Good evening. My name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to the Twilio Fourth Quarter and Full Year 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Andrew Zilli, Vice President of Investor Relations, you may begin your conference.

Thanks, Chantal. Good afternoon, everyone, and thank you for joining us for Twilio's fourth quarter and full year 2021 earnings conference call. Our prepared remarks, earnings press release, investor presentation, SEC filings and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me today for Q&A are Jeff Lawson, Co-Founder and CEO; Marc Boroditsky, CRO; and Khozema Shipchandler, COO. As a reminder, some of our commentary today may be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and further information related to guidance can be found in our earnings press release. Additionally, some of our discussion and responses may contain forward-looking statements, which are subject to risks, uncertainties and assumptions. In particular, statements about Twilio's outlook for the quarter ending March 31, 2022, Twilio's goals regarding delivering non-GAAP operating profitability beginning in 2023, and meeting the annual growth rates and long-term non-GAAP gross margin targets, Twilio’s expectations regarding our products and solutions, Twilio's expectations regarding business benefits and financial impacts from acquisitions and our partnerships and investments, including the associated transactions, our expectations regarding the impact of recent and future privacy changes on certain third-party platforms on Twilio and our customers, and Twilio's ability to manage changes in network service provider fees that we pay in connection with the delivery of communications on our platform and the impact of those fees on our gross margins are subject to change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10-K and subsequent reports on Form 10-Q. And our remarks today should be considered to incorporate this information by reference. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect the management circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. With all that out of the way, I'll hand it over to Jeff for some opening remarks, and we'll open the call for Q&A.

Thank you, Zilli. I am very happy with our 2021 results built on some great outcomes for customers that continue to generate the best-in-class growth for investors that you see today. I've never been more excited about the future of the company than I am sitting here right now. We have an awesome leadership team, a combination of our leading cloud communications platform with Twilio Segment's #1 customer data platform gives Twilio an unparalleled view into the customer journey, setting us up as the company that can truly deliver on the customer engagement platform vision. We intend to become the software player that digitally connects every business to their customers to introduce true personalized engagement and relationships in the next chapter of the cloud. We're builders. So our work is never done, and I'm incredibly eager to continue building the company in 2022 and beyond. With that, let's open the call for your questions.

[Operator Instructions]. Our first question comes from Samad Samana with Jefferies.

Congrats on the strong finish to the year. It's great to see the organic growth. Maybe, Jeff, first for you. And just in reading over the prepared remarks, I think the company really did a good job of expressing, moving from just the infrastructure side to as more of the solution layer. I'm curious if you could maybe help us understand how the adoption is going for the more solution-based products that the company is rolling out. And how we should think about maybe the traction changing? I know you guys called that IDFA, in particular, as a driver. Like are we at an inflection where that's accelerating? Or how should we think about the shape of that adoption?

Yes. Thank you, Samad. So I think there's 2 parts to that question, which is essentially, first of all, really pleased with how the introduction of our software layer is going. If you think about -- look at some of the customers that we're talking about in our earnings calls, not just this time, but really every quarter, right? We've got great companies. We're adopting Flex, Segment. Like I love the Vertu Motors example that we talked about today, then bringing Flex and Segment together to make a contact center better. If you look at Stripe adopting Flex for their contact center needs. And Flex expanding in Global 2000 financial services company and a Global 2000 automaker and Nubank, many others. And the Invisalign putting Flex for their process. I mean we can come up with so many customer stories. But really, the answer is that our approach that’s in and up strategy is a great one because Twilio is used by so many companies around the world. Every industry, every shape and size, every continent, I mean, this really is the need for things like e-mail and messaging is so ubiquitous and developers see there’s so little friction. We're able to use those initial wins and that initial traction that we get to move up the value chain, move up work chart and move up the software staff to then go address the things that our customers are trying to solve, whether it's in the contact center, whether it's their sales process, their marketing, inside their products. And that is really what the in and up strategy that we're talking about is all about, leveraging the ubiquity of Twilio across all the different kinds of companies into building this customer engagement platform. From our conversations with customers, they all need because they all have to go build great relationships with their customers. The way to do that is by understanding the customer and then engaging with them. And that's why Twilio is having the leading CDP to understand customers and the leading communications platform, they go engage with them. And this is definitely such a powerful combination. The second part of your question about IDFA and the tailwind provided by privacy. Look, I think the society is on the right track, right, investing in privacy, testing regulation and laws and things like deprecating tracking tokens that if most consumers knew what had happened on the Internet, they'd be pretty [indiscernible] actually. So we are on the right track. And what this is doing is forcing customers to our customers’ businesses to focus on the fundamental of this -- the fundamental of business. I think about my grandfather, we sold paint at our hardware store in Detroit. And what he has to do is to know your customer and then talk about their business and my money is going to help them, but that's the fundamental of the business, understand the customer and talk to them. And so by investing in privacy, the companies have to actually use the first-party data there to how people use their product, how people use their website, their mobile app, what they buy, what they return, et cetera, and use all that as signal for how they can digitally engage with their customers and make that experience more personalized and compelling. And so I believe that is a journey. That is a big trend. It’s a whole direct-to-consumer market that’s going, which again it's like 2 sides of the same coin if you will. That means the companies have to build their customer base and then engage them and turn them into repeat happy loyal buyers instead of just turning to customers and acquiring more by buying more ads. This is a big change they’re putting on ecosystem that tells that we and Segment and the CDP and then with the rest of our products helping them follow us.

