Twilio Inc (TWLO) 2019 Q4 法說會逐字稿

Good afternoon.

And welcome to Twilio's Q4 2019 Earnings Conference Call.

My name is Cheryl, and I will be your operator for today's call.

(Operator Instructions) I will now turn the call over to Andrew Zilli, Vice President of Investor Relations.

Mr. Zilli, you may begin.

Thanks.

Good afternoon, everyone, and thank you for joining us for Twilio's fourth quarter and full year 2019 earnings conference call.

Our results press release, SEC filings and a replay of today's call can be found on our IR website at investors.twilio.com.

Joining me today are Jeff Lawson, Co-Founder and CEO; George Hu, COO; and Khozema Shipchandler, CFO.

As a reminder, some of our commentary today will be in non-GAAP terms.

Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings press release.

Additionally, some of our discussion and responses may contain forward-looking statements, which are subject to risks, uncertainties and assumptions.

Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements.

A description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10-Q, and our remarks during today's discussion should be considered to incorporate this information by reference.

Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made.

We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law.

With that, I'll hand it over to you, Jeff.

Thanks, Zilli, and welcome to our call today, everybody.

One of the core principles of our culture, the Twilio Magic, is be inclusive.

So in that spirit, I wanted to note that this week kicks off Black History Month here in the United States and of course, at Twilio.

In addition, last week was the celebration of Lunar New Year.

So to all those listening, happy Black History Month and happy Lunar New Year.

Now on to the results.

Our fourth quarter was a strong finish to a big year for Twilio.

Let me quickly touch on a few of the highlights for the full year.

We delivered more than $1.1 billion in total revenue, our first year of more than $1 billion in revenue and a milestone that we are very proud of.

We acquired SendGrid, our largest acquisition to date, bringing a world-class team and product into the Twilio family.

We powered nearly 800 billion interactions.

We ended the year with more than 179,000 active customers, and in August, we hosted our largest ever SIGNAL, where we announced several new products, including Conversations, media streams, SendGrid ads and more.

I spend a lot of time with customers around the world, from start-ups in Silicon Valley, Berlin, Singapore and more to Global 2000 companies reinventing themselves as software companies in finance, health care, hospitality, retail and beyond.

And throughout all of these discussions, there's a common theme.

Companies are looking for new ways to build unbreakable relationships with their customers to build the best engagement experience.

It is still day 1 for most companies as they reimagine their customer engagement, which leads to a generational opportunity for Twilio to help every company adopt digital engagement strategies for their customers.

Our portfolio of leading communications channels, messaging, voice, video, e-mail and more, combined with higher-level application platform products like Flex, is driving deeper, more strategic relationships with new and existing customers alike, who are eager to modernize their engagement strategy.

And even with the success we've seen, we know that this is still just the beginning.

And we know this success wouldn't be possible without our developer community.

They are the builders, the ones who take our platform and create new solutions and lead us into new product areas that continue to drive our growth.

Flex is a great example of this.

And in our first full year with Flex in the portfolio, we are very excited about the progress we've made and the opportunity ahead.

We continue to hear great feedback from customers, including one customer who signed and went live with several hundred agents in less than a month in Q4, who said, "Our prior vendor gave us Christmas presents.

Twilio gave us a working contact center." Our product team has done a great job delivering the features our customers are asking for and in 2019, delivered more than 70 feature enhancements to Flex and complementary products like Twilio Studio.

And this quarter, we're planning to introduce a highly requested feature, the programmable dial pad for outbound calling.

This enhancement will bring outbound dialing at scale as a native out-of-the-box feature to Flex contact center customers.

As you know, 2019 was also the first year with SendGrid as part of Twilio, and we couldn't be happier with the success and trajectory of that business.

And customers are thrilled to have the e-mail channel available as part of their customer engagement toolkit, and we're happy to have it added to our customer engagement platform.

The Twilio SendGrid team delivered a great quarter, both in terms of deals as well as overall performance and scale.

George will discuss some of the customer wins, but I wanted to highlight a couple of numbers from the holiday shopping season.

On Black Friday, we processed 4.1 billion e-mails, which we thought was a lot until we delivered another 4.2 billion e-mails on Cyber Monday, 45% more than 2018.

This is an impressive result and speaks to the success from the entire team in scaling our infrastructure to ensure uptime and deliverability.

I'm proud of the entire Twilio team, which more than doubled in 2019 to over 2,900 employees at the end of the year.

And in November, we were named one of America's Most JUST Companies of 2020, ranking in the top 100 out of 1,000 of the largest publicly traded companies in areas including fair pay, ethical leadership, customer treatment and more.

And more specifically, Twilio was recognized for providing a diverse and inclusive workplace, protecting customer privacy and creating quality jobs.

This recognition is a credit to Twilions everywhere for creating such a strong culture, and I couldn't be more proud.

But as always, I believe this is day 1 of Twilio's opportunity.

