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Good day, and thank you for standing by. Welcome to the Twilio Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. You'll then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bryan Vaniman, SVP of Investor Relations and Corporate Development. Please go ahead.

Good afternoon, everyone, thank you for joining us for Twilio's fourth quarter 2024 earnings conference call. Joining me today are Khozema Shipchandler, Chief Executive Officer, and Aidan Viggiano, Chief Financial Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-Q and our forthcoming Form 10-K. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements except as required by law. And with that, I'll hand it over to Khozema Shipchandler, who will discuss our Q4 and 2024 results. And we'll then open the call for Q&A.

Thank you, Bryan. Afternoon, everyone. Thank you for joining us today. Twilio had a terrific Q4, reaching $1.195 billion in revenue, an 11% increase year over year, and our second consecutive quarter of double-digit growth. Q4 also marked an important milestone for Twilio, as it's the first time we've delivered quarterly GAAP operating profitability in the company's history, well ahead of our initial target. For the full year, we generated $4.458 billion in revenue, representing 9% organic growth year over year. Over the past two years, we've dedicated ourselves to transforming Twilio's business from one primarily focused on growth to one that balances innovation, growth, and profitability. Our results demonstrate the success of those efforts. Not only have we recently accelerated revenue growth, but we've also significantly boosted our non-GAAP profitability while meaningfully accelerating our path to GAAP profitability, plus reducing our net burn rate and outstanding share count. And we've increased annual free cash flow by nearly $1 billion since 2022. All of this illustrates our commitment to operating the company with more discipline, rigor, and focus. And while there's more work to be done, the results speak for themselves. At our investor day a few weeks ago, you got a chance to hear about the new Twilio, including our product strategy, growth levers, and financial framework that we have in place to win a much larger addressable market. As marketing, sales, and customer support converge into customer experience as a service, we strongly believe that Twilio's leading communications platform plus contextual data powered by Segment and our innovations with AI position us to win in this massive market and reinforce our vision that every digital interaction we power between brands and consumers. Well, we provided a lot of details during our investor day. Today, I wanted to take the opportunity to reinforce a few of the key takeaways while also sharing some of the highlights from Q4. On the innovation front, in 2024, we launched 251 products, enhancements, and services. These innovations align to our strategy of building a trusted, simple, and smart platform that enables brands to drive more secure, relevant, and personalized interactions with their customers. Throughout the quarter, we continued to invest in our core capabilities to drive even greater customer value. During Cyber Week, Twilio powered more than 5 billion messages, delivered more than 65 billion emails, and supported 678 million calls, all while delivering 100% uptime. The confidence our customers have in Twilio is stronger than ever, and critical periods like Cyber Week prove to our customers that Twilio has the trusted, simple, and smart platform that they need. During the fourth quarter, we expanded our trusted channels to meet our customers' evolving needs by adding new capabilities to support existing channels, including RCS and WhatsApp. For RCS, we also recently announced that rich content cards, media, and rich card carousels are now available and supported by our content template builder. That helps streamline development. RCS is proving a valuable expansion vehicle for existing customers like MarketBeat, who are able to benefit from Twilio's streamlined approach to development on a single messaging API and our universal template management system. It's also clear that Twilio continues to be at the center of the AI value chain, as we already have 90% of the Forbes 50 AI startups building on Twilio. We continue to drive ROI with our AI-enabled products, benefited from emerging AI companies that chose Twilio as an essential component for their customer engagement layer, and partnered with key AI players in the ecosystem like AWS, Databricks, Google Cloud, OpenAI, and Snowflake. In Q4, conversation relay, which helps simplify the process of building robust AI voice agents, went into public beta. While it's still early, we believe that AI will drive a renaissance in voice, and everyone from enterprises to startups will begin orchestrating new voice experiences that are two-way and personalized. On the Segment front, the AI innovations that went live throughout 2024 are beginning to generate tangible results for our customers. As an example, with predicted audiences, one company realized a 70% improvement in audience accuracy. And in Q4, found an average of four weeks of data science time saved by giving marketers the ability to predict behavior. Emerging AI startups are continuing to build on Twilio. In fact, more than 9,000 companies building in the AI space utilized Twilio services in 2024. Paradox.ai, one of Twilio's AI searchlight winners, is using conversational AI for recruiting and leverages their AI assistant, Olivia, to help with frontline recruitment. Starting as a self-serve customer in 2017, they reached unicorn status in under five years. And today, Twilio powers over 150 million messages a month on their behalf. But more importantly, with Twilio messaging, they've been able to help companies like McDonald's, Workday, and SAP get interviews scheduled in minutes.