Great. That's very helpful. Maybe just a quick follow-up for Khozema. First, appreciate the additional disclosures and the numbers around organic growth. That was very helpful by you and the IR team. Maybe if I just -- the outlook for getting to profitability in 2023, I know we're still a ways out from that. But can you maybe help us understand what the assumptions are around -- is that going to come on the gross margin line? Or is that mainly because of OpEx leverage or revenue mix? How should we think about what allows the company get to that profitability and what you're assuming in that?

Yes. Thanks, Samad. Thanks for the question. Appreciate you asking. So I think it's actually a combination of things, some that will play out in the short term and then others that will kind of play out in the medium to long term. So the way to think about it, I think, at least for the short term is that the improvements are really going to come from operating expenses. And one of the things that I mentioned in my prepared remarks and as we talked about in the past is that we haven't been investing in a number of areas over the last several years. In particular, what we've been calling out historically has been Flex, enterprise go-to-market, international go-to-market and the core infrastructure. And we expect that rate of cost growth in those areas just starts to moderate basically in the second half of the year. And I think a good example of that is our ERP project, which goes live in the middle of the year. And it's not to say that we're not going to invest in the other areas, we will. But I think the lower -- the rate of growth in those investments there will be a little bit lower than what we've seen historically. And I would add that up to this point, we really prioritize growth in scaling the company. And I think growth certainly remains the priority for the company, and we actively made that trade-off historically. But I think we're at the point now where we've got enough scale that we can actually start reaping the benefits of that scale and just become more efficient in our cloud operations. And so we see a real efficiency opportunity as we move it out, and we're really confident in our ability for non-GAAP profitability in 2023. I think over the time, in medium to long term, we do expect improvements in our gross margin line as well. Obviously, that number has bounced around from period to period in the short term, not the trade-off, but would be also actively make because we like the fact that we're onboarding customers and have an opportunity to grow with them. But very consistent with what Jeff said a moment ago, as we onboard those customers and really leverage this in and up strategy and bring them into higher levels of the software stack, I think we have a real opportunity to provide value to customers, and I think that will provide margin improvement for us as a company. And that's why we stand by our 60% plus over time in the gross margin line.

Your next question comes from Derrick Wood with Cowen.

Nice to see a strong quarter. Congrats. Jeff or Marc, I mean, you guys have been on this journey to build out this kind of CRM suite of applications. You referenced this, in and up motion, and the product portfolio has certainly matured quite a bit. So from a go-to-market perspective, looking in 2022, how are you planning to be more aggressive in this up stack, the up part of the motion? And what would you like to see kick into a new gear in 2022?

Derrick. Thanks. Great questions. This is Marc Boroditsky. It is front and center in the way that we are going to market in 2022. We are in the final days of our sales kickoff this week, and the primary objectives that we're enabling the team on are in and up strategy. So leveraging our installed base and access to customers efficiently through e-mail and messaging to sell them more broadly on the vision of the customer engagement platform. You may remember, we announced the customer engagement platform with SIGNAL this past quarter. It's resonating with customers of all sizes, driven by their desire to take more control over their digital engagement customers. And we are hearing interest across the entire arc, their end consumer engagement, on top of funnel all the way through the long-term loyalty. And so the training we are doing now as we're looking out to 2022, it's supporting our sales team to ensure that they are ready and able to approach the opportunity that we see as significant in the market today.

Great. Great to hear. One for Khozema. Could you double-click on the change in your guidance philosophy? How has your approach changed versus what it was before? And I guess what kinds of new insights have you gained or are more comfortable with in order to better predict consumption behavior here?