We started Twilio with a simple idea, make the complex world of communications simpler.

And by providing a toolset to developers, we've created new software categories in voice, messaging and e-mail communications all over the world.

But as it turns out, that communications platform was just the beginning.

Using our platform, our customers illuminated an even larger act 2 for the company.

It's not just communications which needs to be broken down into APIs and unleashed on the developers of the world to enable their innovation.

No, it's the apps of engagement as well.

We began the next leg of our journey in 2018 with Flex, taking the idea of an application platform into the contact center.

And what we've seen customers build and accomplish in the last 2 years is astounding, reaffirming that when we can help unleash software developers to innovate for their customers, companies win.

We're seeing this response in companies big and small, new and old across nearly every industry.

And now it's clear that while the market opportunity for a cloud communications platform is huge, customer engagement is the even larger opportunity as we move forward.

As we all know, customer engagement doesn't begin and end in the contact center.

It's all of the touch points a company has with their customers from marketing and sales to service and support.

And so in the fullness of time, we envision enabling our customers with our platform approach across all of these software categories, becoming a wall-to-wall platform for customer engagement.

And it's this opportunity that makes us so excited about our future and why we are continuing to invest today to capture more of this massive market.

As I'm sure you've noticed, we have an ambitious investment plan for 2020.

While we could take a profit this year, I think that would have been a wrong decision.

With a generational opportunity to disrupt not just communications but also customer engagement software, the right decision is to invest for long-term growth and market capture, and that's what we intend to do.

Our priorities for 2020 reflect our goal of truly capturing this generational opportunity.

First, we continue to invest in our products to become the leading customer engagement platform trusted by developers and enterprises globally; second, continue to scale our systems and infrastructure to support our customers and enable our employees to do their best work; and third, continue to deliver incredible growth.

We are excited for 2020 and setting ourselves up for the next decade of growth and customer success.

With that, let me turn it over to George.

George?

Thanks, Jeff.

The go-to-market team delivered an outstanding year in 2019 as our investments continue to produce great results.

In fact, for the full year, we more than doubled our number of 7-figure deals compared to 2018, a great sign that we are becoming more strategic to our customers.

We hosted more than 20 Engage and Superclass events around the world and held several Enterprise hackathons, on-site hackathons hosted at a customer's office, where their developers break into teams and build prototypes to solve business challenges.

Our developer relations team attended nearly 400 events and welcomed more than 150 new members into the Twilio Champions Program, where we recognize developers for their dedication to the Twilio platform and community.

And of course, in August, we hosted our biggest SIGNAL event ever.

It was a great year, and I want to thank the entire team for delivering these spectacular results.

We continue to see tremendous momentum in the fourth quarter, so let me highlight just a few of the wins the team closed.

We signed a new deal with PayPal, the global digital payments company with more than 300 million customers.

As their SMS traffic increased, PayPal sought a new mobile messaging platform that would scale with the company's growth.

After attending the Creator Summit at SIGNAL, PayPal selected Twilio as its SMS delivery platform to engage with their customers in a more efficient and cost-effective manner.

This was a fantastic team effort, and we're thrilled to be working with this customer.

We formed a new relationship with a Fortune 50 media company that is using Twilio in 2 different parts of their business: one, replacing an internally developed solution with our programmable video; and two, to power click-to-call services in their proprietary customer experience platform, allowing field techs, agents and management to reach customers quickly and easily and provide higher levels of customer service.

This was also our first full year with Flex, and we are extremely happy with the progress and momentum we are seeing.

Here are just a few of the Flex deals we signed in the quarter.

We signed a new Flex deal with Southwest Airlines, the world's largest low-cost carrier with more than 60,000 employees.

Southwest is integrating Flex with their existing platform, their internal IT help desk, bringing alerts, screen pops, self-service and reporting to their agents, ultimately reducing call volume and total costs.

We expanded our relationship with HubSpot, a leading provider of marketing, sales and customer service software for growing businesses.

In addition to expanding its use-of-voice functionality built into their Sales Hub product, HubSpot is also using Flex with parts of their global sales and support teams to improve productivity and provide omni-channel communications with domestic and international audiences.

We also signed a great new Flex deal with a Fortune 100 company that was looking for a new way to engage with their customers using conversational commerce, but needed a solution that would provide the ability to handle interactions with millions of customers.

Flex was selected to become the backbone of their new conversational commerce engine with plans to ultimately roll out the solution to all of their global experts and in-store employees.

A key focus for us has been expanding our international footprint, where we are strategically targeting named countries with strong developer ecosystems coupled with large software spends.

The international opportunity is tremendous, and our early investments in these regions are paying off.

In fact, in the quarter, we announced the opening of our Paris office, and on the heels of that announcement, we signed a great new relationship with Blablacar, the European car pooling leader headquartered in Paris.

For years, Blablacar, had been dealing with multiple vendors to connect with customers and wanted to consolidate.

