TWLO - NYSE

Good day and thank you for standing by. Welcome to the Twilio First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bryan Vaniman, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us for Twilio's first quarter 2025 earnings conference call. Joining me today are Khozema Shipchandler, Chief Executive Officer, Aidan Viggiano, Chief Financial Officer, and Thomas Wyatt, Chief Revenue 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-K and our forthcoming Form 10-Q. 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 and Aidan, who will discuss our Q1 results, and will then open the call for Q&A.

Thank you, Bryan. Good afternoon, everyone, and thank you for joining us today. Twilio had a strong Q1, reaching $1.172 billion in revenue, a 12% increase year-over-year. This marked another quarter of year-over-year revenue growth acceleration and double-digit growth. We also delivered another solid quarter of non-GAAP income from operations and continued to generate meaningful levels of free cash flow. I'm very pleased with our solid execution in Q1, and I'm encouraged by the momentum we've established to start the year. Our commitment to operating with more rigor, discipline, and focus continues. And, all things being equal, I feel good about the setup for Q2 and the remainder of the year. Clearly, it's a dynamic macroenvironment, and while we have not yet seen any notable adverse impacts to our business through the end of April, we're continuing to monitor the situation closely. In the meantime, we're focused on what's in our control. On the innovation front, we're laser-focused on shipping great products from a single platform that are purpose-built for today and for the future that AI is creating. In go-to-market, we're continuing to make good progress with our key growth levers, including ISVs and self-serve. We also saw solid growth in cross-sell as well as multi-product adoption. And, finally, we're focused on taking care of our customers by ensuring the Twilio platform will aid them in creating enriching relationships with their own customers. In fact, recent conversations validate that during these uncertain times, our customers are leaning on the Twilio platform to drive revenue, recognize further operating efficiencies, and ultimately deliver higher ROI. During the quarter, we released a number of new products and introduced new partnerships to help customers realize the full potential of the Twilio platform. Today, we're at a major inflection point across industries, where Twilio is at the center of the technology value chain, helping our hundreds of thousands of active customer accounts capitalize on the profound shifts in the age of AI. For example, our new Conversation Relay product is proving to be a key tool in helping developers easily build AI voice agents. In Q1, we entered into a partnership with ElevenLabs, an AI audio research and deployment company, bringing premium, natural-sounding voices to Twilio's Conversation Relay. With this collaboration, brands can now gain access to over 1,000 voices across 40 languages, delivering low-latency, high-fidelity conversational experiences. Cedar, the leading patient financial experience platform for healthcare providers, recently announced that their new AI voice agent, Kora, was built using Twilio's Conversation Relay. With Twilio's technology, Cedar projects Kora will automate 30% of inbound calls by the end of 2025. Additionally, Conversation Relay became HIPAA-eligible, supporting healthcare use cases. With all of the new AI workloads we've released, customers are using these AI-enabled voice capabilities to unlock more value. We also introduced a new voice intelligence feature that's powered by generative AI called Generative Custom Operators, which allows brands to use natural language to describe what you want to understand from customer interactions. While it just went into public beta a few weeks ago, we're excited about the opportunity to help customers automate complex tasks, as we've already seen customers deploy a variety of use cases spanning custom call scoring, conversation topic detection, compliance monitoring, and tailored summarization. Twilio continues to receive high praise for our innovation. This quarter, Twilio was recognized as a leader in the IDC market scape, worldwide CPaaS 2025 vendor assessment, and a leader by Omdia for its CDP universe leadership. And in a few weeks, we're hosting our user conference, SIGNAL, where we'll share more details on our innovations across communications, data, plus AI, and new partnerships that will fuel our aggressive roadmap. The growth acceleration that we delivered in Q1 reflects a combination of continued progress across our key go-to-market levers and the overall broad-based strength of our business. Additionally, we saw customer enthusiasm for our AI products and software add-ons. During the quarter, we had notable wins across Twilio. We landed an eight-figure deal with a leading identity and access management platform to continue leveraging Twilio messaging for two-factor authentication. And we signed a segment partnership with the Chelsea Football Club, who will use Twilio segment to create highly personalized experiences for its 615 million strong global fan base. During Q1, we saw solid traction with our ISV customers as this cohort delivered another quarter of strong revenue growth. As a result of our superior reliability, ability to scale globally, and value-added software add-ons, we're continuing to see success in landing competitive takeout wins with new ISV customers, including Ylopo, a real estate digital marketing platform that's leveraging Twilio's voice to enhance its calling capabilities, and TextUs, an SMS engagement company that has consolidated all of their messaging traffic onto Twilio. In self-serve, we're leveraging AI to help builders get started on our platform faster. This quarter, our AI-enabled technology and automation that we developed in-house drove significant efficiency for our sales team and better experiences for customers. In Q1, we handled 85% of inbound leads with AI and also used ESA, our AI assistant, to serve as a personal concierge post-sales by helping customers set up their accounts and encouraging new customers to upgrade to a paid account. As a result, customers that engaged with our AI assistant were 3x more likely to upgrade from a free trial to a paid account. As we continue to make it easier for builders to get started on Twilio, we're seeing AI startups, particularly those with AI voice needs, bring their workloads to us. One example that helps bring this to life is bland.ai, an AI agent platform. The integration provides the scalability and reliability bland.ai needs to support larger and more complex customer engagements. Bland.ai originated as a self-serve customer from a single developer sign-up just a few quarters ago. By leveraging our targeted activation and expansion strategies within self-serve, we've scaled this customer into a significant account. In summary, I'm very pleased with the hard work of our team and our Q1 results and equally excited about the future. We're demonstrating that we can drive improved top-line performance with continued operating leverage and strong cash flow while delivering meaningful product innovation. As we continue to execute against our plans, we'll continue to partner with our customers and help them unlock the power of communications, contextual data, plus AI. And now, I'd like to turn it over to Aidan, who will walk you through our financial results.