Yes. Great question, Derrick. So as you know, I mean, if we have run a usage case business model. For the most part, we have a little bit of staff in there as well. And I'd say with each passing year, we just had a lot more insight as to the way that customers end up using our platform. And we're just able to better predict usage patterns over time. And so what we end up doing with our FP&A team is basically fine-tuning that forecasting model every year. And as we could collect additional information, we're able to be more granular about the way in which we can do that. So for Q1, we are refining our earning philosophy basically to provide guidance that is ultimately more consistent not just with actuals, but also to give investors a better approximation of our expected performance. And as you saw in our Q1 guide, we're showing continued growth of 45% to 47% on a reported and then also 32% to 34% organically. I think it was important for us to call that out. That obviously does include Segment now. And we have a lot of confidence that we'll be able to deliver on our 30% plus growth target over the next several years. And just lastly, I would say, Derrick, that we obviously do get a lot of good feedback from our investors and from our analysts and we take that into account, too. And I think it just provides for a more consistent setup over time.

Our next question comes from Michael Turrin with Wells Fargo Security.

Maybe my least here a question to ask on the call but feels worth asking is on gross margin. Clearly the growth is outstanding. The gross margins are stepping back here. It's clear international messaging strength is gearing forward. But how should we think about the tradeoffs and when those can help flatten that trajectory? And maybe secondarily, we saw the Syniverse transaction ended this morning. Is there still a chance you can partner there or comment to improve the core gross margins? Or is that no longer the right way to think about that relatnioship?

Yes. This is a great question, Michael. Let me take the second one first, and then I'll answer the gross margin question more fully in a moment. So first of all, with respect to Syniverse, I know there is some press that they're suggesting that we might buy Syniverse. We’re technically not doing that. What you probably did see in some of the press announcement this morning is that the merger agreement between M3 and Syniverse come to a termination as a result of the mutual agreement between those parties. That largely reflects market conditions as they stand today. The way that, that agreement worked was it did also provide for an alternative path, which is a minority investment in Syniverse. And so that's now the path that we are going to be assuming. The commercial wholesale agreement that we also referenced historically, that’s very much in place. We have a great relationship with Syniverse. It's been very longstanding, and we intend to continue that. And frankly, that partnership gives us a great product for us to be able to leverage in the United States. So I don't really see a significant impact in the near or medium term as a result of any of that, and I just want to provide you a little bit more clarity in some of what has been rewarded in in and up. With respect to gross margins more broadly, for us, and we've had conversations with you and a number of others in the past, obviously, we have this really, really high-growth messaging business. And we feel great about the way in which that business has been performing. And the way that it played out in Q4 was that our international volumes really took off. And I mean you're right, that part of the business carries a sort of lower gross margin structurally, certainly relative to some of the other products that Marc and Jeff alluded to. But the messaging business also cranks out really significant gross profits that we like and that we want to reinvest. I think most importantly, as Marc alluded to you is create an installed base which is sort at the door for us to execute are in and up strategy. As you saw on the last page of the disclosures, while all of that is going on, our application services are actually growing at a faster rate. Kind of a good problem that we have is that our messaging business organically also grew 52% last year. And so that's just kind of trade-offs that we want to make. As long as we continue to generate high gross profit, as long as we can generate growth off of application services in Segment, we feel confident that over time we will be able to grow into that 60%-plus range that I talked about earlier, and we have a lot of confidence in that. But in the short term, you will see a bounce around a little bit up and down. And again, in our disclosures, we probably -- we tried to give you some sense of how the A2P fees and stuff like that impact as well.

Our next question comes from Mark Murphy with JPMorgan.

Khozema, I'm wondering if you can shed any light on any specific products that are growing materially above or materially below this organic growth level of about 39%. I would imagine Flex, Video, Segment are outpacing. I'm less certain about voice, e-mail, Authy, some of these products. Just curious if you're able to comment on any of the major outliers there?

Yes. Mark, appreciate you asking the question. I mean I'm not going to go through every single product and give the breakdown here, but here's what I will say and answer your question. Again, just referencing the last page of our disclosures. If you look at our growth rate over the course of the prior year, we grew our messaging business at incredibly high rates, 52% organically, which, on any basis, it's really super performance. And in spite of the fact that, that part of the business is growing really fast, our application services category, which includes number of those products that you just described a moment ago basically pre-Segment, pre-SendGrid, non-telephony-based cost products, that's growing at a faster rate. The good problem that we have is that, that messaging business as you again can see on that page in terms of its revenue contribution, it's just really big. And so it's going to take some time for that in and up to play out in our financial statements, even though it is playing out very much in the life of our customer base. Beyond that, you also saw in the prior quarter, Segment has had a fantastic quarter, really significant growth sequentially. Year-over-year obviously, we don't break that out because it was inorganic in the prior period but you can see the sequential was really, really strong. And now that it's in our numbers, we still have a tremendous amount of confidence in that 30% plus over the next 3 years, which, quite frankly, is off a much higher base to be in that since the time that we announced that we can do that.