Already a great SendGrid customer, they chose Twilio with our extensive super network and easy-to-use SMS API to help them innovate on their customer engagement as they continue to scale.

We also expanded our relationship with Woolworths, the leading Australian supermarket and a Global 2000 company.

Woolworths developed WooliesGO, an application that allows communication between their fulfillment, delivery drivers and customers.

The app uses Twilio Proxy and Twilio Voice for calls between driver and customer, and Twilio SMS for account notifications along with delivery life cycle.

We signed a deal with Rappi, the first unicorn out of Latin America that connects a network of couriers to deliver anything from meals to medications to cash.

They are already a great Proxy, SendGrid and Voice customer.

Now Rappi is expanding to use Twilio messaging for SMS marketing as well as our Verify API to protect their new payment service, RappiPay.

This is a great example of a company building on Twilio, experiencing great success and expanding to more use cases.

We're excited to continue to support Rappi and their outstanding growth.

As Jeff mentioned, we are extremely happy with the performance of Twilio SendGrid in our cross-sell efforts.

We've made great strides in our integration, and during the fourth quarter, we unified the buying process by bringing Twilio SendGrid products onto the same order form as our core products.

This is an important step for streamlining our customers' purchase process.

In addition to the cross-sell expansions with Blablacar and Rappi, we also started working with a Fortune 200 bank.

Like many financial institutions, they are undergoing significant digital transformation and turned to Twilio to help power their new customer communications hub, which will be the front end of communications across banking, credit, mortgage and payments.

They selected messaging and e-mail to turbocharge their customer communication efforts across SMS and e-mail with additional channels planned for the future.

My focus for 2020 remains on expanding our enterprise and international reach and continuing to build out our partner ecosystem.

The early investments in these areas are paying off, but there's still a lot of room for us to go.

Overall, the go-to-market team delivered a great quarter to finish off another strong year.

With our investments over the last couple of years, we are well positioned for 2020 to continue to move up market and build more strategic relationships.

Thanks again to the entire team, and with that, I'll pass it over to Khozema.

Thanks, George, and good afternoon, everyone.

2019 was another great year for the business.

Twilio continues to enhance customer engagement strategies for leading companies around the world and be the communication platform of choice for developers.

Before getting into the numbers, let me quickly touch on a couple of items.

First, we published a quarterly earnings deck, which can be found on our Investor Relations website.

As a reminder, starting with our Q1 2020 report, we will no longer be disclosing separate base and variable revenue categories.

This reporting change will impact our calculation of dollar-based net expansion, which historically was calculated using base revenue.

In order to help with your models, in this presentation, we've provided our historical expansion rates using total revenue back to Q2 2016, the quarter we IPO-ed.

We also provided what DBNE would have looked like were SendGrid included in all prior periods as well.

This is an important view as you consider the combined DBNE rate going forward.

We also provided a slide for revenue that adjusts our Q4 results from the impact from the 2 onetime items in Q4 '18.

As a reminder, those 2 items were related to stronger-than-expected political traffic and the ramp of a large international customer.

We intend to provide a quarterly earnings deck on our IR website going forward.

Now jumping into the quarter.

Q4 base revenue, including Twilio SendGrid, grew 65% year-over-year to nearly $307 million.

Organic based revenue was $253 million, up 36% year-over-year, strong growth against a difficult comparison from last year.

As you've heard, Twilio SendGrid had a great finish to the year, delivering nearly $54 million of revenue in the fourth quarter, up more than 30% over last year.

Total Q4 revenue was $331 million, up 62% year-over-year and 36% organically.

For the full year, we delivered total revenue of $1.13 billion, up 75% over last year and 47% on an organic basis.

SendGrid contributed $177 million since the February 1 acquisition date.

This will be the last quarter that we break out SendGrid revenue separately.

Dollar-based net expansion calculated using base revenue was 124% in Q4.

For the full year, dollar-based net expansion was 136%.

There remained a total of 6 variable customer accounts in the fourth quarter consistent with prior quarters.

WhatsApp represented approximately 6% of revenue in the fourth quarter.

Because we will no longer be breaking out based in variable going forward, we expect to provide WhatsApp's contribution to revenue in 2020.

We finished the year with more than 179,000 active customer accounts.

Revenue from our top 10 active customer accounts contributed 14% of total revenue in Q4 compared to 13% last quarter and 20% in Q4 of 2018.

Gross margins came in at 57% for Q4, consistent with the mid- to high 50s that we've discussed in the past.

It was down slightly from last quarter due to some increased international usage we saw in the quarter, along with the normal puts and takes, including customer, product and country mix, carrier fees, FX and others.

For 2020, we expect gross margins to continue to be in the mid- to high 50s.

Looking at 2020, we are expecting revenue of $1.475 billion to $1.490 billion for growth of 30% to 31%, driven by strength in our core products and continued high growth of newer products like e-mail and Flex.

Importantly, while the Verizon A2P program went live over the weekend, our guidance does not include any revenue benefit or margin impact from A2P fees.