Versus the manual process that used to take anywhere from five to seven days. And finally, we're continuing to partner with established AI companies like OpenAI. During the quarter, we helped OpenAI launch calls and WhatsApp messaging through their Twilio-powered number 1-800-CHAT-GPT, which has seen incredible volume since launch. Our innovation strategy and execution continue to pay off, as we were named a leader in multiple analyst reports. During the quarter, IDC named Twilio a leader in its MarketScape: Worldwide Customer Data Platforms focused on B2C users.

And Amdia also named Twilio a leader in two of its reports, the Amdia Universe Customer Engagement Platforms, and the Omnia Universe Customer Data Platforms. With respect to distribution, we continued to focus on our self-serve, cross-sell, international expansion, and our partner ecosystem while also optimizing for scale and efficiency. In Q4, our go-to-market team continued to deliver improved execution, as evidenced by strong large deal activity during the quarter. On the communication side, we closed 78 deals worth $500,000 or more, up 47% year over year. And in Q4, we closed our largest Segment deal ever with one of the world's largest financial services companies. Within self-serve, we saw a continued acceleration in sign-ups, upgrades, and revenue growth, a testament to the improvements we've delivered to our self-serve experience over the course of 2024. Cross-sell and upsell continue to be a massive growth driver. During the quarter, we had terrific wins, including one with a longstanding Twilio voice customer, that's a top health system in the US which operates 33 hospitals. The customer adopted Twilio's RCS messaging, branded calling, and engagement suite in order to increase call adoption, establish a stronger brand presence, and increase messaging deliverability and engagement. Additionally, we also signed a deal with a leading web hosting provider. The company has been a long-time Twilio messaging customer and expanded their use to include Twilio's Conversations API to power two-way SMS and voice channels. With Twilio, the company has integrated the product into their own proprietary unified inbox, giving customers the ability to manage their business communications needs on their smartphone and simplify the communication with their own customers. International expansion and partner distribution continue to help us unlock an underpenetrated addressable market. As an example, during the quarter, Twilio expanded its relationship with Klaviyo, with several SMS deals in European markets. Finally, we are driving our go-to-market strategy more efficiently by leveraging AI and automation, which is built upon Twilio's own technology. In presales, we're using data to lead the identification process, which has shortened sales cycles. Additionally, today, 80% of our new inbound leads are being handled by AI, which has led to a faster sign-up and upgrade process for prospects due to faster responses, multilingual support, and depth of knowledge. Post-sales, our help center assistance have garnered a 75% ticket deflection rate when AI is engaged. I'm proud of how our discipline, rigor, and focus have helped position the company well for the years ahead as we drive strategic customer-centric growth with innovation at the core. In many respects, 2024 was about rebuilding the foundation. 2025 is the year we'll stay focused on executing against our ambitious innovation roadmap to unlock the power of communications, contextual data, and AI. And as we unlock it, every consumer that interacts with the 325,000 plus active customer accounts that we power will benefit. Our strategy is clear. Our execution is focused. And our impact is real. I'm incredibly proud to see the hard work paying off as we enter this next phase of growth and create more value for our shareholders in the years ahead. And with that, I'll turn it over to Aidan.

Thank you, Khozema, and good afternoon, everyone. Twilio finished the year with a strong Q4, delivering our second consecutive quarter of double-digit revenue growth and our first-ever quarter of GAAP operating profitability. For Q4, we generated record revenue of $1.195 billion, which represented 11% year-over-year growth. We also generated record non-GAAP income from operations of $197 million and $93 million in free cash flow. We came into 2024 committed to driving durable growth, continued margin expansion, and increased free cash flow generation. And I'm pleased with our execution throughout the year. For the full year, we generated revenue of $4.458 billion, representing 9% organic growth, non-GAAP income from operations of $714 million, and free cash flow of $657 million. We also completed our prior $3 billion share repurchase authorization, returning over $2.3 billion to shareholders in 2024 alone, and reducing our outstanding share count by 16% since the start of the year. Revenue in our communications business for the quarter was $1.121 billion, up 12% year over year. Messaging revenue growth accelerated for a second consecutive quarter, while email performance remained strong, driven in part by strong volumes during Cyber Week and the holiday season. Political revenue contributed roughly 60 basis points to our reported revenue growth rate. This was partially offset by a 40 basis point headwind associated with sunsetting the software component of our

This will limit free cash flow generation in the first quarter.