That's very helpful. And as a quick follow-up for Jeff, you had mentioned the in and up strategy. I'm just wondering how rapidly perhaps your R&D investment is shifting toward products that might be sold more to a marketer rather than a developer. For instance, the customer journey insights, the Engage product and kind of the orchestration of messages rather than the delivery of messages.

Yes. Thanks, Mark. I mean you can see we've got investments in, obviously, our fortifications products in Segment, the core customer data platform as well as new products we are building above those 2 layers. And the way I think about this which is developers are assisting the sale and for the communications APIs, products like developers can pick up a long way, maybe all the way there but for a marketer or a contact center buyer you're going to have a line of business that’s going to make private purchase. But with Twilio, they get the support of their internal technical teams on the purchase. Meaning the developer, the technical people, they are at the table, telling that this is decision to make like. Yes, that thing that we want to do, we believe we can do it with Twilio. In fact, we've already built the prototype. And that's important to tell. If you [indiscernible] to tell. As opposed to we're like -- I talked to a lot of our sales leaders and like the yesteryear careers like power companies, they would be selling your line business owner and the line business owner would say, oh, this is great. Can we do this? They turn to their IT team. And the IT team sold it, now for another word, can do it. And so you've got contractors on the technical team. And I think the magical thing about Twilio is that we can have proponents of Twilio both on the technical side and now with more investment in the sort of application area also in the line of business owners. I think it's a powerful combination and that’s why we are focused so much on winning hearts and minds of developers, bring them into the company and then making them some of our biggest champions as we make our way through in and up chart, point up the value stack of software. And so we are announcing obviously in both and I also think of the application products that we're building are also very developer-centric in terms of customizability, flexibility, using, really build what companies need is for to those products. We're not trying to provide just a turnkey and like you can't customize the type solution. We are trying to build products that while they do the things you want them to do out of the box, give you ample footprint to go in and turn them into the solution of the company needs for long period of time. You don't get state of the art with something that’s serving your need as markets evolve, as customers demand new things, et cetera. And I think our approach is as proven by the adoption, by a wide variety of customers, whether they're the young digital disruptors or whether they are Global 2000, Fortune 500 companies, I think we see across the spectrum, this approach is working.

Our next question comes from Meta Marshall with Morgan Stanley.

Congrats. A couple of questions. One, you noted disclosure of having about 36% of the Global 2000. And just wanted to get a sense of is some of your confidence about the 30% growth rate for the next couple of years driven by room that there is within kind of this core customer set or is it by the opportunity to win some of the more of the Global 2000. Just trying to get sense of how much you feel like you've already landed that gives you confidence of that 30% growth rate? Second question, maybe building on what you just said, Jeff. You've made a compelling argument at SIGNAL about why Twilio is best enabled to help customers on their customer journey versus kind of some of the competitors out there. I guess are you finding with customers that you're even having to do some of this evangelism about why you versus others? Or it's still kind of in its infancy where they're just happy to have a solution that you can provide and give them?

Yes. So thanks for the question. Let me take the first part of the 30% plus dynamic, and then I'll have Marc add to that, and then I'll turn it over to Jeff. So in terms of 30% plus, I mean, the reason we have such confidence in our ability to do that over multiple years, it's not just because we have relatively low concentration in G2K. But at the same time, we were able to do a ton of business that's really creative and innovative with digital disruptors as well. And if you look at the way that the company has evolved over basically since the IPO, like a couple of dynamics have played out, which I think are really interesting and give us the level of confidence that we have in that number. The first is that if you look at the distribution and concentration of our customers, it used to be relatively high. And since then, we've taken on more business in our top 10 while that overall number has consistently shrunk over a number of different years. And so certainly, you have some large companies in that bucket. You also have some digital disruptors in that bucket who were really taking off. But the real point is that, that rest of customer that we serve is massively wide, which means that we're not overly concentrated in any one customer. We're not overly concentrated in any one industry, and that allows us to grow the scale now. I'd say the second thing is, is that we've talked a lot about in the call already like our messaging business. But in addition to our messaging business, we sell a lot more other products that we're able to sell into these customers. And so our ability to now kind of go up back with our application services, with Segment, with e-mail, I think, allows for another interesting kind of upsell, cross-sell opportunity that we're able to do as well. And then I would say the third thing, and we've called this out in the past, is that we obviously have been making an investment in our international go-to-market efforts. We're starting to see that really pay off. You obviously saw a lot of kick-off velocity in the most recent quarter with respect to that investment. And so I would expect to see that continue over time. And obviously, there are a lot of customers out there in the world that we are really eager to serve. Marc, do you want to add anything to that?

