Twilio, Inc. Q4 FY2024 earnings call

• Twilio had terrific Q4 2024, 2nd consecutive double-digit revenue growth, first Q4 GAAP operating profitability. Full-year 2024 revenue $4.458B (9% organic Y/Y growth). • Focused on transforming business from growth-focused to balancing innovation, growth, profitability. • In 2024, launched 251 products, enhancements, services. During Cyber Week, powered over 5B messages, >65B emails, 678M calls with 100% uptime. • Expanded trusted channels, added RCS and WhatsApp capabilities. RCS rich content cards, etc. available. • 90% of Forbes 50 AI startups building on Twilio. Conversation relay in public beta. • Segment AI innovations generating tangible results, e.g., 70% improvement in audience accuracy for one company. • Continued to partner with AI companies like OpenAI, helped launch calls/WhatsApp messaging for OpenAI's 1-800-CHAT-GPT. • Named leader in multiple analyst reports: IDC, Amdia. • Focused on distribution: self-serve, cross-sell, international expansion, partner ecosystem. Closed 78 deals >$500k in Q4 (up 47% Y/Y). Closed largest Segment deal ever. • Self-serve saw acceleration in sign-ups, upgrades, revenue growth. Cross-sell/upsell a big growth driver. • International expansion: expanded with Klaviyo in European markets. • Leveraging AI and automation in go-to-market: 80% of new inbound leads handled by AI, 75% ticket deflection rate in help center post-sales when AI engaged.

For Q4 2024, revenue was $1.195 billion (11% Y/Y growth). Full-year 2024 revenue was $4.458 billion (9% organic Y/Y growth). Communications business revenue in Q4 was $1.121 billion (12% Y/Y growth). Messaging revenue growth accelerated for a second consecutive quarter. Email performance remained strong, driven by Cyber Week and holiday volumes. Political revenue contributed ~60 basis points to Q4 revenue growth, offset by a 40 basis point headwind from sunsetting Zipwhip's software component. Segment revenue in Q4 was $74 million (1% Y/Y decline). Q4 dollar-based net expansion rate for communications was 108%, for Segment was 93%. Non-GAAP gross profit was $621 million (up 10% Y/Y), non-GAAP gross margin 52% (down 40 basis points Y/Y, 100 basis points Q/Q). Communications business unit non-GAAP gross margin 50.6% (down 10 basis points Y/Y, 110 basis points Q/Q). Segment business unit non-GAAP gross margin 72.3% (down 210 basis points Y/Y, up 240 basis points Q/Q). Q4 non-GAAP income from operations $197 million (up 14% Y/Y), first-ever Q4 GAAP operating profitability. Full-year 2024 non-GAAP income from operations $714 million (up 34% Y/Y), non-GAAP operating margin 16% (up 320 basis points Y/Y). Communications business non-GAAP income from operations in Q4 $275 million, full-year over $1 billion. Segment business non-GAAP loss from operations $10 million in Q4, operating losses improved sequentially. Stock-based compensation as % of revenue down Y/Y and Q/Q. Full-year 2024 net burn rate 3.3% (down 160 basis points Y/Y). Q4 free cash flow $93 million, full-year 2024 free cash flow $657 million (up 81% Y/Y).

• Q1 2025 revenue target $1.13B - $1.14B (8% - 9% Y/Y growth). Reflects Q4 seasonality and impact of Q4 political revenue. • Full-year 2025 organic revenue growth guidance 7% - 8%. • Q1 non-GAAP income from operations expected $180M - $190M. Full-year non-GAAP income from operations expected $825M - $850M. • Q1 free cash flow impacted by ~$120M cash bonus program payment. Full-year free cash flow expected $825M - $850M. • Target non-GAAP operating margins 21% - 22% in 2027, up 500 - 600 basis points from 2024. • Target GAAP operating profitability in fiscal 2025 and beyond. • Target stock-based compensation ~10% of revenue and net burn <3% in 2027. • Board authorized $2B share repurchase program expiring 2027, targeting 50% of annual free cash flow and capital returns to shareholders 2025 - 2027.

• Risks and uncertainties described in SEC filings, including most recent Form 10-Q and forthcoming Form 10-K. • Macro environment could impact business, though planning for neutral macro. • Bad debt expense related to customer OI, a Brazilian telecom company, in Q4 2024 ($17M charge), fully reserved exposure, but macro or customer payment issues could impact future results. • Hostile or changing competitive environment could affect market share and revenue growth. • Dependence on key partnerships and vendors could be impacted by changes in those relationships.

Q: Jim Fish with Piper Sandler on crypto impact on messaging/email, Segment billings.

A: Crypto volume better but relatively immaterial. Segment RPO balance driven by bookings growth and multiyear deals, over 50% of Q4 bookings multiyear.

Q: Michael Turrin with Wells Fargo on durable growth, gross margin.

A: Growth broad-based, not one thing driving. Q4 gross margin impacted by higher hosting costs and messaging mix. Plan for 21% - 22% operating margin by 2027 assumes comp gross margins.

Q: Nick Altmann with Scotiabank on large deal strength, communications DBNR.

A: Large deals combination of new land and cross-sell. Communications DBNR broad-based, not concentrated in large deals.

Q: Mark Murphy with JPMorgan on AI customers, contribution to revenue.

A: AI customers mix, not huge tailwind to revenue.

Q: Ryan Koontz with Needham on RCS market.

A: RCS early, interoperability challenges, cautiously optimistic, Android far ahead of Apple.

Q: Meta Marshall with Morgan Stanley on business environment, Segment net expansion.

A: Positive business environment, Segment net expansion improving with multiyear deals, faster customer activation, data warehouse interoperability.

Q: Arjun Bhatia with William Blair on comms NRR, cross-sell.

A: Comms NRR from product growth, IS and self-serve performing well. Cross-sell incentivized, easier combinations shorter sales cycles, data and comms integration in R&D.

Q: Aleksandr Zukin with Wolfe Research on conservatism in guidance, bad debt.

A: Guidance prudent due to usage-based business. Bad debt charge $17M related to OI, fully reserved, no future charges expected.

Q: Pat Walravens with Citizens JMP on operating margin ramp, internal AI agents.

A: Operating margin accretion each year. Internal AI agents used in customer support (deflections) and SDRs (vetted leads).

Q: Ryan MacWilliams with Barclays on macro impact, VoiceAI use cases.

A: No specific macro impact noted. VoiceAI use cases like AI agents handling calls from start to finish, enabling upsell and intimate experiences.