That said, we continue to expect to generate strong quarterly free cash flow over the balance of the year, and for the full year, we expect free cash flow in the range of $825 million to $850 million. I'm very pleased with the accelerated revenue growth we delivered in the fourth quarter, as well as our ongoing cost discipline that is driving strong profitability and free cash flow. I'm also encouraged by the innovation we are delivering and the impact new products and features are having both for our customers and on our revenue. We are confident in our plans to drive durable revenue growth, continued margin expansion, and strong free cash flow generation in 2025. And with that, we'll now open it up to questions.

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our first question is gonna come from the line of Jim Fish with Piper Sandler. Your line is open. Please go ahead.

Hey, guys. Thanks for the additional color here following the Analyst Day. Well done again at the Analyst Day. Trying to understand, given some of the macro stuff that's going on, how much of the strength you guys are seeing in messaging and email is due to somewhat this return of the crypto world?

Hey, Jim. This is Aidan. I'll take that question. So, say from a crypto perspective, you know, we do see those customers exhibiting stronger volume, though it's, I would say, nowhere near returning to the levels that we saw from 2020 to 2022. So it's a bit better, but it's relatively immaterial in the grand scheme of things. So not a big driver for the business, messaging, or email.

Alright. And then just it was nice to see Segment here. In terms of, like, while revenue was, you know, a little bit down year on year, if I look at that deferred revenue build, it seems that implied billings was up north of 20% if I get most of that over to that side. Is the Segment business seeing a bottom, or how much is the sort of billings strength attributable to that big deal you referenced?

Yeah. Maybe I'll comment on the back or the RPO, and if Khozema wants to do anything on the business, you can do so. But yeah, both the RPO balance, you're looking at, the CRPO balance, as well. They're really driven by Segment. And so the growth really is driven by a combination of bookings growth as well as the percentage of new bookings that are tied to multiyear deals. What we saw in the quarter was bookings were up a bit, but also that over 50% of the deals that we booked in the quarter were multiyear. And so that's been a point that the team has been working on and focused on, and we're starting to see that kinda show up in the bookings metrics. So that's part of what is driving it. And then I would say, I would note that any of these metrics that you're kinda looking at, any of these deals, that they're twelve months or less in initial duration when you look at the actual metric that you're looking at on the balance sheet. So they're not fully representative of Segment's book of business. So a little bit on the metric. I don't know if you wanna add anything on the business, Khozema.

Yeah. Jim, all I would say is that I think this has been sort of a steady-as-she-goes story. Right? Like, I think that there've been a number of improvements that we made in the business. I think going back to the operating review that we announced, you know, last year, there were a number of things that we wanted to do to improve performance both on the technology and innovation side but also in terms of the way that we are running the business. And I think you're starting to see a lot of that show up in the balance sheet item that you referenced. And I think, ultimately, you know, that will turn into revenue. I think it's gonna take a little bit of time. Revenue does lag, but I think sitting here today, we feel pretty good about the standalone business. I think we feel even better about the way that the Segment asset actually contributes to the overall growth story that we laid out during the Investor Day.

Helpful. Thanks, guys.

Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Michael Turrin with Wells Fargo Securities. Your line is open. Please go ahead.

Hey. Great. Thanks very much. Appreciate you taking the question, and congrats on our return to double-digit growth. Hoping you could maybe just spend some time speaking the ways you aim to ensure the growth improvements you're seeing prove durable. What are you using to build those initial 2025 assumptions? And then what are some of the swing factors we should contemplate that could keep you at the more aspirational double-digit growth level?