Yes. Absolutely. Great question, Meta. Picking up where Khozema left off, the opportunity for us is still very massive beyond our existing footprint. Primarily landing new logos remains an important part of our in and up execution. So landing with SMS or e-mail and then being able to build a trustworthy relationship with the customer, as we've referenced a couple of times. That's a true situation across all of the market segments. And as you pointed out, we still have a majority of the G2K out there where we have opportunity to build that initial relationship. The second dimension is expanding our footprint for reaching after the full white space of the account. And across our entire base, we have that opportunity to go back to those customers and continue to build our relationship and expand the commercial results that we're generating. And then lastly, we're recognizing that there are many enablers that are making a difference for us in the market. Like as an example, we power [indiscernible] ISVs. They're selling packaged solutions against product requirements. We have partners. We're helping them to get into more of the base like we are also pursuing with SIs and resellers that are projecting this into other kinds of opportunities like what we shared in our disclosures, in our prewritten statements, we are seeing traction with organizations like BPOs. We shared with you on the last earnings announcement this relationship with HGS. We recently announced a relationship with our partners and HGS has had significant progress with over 20 of their customers moving over to Flex. Now these are accounts that are relying on a channel strategy, if you will, for us to become adopters of our platform. So we're going to be pursuing growth in all those dimensions. And I think largely, the opportunity is still in front of us.

Meta, this is Jeff. I'll answer the last part of your question about to what extent are we evangelizing to our customers. I mean the way I look at it is customers have what they need to accomplish, right? Like they've got their challenges. They've got their market dynamics, their competitive pressures. And what’s leading most companies do is realizing that they need to have these direct relationships with their customers. When I talk to executives that every kind of company you can imagine, understanding our customer, building that complete picture of the customer and then acting on it to improve the outcome of their business, to spend less on marketing, to spend less on advertising, in particular, to increase their retention rates, to increase their -- or decrease their customer acquisition costs and increase the lifetime value, I mean, these are the metrics that drive executives at pretty much every kind of company. And I think in oftentimes what happens is the people, the more bottom-up motion that we would have. So the people on the front lines will have to solve these problems and everyone that recognize that Twilio can solve these problems. They bring Twilio in. And then we follow up with some more top-down education around the market, a new approach. And I think that's working very well with both a bottom-up and a top-down approach to our customers. I'll share a quick story with you, which is -- which I felt was sort of illustrative of this, which is interesting. We're talking to the CEO of one of our customers, a pretty large company in education space, and they've been using our products, telling them about our engagement platform, and I'll tell you about Flex and Frontline and Engage and all these new products we've been bringing to market over the last several years. And the CEO of [indiscernible] and shared the screen, shared the screen, I'm doing, saying, I just got the report here that says the old way of doing it was monolithic apps and the new way is controllable APIs, Jeff, you're not getting rid of APIs, are you? We're talking like, no, of course not. We're building all this with our own APIs. We're making it so that you can actually go build on top of these platforms and unlock the things that you're trying to unlock by integrating these experiences together and hiring developers, building for your customers. And he's like, okay, okay, I'm glad to hear that. And it was so interesting to me to hear the CEO of like an education company evangelizing to me the value of APIs, the value of composability that it was more the a lot of these ideas are now widespread, right? Think about the fastest-growing companies in the software and technology space, companies like AWS, like Twilio, like Stripe, I mean these are APIs. These are the building blocks that allow companies to go build the future and innovate with our customers, increase the agility of their company. That is what customers want, and we are able to provide it to them. And there's always some degree of evangelizing when you are kind of moving the technologies all forward. It's not like we're just selling guacamole and everyone knows what that is. It's just a question of whether you want it for lunch or not. Really, this is technology and how technology is enabling them to build their business, which does take more time and education than just selling guacamole, but I like the business that we're in.

Our next question comes from Alex Zukin with Wolfe Research.

I want to ask you maybe 2 questions. First one on -- and I don't know if maybe somebody has already asked this, but I'll try it a different way. When you think about the major differences in the demand drivers between Q3 and Q4, obviously, it was just 2 very different quarters. And Khozema, you mentioned it's a consumption-based business and inherent in that is some volatility. But just help us understand, if you can or if you would, what were kind of the biggest differences? Like what made Q4 just such a great quarter relative to Q3? And then the follow-up is just how to think about now, particularly with Segment going into the organic bucket, what's the right way for us to think about a model dollar-based net expansion going forward? I know you're not -- that's not a metric you guide to, but any help there would, I think, at least help set the right model framework going forward to better understand the various components.