We are also guiding to a non-GAAP operating loss of $50 million to $60 million for 2020.

Let me walk through the progression you should see throughout the year to help with your models as well as talk about the rationale behind these figures.

You can see our guidance of a loss of $22 million to $25 million in Q1, and we currently expect Q2 to show a higher loss given that SIGNAL falls in May this year.

Afterwards, we expect smaller losses in Q3 and then get back to breakeven in Q4.

Now as to the drivers behind these investments, some are transitory in nature that we believe will benefit the business greatly in the long run, and one is a bit more structural.

First, we are opening an R&D center of excellence in India to provide a force multiplier to our R&D efforts.

Getting this office off the ground will drive a good deal of investment in early 2020, but we believe the long-term benefits of these investments are substantial.

Second, we are stepping up our investments in our systems and infrastructure to drive further efficiencies in our internal processes and position us for scale with the anticipated growth in the coming years.

We have discussed our billing system as an example previously, and we have also identified opportunities to enhance the systems supporting our quote to cash, procure to pay and engineering processes with the objective of improving efficiencies and achieving higher optimization in these areas.

This step-up in our investments here in 2020 will ensure infrastructure is ready as we continue to deliver elevated growth.

Third, we are continuing to invest aggressively in our go-to-market team and Flex in particular.

We've maintained efficient sales and marketing as a percentage of revenue.

And as we've said previously, so long as we can continue to make those investments in an efficient fashion, we will continue to invest in this area.

In particular, we see significant opportunities in the enterprise, internationally and in Flex.

On Flex specifically, over the last several quarters, we scored significant wins with digitally native and enterprise customers and we continue to see tremendous interest in the marketplace.

Jeff mentioned the programmable dial pad, and there are also a number of other investments that will add significant features and functionality to our existing products.

Finally, you may recall, I mentioned we were looking at making changes to our stock-based compensation philosophy on the call last quarter.

We've heard investor feedback regarding SBC and dilution, and to address this, we have begun implementing certain structural changes around stock-based compensation.

These changes will take time to flow through the numbers, but we expect a near-term cost that is more than offset by reduced dilution over time.

We're not going to go into detail on these changes today.

However, we believe these changes will help us drive stock-based compensation expense as a percentage of revenue down over time as the company scales.

These investments will enable Twilio to continue to deliver elevated levels of growth, scale the business and create leverage over the next several years.

Before we open the call for questions, I wanted to mention that we plan to hold an Investor Day this year on Thursday, May 21 during our SIGNAL conference in San Francisco.

Stay tuned for more information from the IR team.

To close, 2019 was another strong year of growth and innovation for Twilio.

After a little more than a year at the company, I'm even more excited to be here and help lead this company as we continue to disrupt this massive market and deliver our customers' continued innovation with our customer engagement platform.

Thank you to everyone for joining.

Operator, please open the line for questions.

(Operator Instructions) The first question comes from Heather Bellini of Goldman Sachs.

Great.

I wanted to ask a little bit.

You cited the ambitious plan for investments in 2020.

You talked a little bit about where they're focused with the R&D center in India, for example, but also wanted to ask a little bit if you could share with us some color on how we should think about that increased investment from a direct sales perspective and if maybe you could share kind of the direct sales growth that maybe you had or sales capacity growth you had in 2019 and if you're actually thinking about accelerating that growth into 2020.

And then just a follow-up.

I think, George, you commented about the unified buying process and getting to that between Twilio and Send for Q4.

How significant is that streamlined purchase process?

And how important can it be for 2020?

So Heather, this is Khozema.

There's a couple of questions in there.

So just to take the first one, I wouldn't say there's a step-up per se in our sales investment.

I mean we've been investing in that area pretty significantly over the last couple of years.

We found that, that investment has had a pretty strong payback.

We've been efficient in terms of the way that we've spent that money.

I think we've maintained really strong and efficient percentages in terms of sales as a percentage of overall revenue.

And so I think as long as we see the efficiencies that we've been seeing over the last several years, we're going to continue making those investments.

It has stepped up a little bit from year-to-year over the last couple of years but nothing really markedly.

And I think as we explained earlier in our prepared remarks, I think what we find is that as long as that efficiency exists, as long as it delivers elevated growth, we're just going to keep making that investment.

So that's kind of the first part of the question, and then let me turn it over to George to answer the second part of the question.

In terms of streamlining the sales, the SendGrid, Twilio sales motion, that's gone -- I think that's gone very well.

We had -- we've been integrating the systems and the teams.

We had a plan of integrating the specialist overlay team.

We turned our SendGrid team into an e-mail specialist team.

That has gone very well.

We've actually seen the results of that in some of the deals we talked about on the call.

And then what we've been doing over the last quarter has really been streamlining the infrastructure below that in terms of the order forms and order processing, and I think that our customers are going to benefit from that as well.

So I think that puts us in a very good position for 2020 to do even better on that front.