Yeah. Maybe I'll start by kinda what we saw in the quarter. I think what's important when we look at the growth in both Q3 and Q4, you know, first of all, it really wasn't driven by political. In Q4, we talked about it being 60 basis points. That was largely offset by the end of life of our software business in

Yeah. There's nothing, Michael, that I would really add. I mean, I think I'd certainly echo all of what Aidan said. I think, you know, when you break it down by some of the channels, like, we feel pretty good about the activity there. I think we referenced during the Investor Day as well as during today's conversation, the fact that we are seeing a number of AI green shoots, I think that's pretty positive. I think the most important part of the story, frankly, is a, that the way that we're kinda tuning and running the place is towards that double-digit number. And so, you know, guidance aside, like, that's the way that we are running the place. And then I think on the other side, there's just a lot of momentum in terms of the number of things that we have underway that's ultimately gonna spring from innovation technology. But, you know, we feel pretty good about the way that things are shaping up, and you know, we just did our Investor Day a couple weeks ago, so we're just a few weeks on from there. And you know, in the context of the framework, like, we feel really good going forward.

That's great. Just as a quick follow-on on gross margin, know that line can move around a bit. If we're looking at Q4, relative to rest of year, is that more seasonal traffic driven, and are you confident in ability to continue deliver some level of gross margin expansion as you progress towards those 2027 targets? Thank you.

Yeah. So what I would say, I'll answer that in two pieces. So in terms of Q4, it's we kinda signaled this a little bit coming into the quarter. We always have higher hosting cost Q4 just given how much traffic is going over the platform. And so we provision for that because it's to us that we maintain trust with our customers and are resilient in terms of being able to deliver, you know, important traffic during things like Cyber Week. So hosting costs were a factor. You'll see if you look from Q3 to Q4 in 2023, that was a similar dynamic. The other thing that happened in the quarter was there was a greater mix of messaging product revenue as a percentage of total. So we talked about the fact that that business was strong. It accelerated from a growth perspective in Q4. And so that had a mix effect as well. As you know, that business carries lower gross margins. Now as we think about the plan for the framework that we provided at Investor Day and that's 21% to 22% operating margin target by 2027. You know, what we said is, you know, that that assumes basically comp gross margins. We aren't assuming an uplift in gross margins to achieve those that framework. Now is there opportunity over time? I think so. When you look at the mix of our products and, you know, how many of them carry software-like gross margins. But I think the reality is in the near term, messaging mix both from a product perspective, planning to roughly flat gross margins over the next several years.

Thanks very much.

Thank you. One moment as we move on to our next question. Our next is gonna come from the line of Nick Altmann with Scotiabank. Your line is open. Please go ahead.

Awesome. Thank you. You guys alluded to large deal strength in Q4, and at the Investor Day, you highlighted how that $1 million plus customer cohort was, I believe, the fastest growing. So, Khozema, can you just maybe talk about the high end and what's driving the strength there? Is that more volume driven? Is it more cross-sell driven? And then my follow-up is when you look at the improvements in the communications expansion rate, how much of that is being driven by those larger deals or the high-end customers? Thank you.

Yeah. So let me just step back for a second. I think that as we look at a lot of these larger deals, it's always gonna be a combination of new land and then, of course, expand via cross-sell. But I think what's really important and interesting for our business is you kinda think back to the Investor Day is that a lot more of our customers are seeing value from using multiple of our products on the one hand, and then I think even more importantly, by using the combination of products especially as it relates to the way in which communications and data interact and then as we start to use AI. So I'd say, increasingly, the larger, more sophisticated cases that we're seeing deployed enterprise customers, they're all kinda heading down that path. But it's always gonna be a combination of, you know, expansion through cross-sell, but there are, you know, a handful of, more than a handful of new deals in there as well. So it's kind of a combination, but I think it's customers increasingly moving towards our vision. Remind me, Nick, what was the second part of your question related to expansion?

Yeah. Just on the communications DBNR, that looked How much of it's driven by larger deals?

Yeah. Yeah. Yeah. I think it's, again, a little bit more broad than that. Like, I think the fortunate dynamic that we're seeing in the business right now is that Aidan alluded to the trends that we're seeing aren't concentrated in any particular area that instead they are broad-based. And so I wouldn't per se point to large deals as being the driver. I would instead say we're seeing it kind of across the board, and that's certainly very encouraging for us.

Great. Thank you.

Thank you. One moment for our next question. Our next question is gonna come from the line of Mark Murphy with JPMorgan. Your line is open. Please go ahead.

Thank you very much. The number of AI customers that you've racked up is pretty amazing. You had mentioned it at the Analyst Day. Wondering if you could shed light on how much of that is tied to authentication or, you know, something that ties into an app download at the front end of the cycle, you know, versus something that might align with an ongoing, you know, AI usage pattern. And then is that AI business driving any tangible tailwind to revenue growth, you know, for instance, is it greater than where the political contribution, you know, tailwind was?