Thank you, Khozema, and good afternoon, everyone. Twilio had a strong start to 2025, delivering our third consecutive quarter of double-digit revenue growth and year-over-year growth acceleration. For Q1, we generated revenue of $1.172 billion of 12% year-over-year, record non-GAAP income from operations of $213 million, and $178 million of free cash flow. Revenue in our communications business for the quarter was $1.097 billion, up 13% year-over-year. This was driven by the continued progress we're making across our go-to-market growth levers, including ISVs, self-serve, cross-sell, and international expansion. We also saw strong growth in messaging, both in the U.S. and internationally. Segment revenue for the quarter was $76 million, up 1% year-over-year. We are seeing continued improvement in leading indicator metrics, including AE productivity and win rates, as well as a meaningful reduction in churn and contraction in the quarter, which hit its lowest level since Q1 2023. Our Q1 dollar-based net expansion rate was 107%, reflecting the improving growth trends we've seen in our communications business over the last several quarters. Our dollar-based net expansion rate for communications was 108%, and the dollar-based net expansion rate for segment was 94%. We delivered non-GAAP gross profit of $602 million, up 6% year-over-year. This represented a non-GAAP gross margin of 51.3%, down 270 basis points year-over-year and 60 basis points quarter-over-quarter. The year-over-year decline in gross margin was primarily driven by non-recurring hosting credits we received in the year-ago quarter, as well as a higher mix of international messaging revenue and communications in the quarter. The sequential decline was driven by the acceleration in international messaging in Q1. Despite the mixed effects on gross margins, international unit economics remained strong. Non-GAAP gross margin for communications was 49.8%, and non-GAAP gross margin for segment was 74%. Non-GAAP income from operations came in ahead of expectations at a record $213 million, up 34% year-over-year, driven by strong revenue growth and ongoing cost discipline. Our non-GAAP operating margin of 18.2% was up 300 basis points year-over-year and 170 basis points quarter-over-quarter. In addition, we generated $23 million in GAAP income from operations. Non-GAAP income from operations for communications was $277 million, and non-GAAP loss from operations for segment was $2 million. Segment operating losses improved sequentially as a result of ongoing cost discipline and gross margin improvement in the quarter, and we remain on track to achieve break-even non-GAAP income from operations for segment in Q2. Stock-based compensation as a percentage of revenue was 11.9%, down 120 basis points quarter-over-quarter and 330 basis points year-over-year as we continue our efforts to reduce equity compensation. We anticipate a modest increase in this percentage in Q2 due to the timing of our annual refresh grants. We generated free cash flow of $178 million in the quarter, despite making a $122 million payment related to the payout of our annual cash bonus program. This headwind was partially offset by strong collections and timing of payments during the quarter. Finally, in January, our board authorized a $2 billion share repurchase program expiring at the end of 2027, and we are targeting to return an average of 50% of our annual free cash flow to shareholders from 2025 through 2027. We began executing on this program following our Q4 earnings release in February. We repurchased $130 million of shares in the first quarter, and we executed more than $90 million of additional repurchases in April. Moving to guidance, we're encouraged by the growth acceleration we've delivered over the last three quarters, and as we look ahead, we're optimistic about our ability to execute against the things we can control. And we're also mindful of rising macro uncertainty and the potential impact it could have on the health of our customers, businesses, and our own. As Khozema mentioned, we have not seen any impact on our business through the end of April, and we'll continue to monitor the situation closely. Customer engagement and usage remain healthy, but we're taking a prudent approach to our outlook and only following through a portion of our Q1 beat into our full-year outlook, allowing us to navigate any potential macro risk over the balance of the year. For Q2, we're initiating a revenue target of $1.18 billion to $1.19 billion, representing year-over-year growth of 9% to 10%. Based on our Q1 performance and Q2 guidance, we're raising our full-year 2025 organic revenue growth guidance to a range of 7.5% to 8.5%, up from 7% to 8% previously. Turning to our profit outlook, for Q2, we expect non-GAAAP income from operations of $195 million to $205 million, reflecting incremental costs associated with our annual merit increases, along with expenses for our SIGNAL conference, which we're hosting later this month. We're also raising our full-year non-GAAP income from operations to the range of $850 million to $875 million. Similarly, we're raising our full-year free cash flow to the range of $850 million to $875 million. I'm very pleased with the accelerated revenue growth we delivered in the first quarter, as well as our ongoing cost discipline that is driving strong profitability and free cash flow. We had a strong start to the year, and we will continue to focus on what we can control as we seek to drive durable revenue growth, continued operating leverage, and strong free cash flow generation throughout 2025. And with that, we'll now open it up to questions.

