to think about the pace of ARPU growth as we look out?

Yeah. Hi, Heather. This is Lee. We have had strong ARPU growth over - actually over the last few years in Q2 at 17% ARPU with for base revenue with $8,300 that's up 9% year-over-year. If you strip ARPU that's actually up 17% year-over-year we've seen that pace grow but it is not something we're going to continue to guide you specifically.

Okay. Great. Thank you.

Your next question comes from Pat Walravens from JMP Securities. Please go ahead.

Great. Thank you. I guess my first question would be what has George been focused on his first five months there?

Absolutely, Pat. So George is leading the go-to market effort, so sales and marketing has been his primary focus. And we feel very confident in the direction of execution that he's bringing. And as I mentioned earlier he's bringing us great amount of alignment between our sales and marketing organizations both for our existing products as well as new products to bring into market and really helping us to align those efforts specifically the hiring process, structure, focus things like that.

Great and then just big picture, Jeff, what sort of key points would you make to investors who worry that this is a commodity?

What I would say is that there's a lot of ways to approach this market, right. And the way we approach this market is by delivering software value to our customers, right. So we hear their engagement challenges and our customers are trying to solve with their customer base. And we're investing the software that makes it possible for them to build those solutions on top at Twilio. And that is a software endeavor. We do really get all of these challenges then you got to believe a software company of how to deliver agility, constant stream of innovation, but also agility and resiliency and doing so with five nine's availability and five nine's success rate and all that kind of stuff and that's we've approached the market as a software endower, but we know it's a big market, there's room for many different approaches about how people bring it to market, but how we've approached it is building the software that our customers need in order to engage with their customers effectively at scale and globally and use a platform that they know they can trust.

Great, thank you.

Our next question comes from Ittai Kidron from Oppenheimer. Please go ahead.

Thanks. Couple of questions, first for you Lee, regarding Uber, you gave very specific commentary on Uber's contribution for next quarter before at least directionally present a revenue. How much of that is you being conservative versus at this point you have its true and complete picture and understanding of the nature of your interaction with Uber.

Yeah, sure Ittai. So, in survey, if you look at the case we've better handled this quarter, we've offered to put engage with Uber and this is a complex organization which you need, it's growing fast. It's taking longer risk. We find to set the guidance quarterly and the numbers in the fourth quarter is our best estimate of where we see things netting out.

Okay. And then Jeff, I mean the engagement vision is very compelling, I guess - I'm trying to understand if you try to move forward with this, how much of this do you think is a push from you versus a pull from the customers for this. That's number one and number two, what do you think would be the timeline by which revenues from all the different elements whether it be RC, Notify, TaskRouter and others and I'm sure there will be other things coming along. Before they count for say, 10% of revenue, how do we think about the progression and contribution of this vision to your financials?

Yeah, absolutely. So our developer first approach is continued working, the developers inside the organization are pulling us into the organization by being able to get started, building up prototype and getting essentially momentum going inside of a company for a solution that is built on top of Twilio. And we do see that continuing to grow and that approach is working very well, so we're continuing to invest in that developer first go-to-market approach. What's interesting is that often spreads the discussion inside of a company of, hey, how are we using Twilio, what else could we be using Twilio for and it actually creates a great basis for a conversation at a variety of levels inside the organization or a broader picture of engagement strategy, right. And that's the thing that - it's not going to receive award, cares most about and so the engagement called and the set of products in there handle the people to have that conversation with the customer, especially the enterprise type customer about where to go next and how the adoption of Twilio might be strategic to their roadmap going forward for many different used cases. And the only thing I remind you on the second part of your question about revenue, which is the engagement oncology is just announced, it's relatively small now, but it's growing quickly. But I'll remind as I mention with TaskRouter, adoption of a lot of these products actually pull through other revenue as well. So if you adopt TaskRouter, it might pull through voice, if you adopt Notify, it might pull through SMS and so I don't know that it's exactly a - this product versus that kind of product because they can actually drive growth between each other. Nutritional products are growing very quickly as well, so I wouldn't necessarily speculate what it provides across, other than we see opportunities across both.

Very good. Good luck.

Our next question comes from Mike Alatimore from Northland Capital Markets. Please go ahead.

Yeah, hey guys. This is actually Nick Altmann on for Mike. Thanks for taking our questions. You guys mentioned a couple of quarters ago the number of customers that are doing over 10,000 in ARR a year, can you just give us an update there?

Yeah, hi, Nick. This is Lee. That number is growing very nicely, but that's not something we're going to give on a continual basis and that might be first thing we mentioned going forward perhaps in our Analyst Day.

Okay and then just a second if I may, can you help us understand where the bulk of the growth is coming from? Is it increased usage, is it customers adding new APIs, new used cases, really any color there would be much appreciated.

Sure, I mean the growth - the growth is being driven still from our most mature products Programmable Voice, Programmable Messaging and as you saw from the quarter we had significant customer additions. I think a lot of the customers that have come up that we benefit from the older cars and the new cars coming on board and attracting revenue. So it's hard personally to break out into specifics, but it's both strong growths from new customers and expansion within existing customers.

Got it. Thanks.

Our next question comes from Brian White from Drexel. Please go ahead.