Say the last part again, Mark.

I would say I'll add in to the last Yeah. And then maybe Khozema can take the it's not contributing meaningfully. Like, I'd say it's a mix of different types of customers. Some are really small and just getting started on our platform. Others are larger enterprise customers that are now building different AI use cases. But in terms of the growth rate, it's a mix obviously across a different group, but I wouldn't say it's a huge tailwind to our revenue right now.

Yeah. And I think similar dynamic in terms of use cases. I mean, it really spans the spectrum there, Mark. I think you certainly do have folks that are doing 2FA as a part of it. I think, you know, one, like, really good example, vis-a-vis usage, you know, 1-800-CHAT-GPT. Obviously, that was a pretty cool use case to launch. Saw a lot of volume. I think as well, like, you're seeing a lot of vertical AI startups, like, in a number of different industries that are really trying to ramp up quickly. We see a lot of those companies riding on our infrastructure rails that would be non-authentication, if you will. And so it really kinda runs the gamut. Like, I wouldn't say there's, like, a materially different mix necessarily than the business at large, but I think what's most encouraging about it is, again, the fact that we have as many as we do, the way that we'll be able to grow with these folks over time, think the folks that are in the vertical spaces in particular, the ability to use data as well will enrich those use cases down the road. And again, having broad-based strength here is a good thing.

And thank you for that, Khozema. And a quick follow-up for Aidan. Just curious how commonly do you think we're gonna see that this kind of a huge prepayment? You mentioned the $130 million one recently. Is it should we think of it as being an annual possibility in Q4 if you're gonna be benefiting from some great terms and conditions, or do you think it's gonna be more episodic than that?

I think it'll be more episodic than that, Mark. I mean, we happen to have a large prepayment, and you said $130 million, in Q4. I just think that, you know, as the way we think about it is just given the strength of our balance sheet, this is something we wanna continue to do with different strategic vendors from time to time. It really allows us to secure better unit economics and pricing and better terms for the business. And so it won't necessarily be every Q4 to answer your question directly, but, you know, from time to time in different quarters, you will see these different prepayments. There's always kind of a run rate level in the business every quarter. Like I said, some quarters may be bigger than others. I just wanted to assume it's gonna be every Q4. It doesn't necessarily play out that way.

Very clear. Thank you. Appreciate it.

Thank you. One moment as we move on to the next question. Our next question is gonna come from the line of Ryan Koontz with Needham and Co. Your line is open. Please go ahead.

Great. Nice to hear, you know, some of your progress in the RCS market, some early wins there. As we look at this, how would you characterize, you know, where the market is today? Can it scale? You know, what are the keys to success here? From the industry? Is there multi-operator interconnect working today? Does it work internationally? Can you walk us through just a minute on where we are? Thank you.

Yeah. Ryan, this is Khozema. I'll take that. So I think in terms of where we are, it's incredibly early. I think, you know, again, you know the story pretty well. Like, RCS has actually been around for a long time. I think we're encouraged by some of the early deployments. I still think that, you know, there are a variety of challenges that still exist in the ecosystem. I think interoperability being one of those. That all said, I think that we're ready. I mean, we want to support customers. I think the part of it that we're actually the most excited about is the branded nature of it, the notion that when you interact with the brand, that you know exactly who it is on the other side. And beyond that, I mean, the engagements themselves are very rich, right, in terms of not having to go to an app or a website or what have you. I think, you know, we've talked in the past. I think the utility of it has a limited set of use cases depending on how the RCS works. And so I think where we are on it is very much ready. We'd be excited if it really took off. We're kinda cautiously optimistic about the way that it plays out. I think we view it as being sort of neutral to modestly accretive to the way that we kinda think about things. And in some, you know, very, very early days, I think the volumes that we're seeing, I mean, they're certainly taking off relative to where they were, but it's off a pretty low base.

I assume the Android ecosystem is kinda far ahead of the Apple ecosystem right now?

Yeah. Much much further ahead.

Got it. Yeah. Android. Right. Thanks so much.

Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Meta Marshall with Morgan Stanley. Your line is open. Please go ahead.