Thank you. [Operator Instructions]. Our first question will come from the line of Meta Marshall from Morgan Stanley. Your line is open. One moment for our next question. Next question will come from Michael Turrin from Wells Fargo Securities. Your line is open.

Okay, great. Thanks. Appreciate you taking the question, and nice job with the results. I think the overall question is just tied back to some of the items you're mentioning, specifically on drivers of upside to growth in the communications segment you saw in Q1, and then just in terms of lining up what we have Q1 and Q2 with the rest of your guidance. The second half is sort of a more conservative growth assumption. I'm wondering if that compares, if there's anything macro embedded there or just anything else for us just to consider as we work throughout the course of the year and are updating our models accordingly as well. Thank you.

Sure. Yes, so in terms of starting with Q1, I'd say it was similar to what we saw in Q4 and Q3. It was pretty broad in terms of the strength that we saw across the business. It was our third consecutive quarter of double-digit revenue growth. Messaging in particular was strong, both U.S. and internationally. And when you look at it by industry, we saw all of our top five verticals grow, financial services, tech, professional services, retail, e-commerce. And we saw those trends continue through April. And so you're seeing that kind of influence our guidance for Q2. We're guiding to 9% to 10%. That's up from 8% to 9% last quarter. Now, while customer engagement, usage of our products remain healthy, we are taking a prudent approach to our forecast. And we only flow through a portion of our Q1 revenue beat, which we think allows us to navigate macro risks as we think about the balance of the year. To be clear, we're not trying to signal that the second half looks weaker today than it did when we gave guidance a quarter ago. The implied reduction in the second half revenue is simply conservatism related to factors beyond our control. So that's kind of what you're seeing there, Michael.

