TWLO - Notes from Q3 conference call

The basic data have already been posted by others - revenue up 68%, retention rate 145% (!), raised guidance for the year substantially.

Here are some detailed information from the Q3 conference call:

At the Engagement Cloud layer, we announced the general availability of our contact center application platform Flex.

This was announced 3) weeks ago. It’s worth a read as this is the company’s strategic product for the future.

At SIGNAL we had Shopify on stage describing how they built and launched Flex for more than 1,000 agents in the course of about five months with three developers and two interns mind you.

This is excellent. This is how you attract new customers. I wished NTNX would do this kind of marketing.

we had two key announcements at SIGNAL: the launch of Twilio and our PCI certification. Accepting credit card payments over the phone has long been a complex and expensive process, but no more. Twilio allows developers to have one line of code to their application to process payments, while using our programmable voice products all in a compliant way. […] PCI, or Payment Card Industry Certification, is a must for any company’s processing, transmitting or storing consumers’ credit card information.

TWLO enters the “war on cash” world. I like that.

At SIGNAL, last year, we announced understand our first foray into the machine learning natural language understanding space to begin our work with customers to unlock this opportunity. And at SIGNAL, this year, we launched Autopilot, the next evolution of this product with a Natural Language Understanding engine, a conversational platform and an omni-channel hub.

As much as I personally don’t like support chat bots, TWLO’s customers will surely love to employ them. How effective they will be remains to be seen.

We also took an exciting step toward the future of wireless connectivity by launching the nation’s first developer platform for the emerging narrowband connectivity market, or NB-IoT, in partnership with T-Mobile. You’ve heard me mention in the past what we see coming with NB-IoT and how it has the potential to increase the addressable market for devices exponentially.

I wouldn’t expect much to come from this. Everybody and their dog provides an IoT platform. In IoT space it’s having a paying customer base that counts much more than having tech.

Also, earlier in the quarter, we added Nils Puhlmann as our Chief Trust and Security Officer. Nils is a 20-year veteran of the security industry having served as the Chief Technology Officer of Endgame and Chief Security Officer at Zynga, Qualys and Electronic Arts. He also Co-Founded the Cloud Security Alliance, nonprofit organization, which promotes use of best practices for security assurance within cloud computing.

A good call. Security is always a possible downside I keep in mind. By adding payments to the platform additional security is needed.

We also find a large deal with Medallia in the last quarter. Many of you may know Medallia, they are a rapidly growing cloud software company focused on helping companies build better customer and employee experiences. […] On the enterprise side, we had a great win at a Fortune 500 financial services firm in the past quarter. You may remember our deal with Morgan Stanley last year. We’ve landed a similar opportunity with another bank […] We also signed a new deal with a Fortune 500 medical testing company in Q3. This company is looking to improve their CRM system. And as part of this effort, we’ll be using our messaging platform with an SMS notification for lab work, medication reminders, appointment reminders and more.

The customer base seems to be growing nicely. Given their 145% retention rate I hope they’ll be able to upsell these new customers as well once they’re in.

The top 10 active customer accounts contributed 18% of total revenue in Q3 compared to 17% last quarter and 17% in Q3 of 2017. Our top two customers, WhatsApp and Uber, contributed 6% and 4% of total revenue, respectively.

There are companies who rely on one or two big customers and there are companies with large customer base. Given that 10 customers represent only 17% of their revenue they seemt o be in the latter crowd, which is good.

Gross margins came in above 55% in the third quarter, a bit higher than the range we’ve seen in the past four quarters. I would remind everyone of the same strategy we’ve been discussing since the IPO. We remain focused on doing the right things to grow the business long term rather than maximizing gross margin in the near term. Put simply, we’re not a gross margin expansion story in the near term, so expect fluctuations in our gross margin.

This is a nudge-nudge wink-wink kind of statement. I hope the market does not freak out when they come out with smaller margins in the next quarter.

As far as products go, you just see most of the growth is provided by our core products voice and messaging. Those are our largest revenue items. But we are very excited about products like Flex coming on board and we think in the future will be meaningful drivers of that as well.

They want to move to more diversified product offering but are not quite there yet. Again, their retention rate shows they are on a good way.

Q: If we presume 80% gross margin for software and 55% for usage, Flex will be around 70% gross margin. So I was just wondering whether that makes sense or in general if you can comment whether Flex will be gross margin accretive?
A: Yeah, absolutely. So you are thinking about the right way and your numbers are definitely in the range. Flex, it will be accretive on the gross margin basis. Just keep in mind we just going GA this quarter, so it will take time to roll out and have an overall impact.

So their gross margin might be down next quarter but should expand in the next year, depending on the success of Flex. Something to keep a close eye on - if the stock price dips in Q4 because of GM but Flex seems to be expanding well, I’ll buy some more shares.

When we launched Flex back in Q1, actually one of the demos that we gave was in IoT integration, because something we are hearing from customers who are deploying IoT use cases is that when they need support having diagnostics and having data about these devices available to agents is critical.

Interesting, so they do have customers that want IoT connectivity. Something might come out of this after all, though I’m not convinced until I see hard numbers.


Wow! So they accelerated to 68% growth.

Any idea how much impact acquisitions had on that number? I know they have made a number of them recently but the big one, Sendgrid, I don’t think was included yet.

I don’t find communications very exciting but this is clearly a company that is excecuting superbly in an underserved market.

Definitely will be adding to this one, long term keeper here.


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Any idea how much impact acquisitions had on that number?

None. Sendgrid was acquired after Q3 ended and the company they bought in Q3, Ytica didn’t make much impact on customer base.

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