Great. Thanks. Maybe you could just give a sense. I know, obviously, you have a lot of existing customers. And you'll get an idea of their business performance by usage. But just kinda what you're seeing kind of on the business environment as we start the year. Just kind of as you go through sales cycles? And then maybe as a second question, on the Segment piece, you know, the net expansion rate still kind of being below 100%. Just kind of when do you expect some of the new wins and traction that you're seeing can kind of help, you know, improve that metric. Thanks.

Yeah. Hey, Meta. I think we feel pretty positive about the business environment. I mean, I don't wanna get ahead of Q1 beyond the guidance that we provided, but I think just generally based on the trend line that we saw in Q4 that customers are ready to engage, they're excited about the products and services that we've got. I think they're very excited about the vision that we've laid out in terms of, you know, the communications plus data plus AI. I think the fact that there are a number of fielded use cases now and products that go with that that they can avail themselves of, I'd say pretty positive on balance. I mean, again, I don't wanna get too far ahead of it. But we feel pretty good about the business environment. I think just one I'll note is we always kinda plan around a neutral macro. So nothing that we've kinda said or and certainly nothing in the business really, I wouldn't take from that that, you know, we're planning for, like, a rebounding macro or anything like that. We're planning for neutral. We'll certainly be a beneficiary of a higher macro. And if it gets worse, you know, we could see us get a clip from that a little bit, but we're planning for neutral.

In terms of net expansion, like, we're not it's not like a metric that we per se run the business to. I would say about it is that when we look at some of the key inputs into the way that we think about the standalone Segment business, I'd say number one, you know, we're seeing a lot more stickiness in terms of the deals because they are more multiyear. Number two, you know, we've done some work on the technology side to get customers activated much more quickly so that they're getting ROI. I think that certainly helps. And then I think three, you know, the way in which it now interoperates with some of the data warehouses which was sort of long a request from customers. Like, all of that is in place, and I think that that all ends up being, you know, good for the business. You sure you heard the question earlier about the balance sheet dynamics with the business. We feel better about where it is. I think it's work in progress. We wanna make it even better, of course. And revenue and the mark or the expansion characteristics will kinda follow all that.

Great. Thanks. Thank you. One moment as we move on to our next question. Our next question comes from the line of Arjun Bhatia with William Blair. Your line is open. Please go ahead.

Perfect. Thank you, guys. Maybe the first one, I'll focus on NRR on the other side of the business, the comms side. The 108 is pretty impressive here. I'd be curious to hear how much of that is improvements in gross retention versus, you know, certainly, there's been a focus in the business and investing in innovation product cross-sell. So the split between that would be interesting to hear. And then how do you expect this to evolve? Is this a sustainable level going forward as some of those initiatives play out? Or, you know, it's Q4 maybe, you know, so there's some seasonality in there that we should consider going forward.

Yeah. I'll take that, Arjun. This is Aidan. So, you know, the comms, DBNR, it accelerated to 108% in Q4. I'd say it generally tracks revenue growth, right, if you look at it over time. But when you break it down, obviously, like I said, we had accelerated growth messaging. We saw strong performance in email. So I'd say from a product perspective, largely coming from there. When you break it down between the different, you know, churn contraction expansion elements of DBNR, churn was low. It has historically been low. Continued to be low. We really saw the improvement by through increased expansion. I'd say a modest reduction in contraction. Like, that's how I'd characterize it. You look at DBNR by our different sales segments, I'd say the two that I would say performed really well were IS as well as self-serve. And we talked about them at our Investor Day. Those are key go-to-market segments for us. They continue to perform well in the fourth quarter as well. And then by industry, it was a number of different industries, but that gives you a sense of how to think about it a couple of different ways. In terms of how to think about it going forward, I'd just say, like, it tracks revenue. We don't guide to this metric, so I'm not gonna provide a specific number. But it'll track largely kinda the revenue trends of the company.

Okay. And you gotta send me a total? And then maybe zooming out a little bit, you know, at Investor Day, we talked a lot about kind of cross-sell as a big driver of growth. And I think you had mentioned you have think 63% of customers are single product. When you think about the cross-sell opportunity, like, how do you bucket it in terms of maybe, like, here's kind of the layout of products that you can sell and like, you know, are there others that are home runs that are maybe longer sales cycles, but where customers could, you know, significantly increase in size. Like, how are you approaching that from a product and go-to-market perspective?