Our next question will come from the line of Nick Altman from Scotiabank.

Awesome. Thank you. Khozema, I wanted to ask about the resurgence in voice driven by generative AI. You outlined conversation relay, a win with Sierra, and then some new voice intelligence features, which is all really interesting. Can you maybe just talk about how you see voice playing out over the medium term? I mean, today, it seems like it's more of a driver on the generative AI native customer side, but perhaps you're seeing greater interest from some of your longtime customers, which can surface cross-sell opportunities. So any broader thoughts on the resurgence in voice would be great. And just kind of any medium term, high level thoughts as you guys start to see kind of more voice traction here. Thank you.

Yes, sure, Nick. I mean, I'd say by and large today, what you're seeing play out is really animated by AI. Like the voice still has some of the hangover, right, from robocalling and stuff like that in terms of like a pure play channel. But as it relates to AI, so many of these interactions take place through voice that I think that's what ends up driving a lot of the recent resurgence, a lot of the interest. Obviously, you've got thousands of startups who are building their own voice AI capabilities. And so I think that's pretty exciting and very interesting for the channel. So I think that that is kind of the basis of really what we're seeing. And I think we're seeing it in a number of different pockets. I think that what's exciting for me about it is, is that much in the same way that you saw for the preponderance of our business, that's going to end up translating into more meaningful interactions through SMS and email over time as well. So I think voice is interesting, at least right now, and I think it will be for a sustainable period of time. But I think even more interesting is some of the cross-channel applicability that goes beyond that. One last thing I'll add is, you know, we talked a little bit about, I think Thomas did during our Investor Day, about how customers see higher ROI when they use multiples of our products. And I think one other anecdote with voice there is, is that we do see much higher ROI with customers when they're using voice in conjunction with one of our other channels. And so we have seen some ongoing and increased, I would say, customer interest along those lines. And so I think that's pretty interesting too. And then finally, as branded really takes off, I think that's ultimately what becomes the defense against stuff like robo. And I think that allows the channel to kind of come back overall.

Our next question will come from the line of Meta Marshall from Morgan Stanley.

Maybe first question, just can you give a sense of, you've seen this uptick in kind of multiproduct adoption, just kind of where you're seeing kind of that greatest attach. And then maybe second, just particularly with these ISV relationships expanding and kind of continuing to have better growth kind of internationally, just does it change your perspective on kind of what markets internationally are the most attractive? Thanks.

Hey Meta, it's Thomas Wyatt here. So just to touch on the multiproduct adoption, we're seeing it broadly both in terms of customers adding second and third channels. For example, if they were voice, they're adding messaging and email and a lot of consolidation of spend there. And the other big area that we're seeing it is the add-on software, the advanced features on our voice products, as well as our messaging, like SMS pumping protection and verify are growing much faster than the company average. So those combination is really what's driving a lot of the cross sell and solutions motion. And then in the ISV channel, we're definitely seeing more expansion. Again, another example where Khozema mentioned before around voice, a lot of our ISVs that were primarily messaging customers are now adding voice for customer care use cases, as an example, and broadening out their spend with us. And that's happening in international markets as well as domestically.

Our next question will come from the line of Mark Murphy from JPMorgan.

It's nice to see the revenue acceleration in this kind of environment and coming with the margin expansion. So congrats on that. Khozema, I wanted to ask you on the communication side, it's great to see all these multiple new AI logos, and I think especially Sierra, because it's just a coveted logo in a high growth company. Can you help us understand in a case like that, how exactly are they using Twilio? What I mean is, is it tied to the front end of the launch cycle through authentication, or is it something that's going to align more with ongoing usage, whether it's for Sierra or for other AI companies? And I have a quick follow up.