Yes. Alex, those are good questions. Appreciate you asking. I would say in the demand driver space, I mean, there's nothing materially that’s really changed from one period to the next. I mean we talked a lot about the fact that this is a usage-based business. And in being that kind of the business, you're always going to see like a whole bit of an up and down period to period, you are going to see certain customers take off, in certain periods you're going to see a little bit of domestic versus international there. I say in the most recent period international really took off. And so that was something that, that we feel really good about, obviously, because that's an investment that we've made over a number of different years. But it's not like we're trying to necessarily -- but through the business -- international picked up one period and domestic there's a different way or that one process goes one way or the other. I would just really kind of point to broad based strength across the totality of business. And we feel like the business was really good in Q3, we thought it was really good in Q4 and we really like the set up coming into 2022 and multiple years beyond. So, it's hard for me to really point to like that one thing, I think is really your question, there really isn't one other than we had broad based strength across the business and feel good about the performance. I think with respect to the way that you should think about Segment getting layered in, we actually have provided separate disclosures for Segment on a year-over-year basis, we have kind of broken out that [indiscernible]. I don't think I'm going to dive into that here today. But I will tell you is that we feel really good about the growth prospects of that business. You can probably get into it and the fact that it was 10% sequentially that we really like the growth trajectory of where it's headed. And I think you probably can take from Marc and Jeff comments that we're seeing tremendous traction with customers there, not just in terms of what we can do and combining it with messaging, but also with respect to combining with Stripe which is really, really exciting. And we think that this sets really, really strong growth prospects going forward.

Our next question comes from Will Power with Baird.

Yes. A couple of questions. First one perhaps for Khozema. You pointed this out, but international growth clearly accelerated it looks like quite a bit. It sounds like messaging was a big piece of that. I love if there's just any other color as to what the drivers behind that kind of surge in international messaging might have been and what else you might have seen internationally that drove some of that acceleration?

Yes. Thanks for the question Will. I’d say there are two dynamics. I think the first is that, [indiscernible] obviously, and we talk a lot about our international market investments. And Marc builds a really great team internationally. And we're really starting to see the fruits of that investment. And you've seen that I think over multiple quarters now, with our ability to grow in international markets. I think the second dynamic is, is that there was one customer in particular, whose volumes really, really took off in Q4 which we felt pretty good about as well, that happens from time to time, too and obviously the gross margin dynamic and all that as well, but feel great about the way the international lends and we continue to stretch over longer period of time.

Okay, great. And then maybe for Jeff, just building on some of the other commentary, just looking at your growing strategic position around first party data, the in and up strategy that you've referenced. What are the pieces that you think could bolster that further? I mean, it doesn't necessarily mean anything, but are there natural, tangential areas that further solidify that? And I guess more broadly, maybe, how do we think about kind of the M&A pipeline and appetite here?

Yes, appreciate the question. First of all, just sort of like what are the pieces that bolster it? It’s your continued execution. We've got products that create revenue scale, continue to expand very nicely. So when I think about, how are we continuing to make sure our messaging promises best-in-class or email promises best-in-class? Segment, I think is fantastic from bringing customer in. So we've got a lot of best in class products, we've got a lot of pieces. And we're in the process of bringing them together. And so when I think about what is ahead, it’s like we're bringing these pieces together, we've got really three pillars of our engagement platform, we've got engaged with the marketer, which is still very early in the cycle by the way, just announced it in Q4. We've got Frontline which can be used by frontline workers and sales teams and things like that. And then we've got the Flex for the contact center. So clearly, there's a lot of buyers there, there's a lot of TAM there already. And we're continuing to bring those together, bring those products to more and more and more customers. As far as M&A pipeline, I will give you the answer that I always give because it's true, we always going to have the game board. Because obviously there are acquisitions out there that accelerate our roadmap, we should be willing to do them. But we also of course see a high bar of great companies, great cultures, great products and other things that rich them but we don’t have any particular strategic goal, or we're going after. But of course, like any company of our size, and our balance sheet, we're aware of what's out there.

Hey Will I will just add one comment in there which is obviously in current market there may be some attractive opportunities, and we'll be on the lookout. But the reality is we're very, very focused on our organic growth rates right now and want to continue growing the business that we've got. We don't see it necessary to do anything. [indiscernible] bringing on the message earlier. There's speculation that we might, we’re certainly not going to do that.

Our next question comes from Ryan MacWilliams with Barclays.

Looks like Twilio’s presence in Global 2000 customers doubled since the end of 2020. So congrats. Jeff, I know it's still early, but love to hear about the strategy and expectations behind Engage. And how customers so far, so to come around the idea of using Twilio as their like unified customer engagement platform?