Yeah. Hey, Arjun. That's a good question. I think a couple answers. So one is, you know, we have concentrated incentives as part of the sales incentive plan to make sure that our teams are focused on it. And I think, you know, they're excited about that alignment there. I think second thing, kinda to the real heart of your question, are think the word you used was layups. I mean, it's never a layup, but I think on some of the easier side, if you will, you know, you would imagine that customers their ability to use SMS and email in combination, like, some of the kinda classic channels. Or, you know, if it ever if it if it really took off, like, with RCS being able to kinda reinforce some of that activity with a voice workload afterwards. So I'd say any one of those combinations, I wouldn't limit it to those in the you know, those are pretty attractive. They're gonna end up being shorter sales cycles because they're already plugged into of our communications APIs. We can get customers up and running pretty quickly. We have a number of actually deployed use cases in which customers actually get more value by using two channels at the same time or complementary versus just one. So we can point to a lot of evidence there too where customers getting a lot of value. So I'd say the first part of your question there, like, that's probably on the easier side. I think that said, you know, it's a little bit longer of a sales cycle, but, again, we're incentivizing our teams to make sure that they're focused on this too. That combination of data with communications, like, there's a lot of work that's going on in our R&D team to make sure that in the same way that I described, like, on-ramping a channel, the same way it is as easy to on-ramp data also through kind of a singular or simple set of APIs if it can't be done through one. And I do think we're seeing a lot of interest there. I think it'll take a little bit more time. But the easier that we make it, if we can make it completely self-servable, like, that's really where we're headed with it, and I think that'll start to take off but that'll take some time because of the R&D investment cycle.

Alright. Perfect. Very helpful. Thank you.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Aleksandr

Hey, guys. I wanted to ask just maybe again, we're still early into this whole kinda consistent guidance framework and coming out of the Analyst Day, where you did a great job. Maybe just talk about how much conservatism how you've thought about conservatism baked into both Q1 and as we get through the year. And then just a quick question about that debt expense, the operating income seemed one time that impact in Q4. If you could just add a little bit deeper into that, those would be.

Yeah. Hey, Alex. This is Aidan. So, you know, I think, again, we're really pleased with the performance in the second half of the year. Saw strength across a number of different areas. As it relates to the guide for the year, we're guiding to 7% to 8%. As we said in Investor Day, we're orienting the business for double digits. That's just kinda how we're running the place. But, again, the nature of our business matters. Right? We are usage-based. We're not subscription-based. And so with that, there's a little bit more ball a let a little bit less visibility in terms of, you know, forecasting. As it relates to Q1, you know, regarding to 8% to 9% year-over-year growth. That's a point higher than we guided in Q4. So you are seeing that these trends that we're seeing in the second half or that we saw in the second half of 2024 are positively impacting our forecast. Again, just given the nature of the business, given that it's a fairly dynamic market, we'll kinda continue to plan prudently. As it relates to the bad debt expense that I mentioned, maybe just a little bit more color. So it was a $17 million charge in Q4 related to a Brazilian telecom customer. We really saw a slowdown in their ongoing payment activity. This is a customer, by the way, that we called out in our 10-Q for several quarters. I think what was different is historically, they had been making ongoing payments, which limited our, I'd say, bad debt exposure to partial reserves. This quarter, their behavior changed a bit and resulted in a bit more risk. And so we fully reserved their receivables in the fourth quarter. So it was a bit of an unusual for us was about a 140 basis point impact on our margins in the quarter. But like I said, we're fully reserved on that customer at this point. We don't expect additional charges related to OI, which is the name of the customer, in the future.

Perfect. And then just anything on the competitive environment and the competitive front, as you go forward, particularly as you continue to kind of combine the or level up some of these conversations around the broader platform-based offering?

Yeah. I mean, we feel great competitively. Right? I mean, I think we're the market leader in really important categories. I think you're seeing some of the recent success that we've had, especially in, you know, I think is gonna be really a secular trend around AI. Like, that's very encouraging. You know, we're growing at a faster clip than any of the other guys, and I think we wanna take that strength and not rest on our laurels, but instead convert that energy into new R&D investments, which kinda lead to, you know, a double-digit mentality over time. And I think that's gonna be a really good setup for the business. And I think some of the R&D investments that we're making are really exciting. They're gonna unlock a lot of value for customers.

Thank you, guys.

Thank you. One moment for our next question. Our next question comes from the line of Pat Walravens with Citizens JMP. Your line is open. Please go ahead.