Yes, good question, Mark. So it varies a little bit from customer-to-customer. I would say that in the majority of use cases, especially as companies are getting started, they are very eager to get their products out into the marketplace. They need infrastructure, and our voice infrastructure is obviously very strong. And because of our well-known brand and our high quality, I think a lot of these AI companies end up attaching themselves to our voice stack. So I would say that that is like a very initial kind of entry point where customers attach themselves. Thomas alluded to another one of them, which is once they start using it, a lot of these companies end up being voice AI agents. Voice intelligence is very powerful in that environment. Like a lot of these deployments end up being customer care. During the course of those customer care engagements, you obviously do want to learn a lot about those interactions so that you can end up serving your consumer base a lot better over time. And so I think that provides an avenue for us effectively to cross-sell voice intelligence and then fundamentally incorporate more of our segment capabilities over time, too. And then I would say kind of the third version of it is, and this is sort of on the other side of the continuum, but increasingly where we're getting excited as well is where a customer, and this is kind of irrespective of channel, but I'll just stick with voice right now, where they're using voice, they're using our unified profile vis-à-vis segment, and then whether it's our technology, whether it's one of our partners' technology, they're combining it with AI to be able to put their own capabilities out there in the world. And like Cedar, which was one of the customer references that we provided this time, I'd say they're a very good example of being able to solve patient care in their environment by using that full string of capabilities.

Okay, that's very helpful. And then Aidan, I was listening closely to all your comments on the macro environment and appreciate the way you're handling kind of the de-risking going forward. But when we think about transactional volume levels, there's obviously a lot of companies having issues. JetBlue, Southwest, Delta, Starbucks, McDonald's, Lululemon, shipping freight is down. So, I mean, I'm just trying to understand, are you not seeing any impact of less consumers taking flights or less people dining out or anything like the transactional confirmation messages, even the marketing messages via email or because I think you said even in April. Are you saying there is some slowdown there, you're just making up for it in some of the stronger vectors?

No, we're not seeing a slowdown, Mark. And obviously, different industries make up a different portion of our revenue. I'd say travel tends to be one that's a bit smaller in terms of our overall revenue mix. But we're obviously looking at the business in depth daily, daily volumes by country, daily volumes by industry, by sales channel, by customer level kind of trending. So it's really grounded in data and it incorporates what we're seeing through April. And it's still quite robust, but we know that we're operating in a nuanced environment for sure. And given that, we believe it's prudent to build in a sensible amount of conservatism. And that's what you're seeing in the back half of the year, right? We only flow through a portion of our Q1 revenue beat. We're not yet seeing impacts on our business, but we're watching it very, very closely.

Our next question comes from the line of Alec

I guess maybe a quick one for me is, maybe just double down or double click on some of the gross margin headwinds that you saw in the quarter. And I asked about that because if I look at the delta this quarter between gross profit dollar growth and top line growth, it's a lot larger than we've seen in the last few quarters. So I know that we usually don't kind of talk about guiding to that metric going forward. But just given that divergence, I want to understand if it's possible, how do we see that trending over the course of the next few quarters such that better kind of appreciating. Kudos to everything you guys have done on the operating margin front. It's been amazing. But just wanting to, understand kind of quality of revenue as we look quality of revenue dollar growth as we look at the rest of the year, how that should shape and float based on what you're seeing today.

Yes. Let me describe a little bit what happened on gross margin. So, importantly, we continue to be disciplined in the pursuit of the business that we go after, including maintaining price discipline. And we look at unit economic threshold. And we shared some of that at our Investor Day earlier this year. The lower gross margins in the quarter were primarily a function of two things. So we had some non-repeat of hosting credits that occurred in the first quarter of last year. And then we had higher international messaging mix. And that's a growth priority for Thomas and the team. We know that we're underpenetrated from an international perspective. So that's a focus for the team. And we saw good performance there in the quarter. And in particular, we saw that this is the first quarter in over two years where international termination that's increased year-over-year versus the U.S. So you're seeing that kind of impact the gross margins. As we think about it going forward, so long as messaging makes up more than half of our revenue, it's going to be the primary driver of gross margins in any given quarter. Over time, as we cross sell into non-messaging products, as we continue to innovate, we do think there's an opportunity to expand to higher gross margins. But in the near term, like messaging will be the factor. And it's really a function of where our customers are terminating their messages, which we don't have control over.