Absolutely. I will start with Engage. I mean, the way we see the market is that historically, marketing automation products just focused on running a campaign, right? Gets trained in there, send buttons and you get [indiscernible] open the campaign. And like that's the way they were designed 15, 20 years ago, and they're still a product that most companies use today. But actually, more modern marketing staff is one that is driven not by campaigns but by data, especially driven by a rich set of data about every customer and who they are and serve what message is going to actually resonate most with them. And looking for, is it just as they open an email, it's like do they make a purchase, do they increase the lifetime value, are they actually more valuable customer? And these are the things like complex type of campaigns, multivariate analysis, like great marketers today are using data in incredibly interesting ways that the legacy marketing software just clearly doesn’t setup to accommodate and that's still an opportunity we're going after. And we're going after a very data-centric approach to marketing. And I believe that many marketers are already there, and we're going to get there. And I think it's already proven out by the traction that the Segment CDP that’s in the market, because the CDP is actually how [indiscernible], into actionable insights to the marketer. The last step is just trying to, it's actually new campaign and that's we're adding on with Engage. But the hard part of that whole equation is the data part. And we already do that or needed diversity of that. So adding actually the marketing execution side onto it, it's actually relatively [indiscernible]. We're excited by the feedback we're getting from the customers, we think that we've got a really novel and attractive approach. And ultimately at the end of the day, what it is the big budget, we're going after, the legacy part we enjoy today, because that's the marketers budget. But I think that it's where the market is going, and I think we're going to have a unique product at the marker gainer. And we already see traction in the market going on. Your second question Ryan, was it guidance…?

No. Just my second one for Khozema. Just pleased to hear about non-GAAP operating profitability for fiscal '23. Just getting some questions here on gross margin. Like I can totally understand how it can vary from quarter-to-quarter. But as we think about the path forward from here, can we think about gross margin being higher on a yearly basis going forward, given the elevated growth in the higher margin application services business?

Ryan, this is totally fair question. We're not going to guide on a year to year basis per se on gross margins. But I will say, though, is that we feel very, very good about the progress that we're making an application services, that’s kind of the non [indiscernible] based cross products ex Segment and SendGrid. As you saw our disclosure in the prior years that grew at a much faster rate than our very fast growing messaging business. So as that trajectory continues, we feel very good about the prospects to get our 60% plus target. To which, I would add, we feel really, really good about the way this segment is going. We feel very, very optimistic about how Engage has already started. And so the combination of those factors I think gives us very high confidence in 60% plus over time. In the meantime, as long as the messaging business that we put on is generating high gross profits, we are comfortable from period to period with that gross margin number about a little bit up and down. But over time, we still feel very good about 60% plus and I think a great track record with investors of delivering what we say we'll do and I think over time we will get to that 60% plus as well.

Our next question comes from Fred Havemeyer with Macquarie.

Jeff, Twilio's products and platforms certainly expanded a lot since, I think its heritage as a platform and channel to be able to recall people back in 2008. And I wanted to ask, from your perspective as Founder, whenever you put on your coding gloves, and you're thinking about what's exciting on Twilio's platform and what are the products that are disruptive or interesting, or that you would use to build the next iteration of startups and growth businesses, what gets you most excited about what is happening with Twilio here?

Well. That's a fantastic question. When I think about it, it really goes back to the mission of our company. If you notice, we updated our mission last year, we talked about it a little bit last year and we will talk about it more in some upcoming venues. But I think our mission really reflects the reason why I and so many at Twilio get out of bed in the morning to unlock imagination of the world developers. And what's so exciting about that mission is that people are, the world that we see today is pretty [indiscernible]. And they're built for thousands and thousands of years. And what you see now happening in the world of software, and the Internet, is people building in a field that was previously unimaginable. A developer or a startup or a company can build a product. And if it builds the right thing, millions or billions of people can become the customers practically over it. And that is a scale of execution. And an idea that I think is underappreciated in the world. That software and the Internet and the distribution mechanisms of the Internet providers, anybody can do. Anybody can unlock a new idea. And that goes for developers, that goes for a wide variety of builders inside of companies, goes to the companies themselves. And I love seeing, when a startup enters the market, it comes out with some great new big ideas. And then the incumbent follow suits, and actually data coming up with big news related. I got a lot of watching news on in the EV market, for example. It's like a Ford, done a great job bringing out whole new EV process, and like [indiscernible]. That is more importantly how the markets evolve and software ultimately becomes this vehicle, no fun intended for companies and people to [indiscernible]. And so it gets me tremendously excited about the products that Twilio builds, is that we get a marked imagination of the builders. And for so long, companies that they sold, they bought a bunch of apps to power their businesses, an app for this and app for that. So then they had this idea that like, oh, we want to go -- or our customers want this, let’s do that. And once to me you told [indiscernible] we can't do and what I love is giving our customers the path to yes. This idea that we have for how we're going to better serve our customers or help innovate our competition, the answers with Twilio, yes. And that's where APIs that's our platform approach, that's Flex, that's Frontline, that's Engage. That is Segment. This is unlocking the imagination of the world's developers and like the various hands of like marketing and contact centers and messaging. If you take a step back and think about the addressable market of people who build like that the story of humanity and that's where data [indiscernible].