Yeah. Jeff, if you could talk a little about what was the biggest surprise in the quarter? It looks like indeed your midpoint of your guidance on revenue by 11% was a huge beat, so what surprised? And also you've got so many new products and a lot of new exciting things in the pipeline here, if you can just give us some color on the average customer at Twilio using two products or three products, just give us some feel what the average customer uses in terms of number of Twilio products? Thank you.

Yeah, sure, Brian. I mean it's hard to pinpoint one surprise or a feel like that and I think we've seen strength across a number of different areas of our execution. We're really excited about the products we announced, great new customer adds this quarter and so I think it's just a testament to the team here at Twilio about executing on a wide variety of functions and strength there. And I think, what's the second part of your question?

Yeah, just if we looked at your average customer today and if you can compare it maybe to a year ago, how many Twilio products are they using? Is the average customer using just a couple of products or was it more than that, just to give us a feel here because you've had a lot that's come out over the two to three years and obviously a lot just in May alone. So if you gave us that kind of a color I think it would be very helpful. Thank you.

Yeah. Hi, Brian. This is Lee jumping in. That's not a number that we've disclosed to date. The number of products being used by our customers is growing and reflected in that strongest ARPU growth, up to 8,300 for the quarter, but that's something that we've not talked about probably.

Okay. Is there any way to just give us maybe color on what happened internationally in the quarter?

I'm sorry, I didn't guess the question.

How was the growth overseas, international market?

This is Lee. I'll start with revenue first. Revenue from customers based outside of the US was 22% of total revenue, so that's a nice uptick from the prior quarter and it grew nicely and growing well according to the plan.

Okay, great. Thank you.

[Operator Instructions] Our next question comes from Jonathan Kees from Summit Redstone. Please go ahead.

Great. I'll add my kudos to the results and thanks for taking my questions. Just want to ask about two particular topics. One is pricing, you talked about to realign that pricing Uber and one with your bulk messaging, just curious have you had to realign your pricing with your other customers? I realize they're less. They're not as big as Uber. And then how would you characterize pricing in general? I also had a second question after that.

Yeah, hi. This is Lee. So, yeah continually look at our pricing. So that's one of the beauties of our business model and customers scale and grow. They know they can give better pricing, so as customers scale and move up, we do offer them a better pricing and that's a continual process. Regarding the overall pricing, we haven't seen any major changes to the overall pricing environment.

Okay, great. And then secondly I want about is, the guidance you gave, you talked about - it's based on the feedback from Uber, the puts and takes here and your estimate based on the feedback you've gotten from Uber. It sounds like visibility has improved within there, how would you characterize visibility across the board?

Yeah, hi. This is Lee. I'll start on that. So we have a great relationship with Uber. We work very closely with them on their existing products. We're working closely with them in terms of new initiatives. And so in terms of working with them, we do that close relationship. As I mentioned before, it is a unit account, its complex and moves very fast, so we feel like a better hand on, on what's going on. But again it's a unique company and as I mentioned the numbers reflected in the forecast are best estimates, how things are going. I think that tracked out. As we look at it certainly for Q2, things are moving as expected.

Again there would be a cross board with other customers too, right, in terms of the feedback of visibility with them?

Sorry, I missed that.

And you would characterize visibility with your other customers as the same or as improved?

Yeah, I think in terms of the overall business, I mean one of the beauties of the usage based model is we have that high visibility and predictability when hundreds of transactions happening per second across thousands of customers and we continue to see that high visibility. The platform is very valued and it's embedded in the growth to our customer's usage, so that has been big driver of our historical visibility and predictability.

Okay, great. That helps. Thanks a lot guys and good luck.

And our next question comes from Will Power from Baird. Please go ahead.

Yeah, great. I guess a couple of questions. First, just on the third quarter based revenue guidance implies a slight sequential downtick, I recognize part of that's Uber price, but I wonder if there's any further color you can provide there versus that measure of conservatives built under. And then secondly, Lee you've referenced on some comments on gross margins before, I wonder if you could just reiterate those and how we think about that longer term as well.

Yeah, sure. So as we look into the quarter, sure, we like to be conservative in our guidance. The numbers are just guidance and as a company we aspire to beat that, but you're correct we're absorbing the impact of Uber which is a reason for that. And then your second - could you repeat your second question about gross margin?

Yeah, I think in the prepared remarks you've made some comments on gross margins I think for Q3 and I wondered if you could reiterate those and just how we think about gross margins over the next couple of years.

Yeah, sure. So gross margin - as I did about in prepared remarks, we manage that line item like the heart is very important to us, but we're not maximizing for a gross margin in the short-term. We're maximizing for a customer reach and scale and building the business long-term. In any short-term time period there are flips and hates in terms of the gross margin. So we may make decisions regarding quality that the result actually is in a higher cost for us, but we feel that's the right thing do or if went into geographies, but we're not into scale yet that could have a negative impact on gross margin, many of the factors there. So over the last couple of quarters, the gross margin was a bit elevated due to some geographic mix, but we see that that benefit has lessened in this quarter and we see that benefit lessening also in terms of the next quarter. In the long-term, we feel really good about our long-term model, a gross margin of 60% plus and that's going to be driven by continued operating efficiencies and primarily driven by the product mix. Increasing the engagement cap of our products, IP only products just become a larger and larger percentage of our revenue portfolio.

Okay, thank you.

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