Your next question is from Meta Marshall of Morgan Stanley.

Great.

In terms of kind of some of the G&A improvements that you've made, just on kind of how many -- like when should we see the impact of that?

And just on completion of a grander review after some of the billing issues last quarter, just kind of any direction as to where those investments are focused?

And then maybe a second question just on Flex and just progress with system integrators, any insight there would be helpful.

Yes.

So there's a couple of things in there, Meta.

Let me just -- let me hit the billing piece of it first, and then I'll kind of talk about some of the other ones.

So just in billing, in general, I'm sure this question is going to come up later.

And I think in terms of whether or not we've seen any issues relative to what we saw last quarter, the answer in short is no.

It is an area that we've obviously made a number of investments in.

Our confidence in that process and in our people is extremely high, and I think any future issues that we might anticipate in that particular area, we do not think are going to have a material impact on any of the guidance that we're providing today.

I would say in addition to that, we continue adding feature and functionality, some additional controls as well to ensure that, that process is robust and continue scaling with the balance of the company.

There's sort of a broader point around systems, process and infrastructure more broadly.

We pointed to quote-to-cash for example.

Engineering tools and systems is another example, and then 1/3 being around procure to pay.

I think these are all broad processes obviously.

We think that there are good investments that we can make in both the processes and the systems associated with those, and we think this -- now is the right time to make some of those investments.

And we think that's going to provide long-term leverage to the P&L.

The third thing, you mentioned G&A.

I don't think we particularly called it out per se in our prepared remarks, but just a note on it since you mentioned it is we have had some leverage in the G&A line over the last couple of years, I think some things that we're doing along the lines of processes and systems.

I think the India investment, not necessarily G&A related, but will help over time.

And then we alluded to some of the things that we're doing around SBC.

All of those things, we think structurally, will drive long-term improvements in the P&L.

The Flex SI side, I feel very good about the progress that we've made.

Our goal has always been to grow the ecosystem of partners to the place where it doesn't hold us back from a sales side of being able to make customers successful.

And if you look at some of the logos that we closed, both in the current quarter as well as previous quarter that we announced, that we'll have global customers, global deployments.

And that speaks to increasing SI coverage.

And I'm also very excited about our recent hire of our new Chief Customer officer, Glenn Weinstein, who comes to us out of a major global SI.

And that, I think, will continue to turbocharge our direction as he brings his experience and leadership to continue to accelerate our efforts to work with the SI community.

Your next question comes from Alex Zukin of RBC.

So maybe just 2 -- I'll try to maybe ask -- have this question in a different way around sales rep hiring.

I think given the level of investments that you're making in the business and given the opportunity set, should we assume that 2020 could see the same type of rep hiring acceleration maybe as 2018?

And then on the -- on dollar-based net retention, if we look at the trend line, how should we think about that rate as we start to kind of look at the back half of next year?

Obviously, there's a tailwind in the first quarter, but just curious what your updated thinking is about the trajectory of that rate over the course of the year.

Yes, let me take the second part first in terms of DBNE.

I mean, obviously, it's not something that we've historically guided to, and we're not going to guide to it today for the balance of the year.

With that said, I mean I think one of the things that we try to do so that you guys could work with appropriate numbers for your models is that we put a page into the investor deck that illustrates what the DBNE would have looked like had SendGrid been a part of the business since the IPO of the company.

And so that gives you a pretty good run rate sense in terms of what some of your expectations should be around that number.

Now we've also pretty consistently said that as the business is growing and getting so much larger that we do anticipate that, that number is going to fade a little bit over time just given the law of large numbers.

But otherwise, I mean we feel good about the number that we put up certainly for the quarter, certainly for the year and have good expectations relative to our guidance into 2020.

In terms of the sales investments, maybe I can start, and then if George has anything to add, he can do that.

I wouldn't say that there's anything sort of extraordinarily out of the ordinary in terms of those sales investments.

I think what we tried to do is provide a bridge around -- there's a number of different investments that we're making all at the same time in the current year.

That's one of them.

That's one of them that we found a lot of efficiency in.

And so I think we have an opportunity to continue investing there in a marked way, and we're going to keep doing so as long as it's efficient.

It's not an uptick relative to where we've been.

It's not an uptick relative to what you saw maybe from a few years ago.

I think it's kind of a steady state, but that, in conjunction with some of the other areas, is the step-up in investment.

I think Khozema said it well.

Honestly, I view us as mostly continue to hire on a -- our grower sales capacity on a very steady clip.

As long as the efficiency is good, we'll continue to do that.

And we'll -- honestly, a lot of the 2020 numbers are going to reflect hiring that we have done already in 2019, especially the back half of 2019.

And so I think a lot of that's already baked in, so it doesn't speak to just a 2020 difference.

It's just a lot of the 2020 numbers reflect activity that's even happened in 2019.

Your next question comes from Nikolay Beliov of Bank of America.

I have a couple of questions for George.