Got it. And just any trends to kind of walk through in terms of how to shape that for the rest of the year?

We don't guide to gross margins. So there will be a little bit of variability quarter-over-quarter. I'll just say, again, it comes down to messaging and termination mix. But we don't give a forecast on gross margins.

Our next question will come from the line of Joshua Reilly from Needham.

So I guess, what are you seeing in terms of carrier support for RCS messaging outside the U.S. versus here domestically? And maybe any thoughts on how this channel will scale between the U.S. and international markets?

Yes, I think it's relatively early days still. I think we're investing from our perspective in the channel. We are seeing a little bit of customer adoption. My guess is that you personally don't receive a lot of RCS capable messages sort of in the rich context that has been promised. I mean, they're labeled a little bit differently, especially on an Android device. But in terms of the rich capabilities, those aren't really coming across yet. I think they're compelling, obviously, if they really start to kind of take off. And I think we are seeing some instances in which when you pair it both with branding as well as some of those rich capabilities, it does deliver a pretty awesome experience. All of that said, I think that from our perspective, we're cautiously optimistic about the way that that ends up contributing over time. I think it's really the ecosystem that's got to mature. Carrier support is in different places, I would say. Apple is in a slightly different place in terms of the way that it ends up working with iOS. And so I think until such time that there's broad supportability from carriers, which there's not yet, until there's kind of broad support from various other technology ecosystem partners, which there's not yet, I think it's still going to be relatively muted. But I think over time, there's potential there. And again, we've talked to a number of investors about this over the years. We're cautiously optimistic. I do think Twilio with communications data and AI is well positioned when that time comes. But that's kind of where we are today.

Got it. That's helpful. And then just a quick follow up on free cash flow. How should we think about the linearity for the balance of the year here and any factors we should be considering as we balance out our models? Thanks, guys.

Yes. So as it relates to free cash flow, we increased our guidance range for the year by 25 million. So it's 850 to 875. We delivered $175 million in the first quarter was slightly better than expected, but a relatively lower cash quarter just given the timing of our bonus payouts. As we think about Q2, we would expect we did see some working capital tailwinds in Q1. That was what drove kind of the slightly better than expected performance. I'd expect some of that to come back in Q2. So I would expect Q2 free cash flow to be more in line with Q2 non-GAAP income guidance. And then as you think about the balance of the year, you could you could obviously then do the math on what it implies for the second half, given the 850 to 875 for the year.

Next question will come from line of Samad Samana from Jefferies.

Hey, guys, this is Billy Fitzsimmons on for Samad. A two-part question here. First, it's been a little over two years since we saw this level of active customers added quarter-over-quarter. Can we kind of break down what's driving that? Khozema, was that primarily a result of the AI self-serve investments you made and called out in the prepared remarks with that ISP momentum, with that strength of adding new logos, something else or kind of all of the above? And then, second and kind of expanding on that, and I'm not asking for guidance here, just generally and qualitatively. To what extent did the macro dynamics in early April, so early second quarter, that we're seeing other companies call out impact or not impact? What's the momentum you're seeing with getting new customers on the platform?

Hey, Billy, this is Thomas here. I just want to touch on the first part of the question, which is the where we're seeing the customer growth. And absolutely, we are really pleased with the growth we had in the quarter. Although, we have 300,000 plus customers. So a lot of our revenue comes from the existing customer base. But we've seen the self-service channel is really accelerating. And we touched about a lot of the reasons why. Some of that is the AI startups and some of it is just a lot of people are building more voice enabled applications and they're using Twilio to do it. And some of those are larger direct customers of ours as well that are new. So our new business machine is working better than it's been in years. And so we're pretty excited about the momentum from customers perspective.

Yes. And as it relates to April, I'll just kind of reiterate what I said before. We're looking at the business on a number of different dimensions. We're really not seeing any kind of slowdown relative to the macro. It's grounded in data through yesterday and it incorporates kind of, again, country views, industry views, customer level views. So that's the latest we have. We're continuing to monitor it, monitor it daily, just given the usage base nature of our business. But there's really not anything I'd specifically call out through April.