Our next question comes from Matt VanVliet with BTIG.

You've kind of touched on parts of this but wanted to maybe bring it together in one cohesive question. When you look at Segment and the rate of adoption across the enterprise, it seems like the idea maybe at the very high end, Jeff to your point of talking to a CEO, it's a great idea. Everyone realizes that they need more data to be smarter and more individualistic in terms of their outreach. But in reality, how many of these companies that you're talking to are ready to implement Segment? How much of sort of a customer education and maturity level is broadly out in the market? And maybe the follow-up to that is, is there potential that you can see this pretty dramatically accelerate over the next couple of years, as companies get a little smarter, maybe our technology a little more up to date across other parts of the organization to really leverage Segment?

Marc Boroditsky, great question and I’d say added lens to the earlier question regarding the opportunity just in front of us. The opportunity is to cut across the entire market. We see the interest that comes from small customers all the way to largest customers. And your employees ask, are they ready to adopt? We see requirements started the use case, where literally, you need to be able to connect a couple of detailed real time data sources to be able to have an understanding of the customer, and then provide whatever interaction that's going to take place to progress customer relationship. So imagine if you will connecting to a CRM, connecting to monitor system, connecting to whatever the app that the company runs the business pm. To be will get to that understanding and then be able to respond in the channel that customer's choice in order to have that, for how to interact. And that has it can be across entire parts of the customer relationship. What we see happen is that we can move from that use case orientation to strategically more and more of their customer requirements. And be able to address a greater set of commercial requirements that position CDP as a strategic part of the way that they think about building expanded relationship. So, as an example, we shared today, the Vertu Motors example, where they have implemented Segment in order to understand the caller calling in, there is look up and see that there are in fact and the customer that bought from them in the past, because what car they bought and what the digital value is, then prepare the agent to be able to have the right conversation with that customer to be able to more than likely to sell them another car. We're seeing that kind of opportunity for new change, expanded, strategic, full customer lifecycle requirements.

And then, I guess on the Flex side of the business. Are you still traditionally going in and replacing or sort of augmenting and building on top of legacy on-prem solutions that have just maybe run their course of functionality? Or are you increasingly seeing opportunities where customers rushed to get anything that was supposedly cloud or hosted at the beginning of the pandemic but now realize that it's, they can't configure it? They can't do actually what they wanted or what they thought it could and are now looking at what Flex and Twilio more holistically can mean as a 5, 10, 15-year partner from a technology perspective?

In smaller customers, so I think of this as like getting interests up to a big mark type account. And we do have a fairly healthy portion of the business but it's first real implementation of a contact center type solution, [indiscernible] contact center by the way graduating, they call it their support agent or their customer engagement solution. And as you move up in a larger organization, more legacy implementations are to see a lot more installed base. We have a fairly healthy augmentation, as we called that in our remarks that people are adding new channels and new capabilities in parallel with their legacy implementation. But we're also winning more and more replacement of legacy implementation. The example that we shared in our prepared remarks regarding Align, which is a great customer example, a very digital oriented business that has a legacy supplier that’s actually facing challenges and the customer was able to rapidly spin up a replacement implementation on Twilio that is now their standard for their requirements going forward. Now, that's not the way that you're necessarily going to win the business, overall, we're not going to wait for people to fail. We're showing up and helping customers recognize that the next generation of engagement has been satisfied with the legacy player in the way [indiscernible]. And we have many examples that range from Fortune 100 banks to Fortune 100 -- Global 2000 automotive manufacturers that successfully led to meet the full requirements.

Matt. This is Jeff and I just try to add one thing, which I thought was interesting, when I was first getting to know Segment, so we hit the acquisition, I was really strong by their penetration into the enterprise. And we had a number of great enterprise customers, speaking about their limitations of Flex. At SIGNAL we have Procter and Gamble a great customer. We had Intuit, the feature of Intuit into a couple of stage talking about their use of Segment across all their properties. We have a Fortune 100 financial services company that announced this quarter that we signed in Q4, banking customer. So we’ve got great enterprise customers who are using Segment already. And so I was struck by how early the need the enterprises have been apparently. When we think about the more complex businesses, more subsidiaries that are, the more brands they run, the more systems that implement, the more the need is for a customer data platform help to make sense of all of it. So I've been really surprised by the traction of acquisition that's already out in the market, that’s interesting.

Great, we are out of time. I know there's a lot of folks that still have questions in the queue. We will catch up with you this afternoon. So otherwise, thank you everybody for joining and for the catching up over the rest of the quarter.

This concludes today's conference call. You may now disconnect.