George, you mentioned 7-figure deals were up 2x last year versus the prior year.

I was hoping if you can give us some more color and maybe anecdotes on why you guys win in those deals.

What are the main drivers customers are choosing Twilio, et cetera?

And my second question is there seems to be more of a streamlining of the sales process around solutions, around marketing, operations, customer service and more use-case-based selling.

If you can talk to us a little bit more detail how you're setting up the sales organizations to do that, which contrast in the past of just selling SMS or voice or video, now it's more use case than solutions-based selling, and how that might impact the sales cycles.

Yes.

Thanks for the question.

So in terms of the larger transactions, I think that mostly it's just a product of us growing our capacity as well as growing more strategic conversations.

I think if you came to SIGNAL this past year, our Creator Summits, which is our kind of executive track, grew significantly in attendance, which I think speaks to us having larger conversations.

And we mentioned on the call or I mentioned on the call that PayPal came out of that.

That was a factor in the PayPal conversation.

So I think it's really just a factor of capacity plus more strategic conversations as well as the product set evolving to have those more strategic conversations with technologies like Flex, like Conversations.

And I think that, that's the product of our positioning around customer engagement, frankly, versus kind of where we've been.

In terms of the use case selling, certainly, look, we are constantly evolving the way we talk to our customers.

If you followed us in our Engage road show and kind of the way we articulate the customer engagement message, I think we're getting smarter about pitching use cases and solutions, absolutely.

But fundamentally, our approach to sales is pretty straightforward, which is that we believe that because we're positioned as a customer engagement platform, we want to have one account team that owns the broad relationship with the customer, is able to sell multiple products, multiple APIs, multiple solutions versus having a lot of separate sales forces going after different -- like a messaging versus voice sales force.

We have one team that really is there to work with a customer, to understand our end-to-end customer engagement vision and then help use the Twilio platform to really help bring that vision to life.

And we'll support that with a small number of specialist teams, but the heart of our conversation with customers is a broad-based, multi-product, end-to-end, solution-oriented conversation with the customer.

Your next question is from Brent Bracelin of Piper Sandler.

1 for Khozema and 1 for Jeff if I could.

Khozema, just trying to go back to the investment ambitious plans here, and the question really is why now.

Is this really about investing ahead for scale and scaling the business?

Or is there something you're hearing from customers and customer pull that they're asking you to do more?

So external versus internal.

Yes.

I mean I think it's a little bit of both honestly.

I mean I think, in large part, I mean, just to kind of answer the question broadly, we see a lot of opportunity.

And I think you always want to invest behind that opportunity, and the kind of implicit trade that we've always made with investors is that so long as our investments yield elevated growth that we feel like those are the right investments to make.

Now more specifically, in terms of internally, we obviously lapped $1 billion in 2019, which we feel great about.

And just given the rate at which we're growing and the scale of the company, it sure feels like right now is the right time to invest in all the different systems and processes and infrastructure that go with scaling the company.

Certainly, if we were to wait and do this several years from now, that would be a lot more difficult.

And so this is kind of an advanced investment on our ambitions in that respect.

I think the other dynamic is, as you heard from both Jeff and George, there's a lot of enthusiasm in the marketplace relative to our products.

Flex is the one that we called out specifically, but the same goes for all of our other offerings.

And we have an opportunity on the back of that enthusiasm to be able to really capture market share, and that's exactly what we want to do.

And I think if we can do that in a smart and efficient way, we kind of talked you through a progression that we expect in terms of the P&L for the year, we feel like now is exactly the right time to make those investments.

Helpful color.

And then, Jeff, just 1 quick one here.

Conversations, API, you've obviously talked about that.

There was quite a buzz once you released that product.

Any color relative to adoption, uptake?

Is that trending in line with your expectations, above your expectations?

Any color there on Conversations would be helpful.

Yes.

Thank you, Brent, for the question.

It's nice to be able to talk in our Q&A session.

We're excited to launch Conversations at SIGNAL last year, and as a quick reminder, this is a product that is designed to enable multi-channel and multi-party conversations across channels like SMS, MMS, WhatsApp, chat and more.

And we see use cases across a wide variety of industries, places where you essentially want a plurality of people inside of a company being able to engage with the customer in a single, long-running conversation, scenarios like in retail, where you might have a store employee talking to a customer as well as a contact center agent talking to a customer or a delivery scenario like where you have a delivery person delivering an item that was prepared by a restaurant that is supported by a contact center.

These are complex interactions that are now increasingly happening over messaging type channels.

And so this product is there to address it.

As such, it is a beta product, so it's new in the market.

It's only been in the market since August when we announced it at SIGNAL.

And so we are in the early phases.

We're getting customers educated about the product.

We're seeing customers adopt it, and we're seeing them give us feedback.

And so it's doing exactly what I'd expect as a beta product, which is getting customers onboard, getting them educated and having them show us where we should take the product in addition to getting into GA and where it is going to continue to grow in the future.