Our next question will come from the line of Jim Fish from Piper Sandler.

One of your ISVs announced their own CEP solution and it kind of brings in the competition question, I guess. How are you framing this relationship now and that it won't disrupt the segment strategy while keeping everybody happy on the API side of things?

I don't think it's going to disrupt it much, honestly. Like, I think there's always been competition in the space in a number of different ways. And I just don't think it's like a material dynamic in the way that we think about the business. I don't think it's material in the way that we think about our forecasts with customers. And it's obviously our job to make sure that we're providing compelling solutions. But in terms of impact, I think it'd be pretty de minimis.

Got it. And Aidan, for you, just on capital use here, we're roughly 2 billion net cash. You guys have said, hey, we want to be smart about how we use it and kind of earn the right around M&A. But as you think about that international arena around messaging in particular, does it start to make sense to look into tuck in there to get you a stronger foothold internationally on the message routing side? Or how do you think about even accelerating the buyback opportunity given sort of the market reset? Thanks, guys.

Yes. So from a buyback perspective, we've been out in market. We've to date year-to-date, I'd say, purchased $220 million plus. I mean, $225 million worth of shares back. We have some flexibility in the timing of that as it relates to the $2 billion authorization that goes through 2027. So we're in market and we disclose those numbers. So we'll continue forward there so long as we think it makes sense and is attractive for the company. From an M&A perspective, we kind of talked about it at Investor Day as well. We're being opportunistic from an M&A perspective. There's nothing in particular that will signal today or call out. We're always looking at what might make sense for the business, but we'll be disciplined, really focused more right now on kind of tech or talent tuck-ins to help accelerate our roadmap. But nothing more really to offer beyond that today, Jim.

Next question will come from the line of Arjun Bhatia from William Blair.

Congrats on the nice start to the year. One question for you, Khozema, if we just zoom out for a second, I think Twilio has evolved quite a bit over the past several years. Now, if we go into this more volatile macro environment and we do start to see consumption trends and transactional volumes get impacted, how should we think about Twilio in terms of the use cases that you're powering now? Like what portion, whether qualitatively or quantitatively, is more sticky, more strategic, more recurring versus a portion of your usage that's maybe a little bit more susceptible to macro, maybe something like the vector authentication? I'm curious how you would break apart the business along those two dimensions there.

Yes. It's a fair question. I mean, I guess I'll give you as much color as I can. I think, first of all, just to kind of reiterate a point that Aidan's made a few times, like at least through April, we haven't really seen any impacts to the business. No one here is pretending that there wouldn't be any impacts if the economy kind of went in a really different direction. But at least based on the trends that we're seeing in our business, we're just not seeing it materialize yet. I think there's going to be puts and takes depending on how it plays out. I mean, I think the one thing, and this is not the perfect analogy, so just bear with me. But if you look back to what transpired during COVID and a lot of companies were forced to change their engagement models and the ways in which they were kind of deploying, we were obviously a beneficiary of that. Now, a lot of that was driven by moving from sort of the physical world to the digital world. But the reality is that companies have to engage with their customers in some form or fashion to be able to sustain their own businesses. And so to the extent that we're super tied to transactional volumes and those begin to fall, yes, I mean, I think we would probably see an impact to our business in some ways. On the other hand, I do think that there's also an opportunity for, especially in the age of AI, as a lot of things are starting to happen, there's also an opportunity for elevated volumes as it relates to things like customer care, where you're using a combination of voice and our unified profile and some AI to kind of activate. So I think it's kind of balanced going forward. I mean, we're innovating on sort of the basis that the macro is going to be hard to call and we're going to kind of plan for the things that are under our control. But I think it's a mixed bag and I do think that there are going to be some puts and takes and we're not macro economists ourselves. And so that's why we're watching it all carefully. But, so far so good. And I think based on the stuff that we've got, I think there's a real opportunity for it to kind of play out in that way, too. All of that said, we obviously put out a financial framework and we feel pretty good about it. And we're going to make sure that we manage the business with discipline. And you'll continue to see that from us going forward.