Oh, great. And let me add my congratulations. Aidan, can you remind me how to think about the operating margin ramp from, you know, like, 17% to 18% in 2025 to the 21% to 22% in 2027. I mean, I have 26% pretty flat currently with 25%. Is that the right way to think about it?

What I would say so we've committed to 21% to 22%. You know that given the guide that we gave for 2025, that implies roughly 7.5% in 2025. So you should assume accretion each year. We didn't give specifically, you know, how to think about 26% and 27%, but you should assume that each year we get a bit of accretion on margin rates. So we're going from 17.5% to 21% to 22%. That gives you a sense of how to model kinda 26% and 27%.

Okay. I'll go in the middle. And then, Khozema, where are you can you can you maybe give us some examples of where you're using agents internally. You reeled off a number of areas during the Analyst Day, but where is it where are you finding it's really working? For your own internal log?

Yeah. Good question, Pat. So I think there's two areas where we've seen really a marked difference in the way that we're operating. I think the first would be in customer support where we're seeing a significant amount of deflections as a result of employing AI agents. You know, that's made the workforce a lot more productive, on the one hand, but on the other hand, it's also gotten customers to an answer much much faster in an effectively self-serve fashion. So that's been very exciting for us, and we're gonna obviously continue going deeper there. The other side of it though is with respect to SDRs. So instead of, you know, necessarily attaching inquiry, we're able to vet a lot of those now through, again, AI agents and the reason that one, I think, is even more impactful in some respects is obviously the cost savings, but more importantly, you know, when the rep attaches themselves to the vetted account, it's just that. It's been vetted. Right? So it's a much more high-quality lead so that the rep ends up pursuing business that's probably gonna materialize versus just chasing something that happened to come in.

Great. Thank you both.

Thank you. One moment as we move on to the next question. Our next question comes from the line of Ryan MacWilliams with Barclays. Your line is open. Please go ahead.

Hey, guys. Thanks for taking the question. Love to hear about how you're seeing any changes in the macro, you know, through the end of the fourth quarter or to start this year. And if you notice any changes from a usage perspective, from a geographic standpoint, in North America versus the rest of the world.

I say, hey, Ryan. I'll start. So I'd say nothing I'd call out specifically from the end of Q4 through kinda early Q1. What I will say is for us, you always see a drop-off in volume because you're coming off of a very high holiday season. That's not a tip seasonality of our business. So I don't think there's anything I'd call out specifically US versus rest of world. As it relates to the volumes I'm looking at kinda daily?

Yeah. No. I agree with Aidan. I mean, there's obviously a lot going on. It's dynamic, but I don't think that we've seen necessarily anything that would really impact our business this far.

Perfect. And then, Khozema, you know, VoiceAI, we're still really early days, and I'm sure this is gonna change, like, ten different times over the next few years. But we think about, like, the potential voice AI use cases that would make sense for Twilio, versus might make sense more, like, over the top via, like, Siri or Alexa or something. Like, what use cases do you think or have you seen early days that people wanna use Twilio for and that you guys are the rails for? For your customers. Thanks.

Yeah. I'll give you maybe, like, an anonymized example. I mean, I think that we have customers who are actively in beta and piloting different use cases right now. So basically, I mean, think about it this way. Right? You have a customer who previously may have been using an IVR as the mechanism to handle an incoming workload. And, you know, in many instances, at some point, that IVR is gonna then flip to a human agent who's gotta be able to handle, like, whatever that transactional workload is. And when that happens, you know, the only measure really of what's going on there is cycle time. And not only is it just cycle time because of the fact that that's the case, you know, there's no real opportunity to drive a more interesting, intimate, upsell type of experience. And so the customer that I'm specifically referencing in this case, what they're doing is that they're using the voice product that they were, but layering on top of that, our voice intelligence capability. So all of the traits from that call are getting stored. They're using AI on top of it so that instead of even going into an IVR, the AI agent is handling it from start to finish. In addition to that, because it's an AI agent, you know, you're not paying a person to handle that volume, and so there's no constraint on cycle time. And so you can create that much more interesting and intimate experience. And then finally, what's especially interesting in this particular case is that it allows time for upsell. Right? And so using some of the data that can be referenced from prior transactions and data history with that particular customer, you can use that data to go forward and say, you know, by the way, you ordered XY

That sounds much better than being stuck in IVR hell. Khozema, I appreciate the color.