So we're very happy with the progress so far.

We think this is a large untapped opportunity because a lot of these workflows that I mentioned are actually brand new.

These workflows didn't exist 5 or 10 years ago, especially over messaging, and so to be able to bring a leading product to the market that is addressing this new use case for which there has really not been a solution in the past is really exciting.

We continue to work with customers and looking forward to bringing that product to GA and growing it from there.

Your next question is from Mark Murphy of JP Morgan.

Jeff, you're commenting on plans for not just contact center but also [mentioning] marketing, sales, service and support, and those are monster markets.

They have these huge application stack.

Could you share any insights on how you can complement what Salesforce offers in those areas and just how you plan to innovate there to kind of change the game like you have with Flex?

And then, Khozema, I was wondering what are your assumptions for election traffic this year given it looks like there's going to be less of that activity that'll happen on Twitter and Google than in the past.

Absolutely, Mark.

Thanks for the question.

So I'll start by answering your question about the engagement platform.

What we're seeing is basically a different approach is needed by certain customers where a platform approach -- as opposed to an app-centric approach, for certain customers and certain needs, is really benefiting them.

And that's what we've learned from Flex, that Flex is really designed for companies who want to build and for companies who are putting the developers on the front lines of winning the hearts and minds of their customers by using technology and using software and importantly, using digital channels to go out and win the market and be able to build what their customers want them to build.

And we don't think that, that opportunity is limited to just the contact center.

We see opportunities across a wide variety of customer touch points to really bring that platform approach to enable the innovation of our customers.

Now that said, we are really focused on Flex.

Flex is a big undertaking.

We are in the early days of that product.

We're very excited with the progress, and so as a company, we are very focused on the success of Flex in the short term.

But what we want to point out is the bigger picture here is that we do feel there's an opportunity as we listen to customers and the customers guide us to use a similar approach to tackle a wider variety of problems.

Now I think this is a very different approach to anyone in the market.

I think it's very complementary to existing approaches that are out there today.

And so I'm really not thinking about anything from the perspective of what other companies are doing.

I'm really just thinking about how are we listening to our customers and providing something that customers need in order to unlock their innovation with a different approach than the world has seen before.

Mark, this is Khozema.

On the political traffic, we are building in some expectation of revenue from political in the 2020 guidance, but we're not breaking it out.

I would say that we expect some return to what we saw traffic-wise back in '18.

And I think depending on how it plays out during the course of the year, we may or may not provide updates on that, but there is a little bit in there in terms of the guide.

Your next question comes from Rishi Jaluria of D.A. Davidson.

This is Hannah on for Rishi.

I'm just following up on the previous question.

So it's good to hear you guys have been having success with Flex during the [quarter].

I know it's still early.

But could you talk about any changes you've seen in the competitive environment or with win rates, especially as you've added the new functionality, like programmable dial pad?

I think that -- I don't think we see a massive change in the competitive environment.

I think what we've seen is our playbook for essentially being able to close the Flex transaction, I think, has gotten more sophisticated.

And I think it's much more predictable now at this point.

We've brought on -- we've grown our specialist team in this area, and they work really close with our customers to build something that's repeatable.

I think we have a good sense at this point of which type of customers are the builders, are the best fit for the product, have the need and the internal DNA to be a great fit for Flex.

And so I think we're more productive, frankly, with our sales calories on Flex than we were, let's say, this time a year ago.

So I feel like that has really made us be much more able to predictably and successfully work with Flex customers and grow that business over time.

And that's why I think we're very positive about the product.

Your next question is from Michael Turrin of Wells Fargo.

Last quarter, you called out newer expansion agreements.

I think the reference number was 50 G2Ks, and I just thought that's useful in terms of classification.

I don't want to sort of push you into guiding to that on a regular basis or providing that color.

But I think what would be useful given some of the questions here around investment spend would be just wondering if there's a thumbnail sketch you could maybe give us in terms of how you view core G2K penetration today, whether it's in terms of greenfield opportunity and landing some new customers or just even where you view penetration within existing customers relative to what's possible given kind of the evolution of the platform you're describing here today?

I think that it's very clear from -- no matter how you slice the data that we have a massive greenfield opportunity in the G2K.

The vast majority of the G2K today is not spending material dollars today with us, and even the ones that we have that are -- we have -- and we also have many that are very small customers.

One of the leading car rental players in the world, for example, today, probably spend like $4 a month with us.

And that's a customer that we're working with and we think, over time, could probably be spending hundreds of thousands of dollars with us.

That's just an example.

So there's really no shortage of opportunity, and every time that we talk to a small customer or a greenfield prospect, there's definitely opportunity for Twilio.

And I think that's one of the reasons why we're excited about this investment because we believe now that, over the past few years, we've proven that we have a playbook that can successfully go into the enterprise, can go to the G2K.

And as we've hired capacity, it's proven to be productive.

So that gives us confidence that we can continue to extend and bring this playbook to more customers and more opportunity.