Okay, perfect. That's helpful. Thank you. Just maybe a question on the cross-sell motion. Clearly, it's something you're focusing on and you're incentivizing your sales team to go after that motion. I'm curious how the sales team is reacting to it, how well equipped you feel they are to sell other products like Verify and others, and how that's impacting the size of customer that you're going after, you move up market into the enterprise. Any color there would be helpful. Thank you.

Yes. So this is definitely a multi-year journey that we're on around cross-sell motion. We just get better at it every quarter incrementally. A lot of it is starting with enablement and making sure that all of our AEs are ramped up on all of the products in the portfolio. And more importantly, though, customers are coming inbound and have a demand and interest in consuming more of Twilio across multiple channels, across some of our advanced add-ons and the features. So that actually makes it pretty easy for the AEs to be able to have those conversations. And then from an R&D perspective, we're putting a lot of investment into integrating the technologies more deeply together to make the experience more frictionless. So like I said, we're seeing really strong growth in the most popular mature add-ons that we have around voice intelligence, Verify, and SMS pumping protection. And we're really excited about bringing personalization in as well from our unified profile capability and connecting that to use cases like we talked about around voice and conversational relay and AI assistance. So we're pretty pleased, but it's a multi-year journey. But we think this is one of the most, I think, productive growth levers we have over the next three years.

[Operator Instructions]. Our next question comes from the line of Patrick Walravens from Citizens.

Oh, great. Thanks. And congratulations on the third quarter of acceleration. So at the Investor Day, you shared with us that for Q3, hopefully I have this right, growth by product was led by email at 11%, smaller products at 10%, messaging 8%, and voice 6%. And then growth by industry was led by retail 14, health care 13, financial services 12, professional services 12, and IT 10. I was just wondering if you could share with us how those things have changed.

Yes, so those were Q3 LTM. We don't provide those quarter-to-quarter. We do provide product to product.

Yes, I don't expect the numbers. Just, if the order has changed.

Yes. I would say that on the industries, we saw strength in those top five. So we called out our top five communications verticals. You mentioned technology, financial services, professional services, health care, and then retail and e-commerce. And in the first quarter, they all grew very well. From a product perspective, I'd say messaging was in particular very strong this quarter. And we saw both U.S. and international messaging grow quite well. So beyond that, I would say pretty much in line with what you saw at Investor Day.

One more point I think it's worth noting, we talked a lot about the growth of self-service in the quarter, which was excellent, but also large deals in the quarter. Our communications business in particular, 500k plus customers grew 37% percent year-over-year. So that's another good motion that we're seeing as well.

Actually, Thomas, this is for you. So how should investors think about competition? So when you have these big deals, how does the competition play out?

I think it's interesting because from a Twilio perspective, competitors, depending on what channel you are talking about, may be different. And so a lot of the conversations that we have around platform and how Twilio can be a partner for the largest brands. We're having a conversation that spans multiple channels and a set of software capabilities that are differentiated. For example, if you want to personalize your communications, really, there isn't any other player that can do that with the combination of what segment can do, plus the communication channels that we do have. So when we think about it, there's always going to be the tactical competitors and individual channels. But our strategy is to really tell the bigger story and differentiate through the capabilities that are more broad. And that sets us up for above average win rates against our competitors.

Our next question will come from the line of Michael Funk from Bank of America.

Great. Hi, this is Matt on for Mike. I appreciate you taking the question and congrats on the strong start of the year. Maybe just one for Khozema. Voice, obviously, transactional and email more marketing driven. But can you help us better understand the breakdown of use case mix across transactional versus marketing in the messaging product line? Thanks.

Yes. So we haven't given that number. What we've said historically, this is Aidan, by the way, Matt. Not that you can tell that from the female voice. We've said it's roughly kind of evenly split between verification use cases, customer notification type use cases, as well as marketing. So roughly a third, a third, a third. And that's kind of roughly the same today.