Michael, we'll think about incorporating that metric on the Investor Day.

I mean there's a number of ones that we'll probably break out.

Not going to say what those are, obviously, today, but we'll take that into account.

Your next question is from Derrick Wood of Cowen.

Great.

Khozema, you guided for 44% to 45% growth in Q1 and 30% to 31% for the year, which does imply good amount of deceleration.

Anything to share around assumptions with the progression across the year and whether or not you're expecting any change in run rate from some of your larger customers?

And then just as a follow-up on Flex, when you guys launched Flex in Q4 of '18, it was a 1.0 solution.

Just curious how much it's matured, how to think about the major milestones in 2020 and what you guys think that could do for demand for the year.

Yes.

Thanks, Derrick.

So for Q1, I think the one big thing that you have to bear in mind is that we get the benefit of an extra month of SendGrid relative to the compare in Q1 of '19.

And so that elevates the number a little bit on an inorganic basis relative to what it would look like on an organic basis.

As for the remainder of the year, I mean we feel good about the guidance that we provided at this time, and I think that we'll be able to hit those numbers and feel good about our overall expectations.

Your next question comes from Patrick Walravens of JMP.

Great.

So Khozema, when we met with you back in November, you were talking about all the projects that you would like to be able to fund.

And if I remember them right, there was order to cash, which was the billings; and then there was customer experience, which was basically a lot of interfaces and connections; and then there was maybe procure to pay and maybe the data architecture.

I'm just wondering, are -- does this plan fund all 4 of those areas?

Pat, good to hear from you.

I think it does.

I mean I think as we called out earlier in the prepared remarks, I mean, these are big areas.

They're cross functional.

They require a number of different systems and processes to work efficiently.

And these are investment areas that we're stepping up our spending in to be able to scale the company for the future.

And I think as we do so, we think that these investments will allow us to more efficiently deliver elevated growth, scale the business and then ultimately create leverage.

So I would say, relative to the wish list that you alluded to, certainly, 90% plus of that is included in our investment level.

Your next question comes from Bhavan Suri of William Blair.

I guess this one is for George, Jeff maybe a little bit here.

But if you look at your G2K customers or just even a large enterprise and you talk about the greenfield opportunity -- and let's exclude Flex for a second -- the use cases seem really different, right, so private wealth messaging application, a car ride-sharing application, a pizza delivery application, right?

So we can go through all of these.

But one thing that happened to the platform is the common use cases allow you to sell faster and easier into that industry or the vertical.

I'd love to just understand how you guys are, a, seeing what kinds of common use cases are appearing across verticals that allow that sort of, hey, X, Y, and Z is doing this, you guys should do this, or the benefit of doing this allows you to penetrate the untapped players in the same verticals in that G2K space or cross sell other stuff.

Obviously, the platform is great and Flex is a great use case.

But for just the core offering and even for programmable wireless, love to see if you're starting to see common use cases and how you guys think about using those to sort of drive product penetration within those specific verticals.

Bhavan, thank you.

This is Jeff.

I'll take the question.

So I think it's interesting.

If you think about every company, big and small, new and old, it really doesn't matter the vertical.

Every company is looking to engage with their customers across all the various touch points they have with that customer and then connect the dots.

Like make it so it's not a bunch of disparate, disconnected experiences, but it really feels like a customer journey that flows together.

And so when we talk to customers, typically, there's something that is the starting point, some place where they are really trying to increase the customer engagement that is obvious that's the pain points in their product or in their customer experience, and that's the starting point.

And we start working with them.

And then from that starting point, we have this opportunity.

It's like the foot in the door.

And so what's the rest of the customer journey?

And what's the next big pain point and the next part of the company that is trying to improve that customer experience?

And so I'll give you an example, right?

This is -- it's a pretty common type flow where a customer might come to us and say, well, the first thing we want to do is really just alert our customer when such and such happens, when my package ships, when the car is arriving, when the food is ready, when your table is ready, when you're trying to log in, whatever it is.

And you say, great, and we work with them in that first use case.

But then the natural next question is, great, what happens when people reply to that message.

Oh, that's a really good question.

And so that starts to get in their conversation about how we're using messaging in, for example, their contact center or if the reply to that message ought to be routed to the delivery person or the retail store agent, whoever it is, that can be a conversation about Conversations.

No pun intended.

And so you can see how it naturally leads from like the obvious use cases that are often like the lowest hanging fruit inside of a company to create a better type of engagement and then expand it out from there.

And so I think there's like -- every account is a little bit different, like what's on their minds when they come to us, what their pain point is and what it is they're trying to solve for.

But there is a common playbook in many ways of going in and saying, after we solve that, great, how do we ultimately, in the fullness of time, connect all these dots together to create a really compelling customer engagement model or customer journey.

And this area that you're coming to us for is just a starting point.

Yes.

I think just to add on to that.

I mean I think, look, I think what Jeff said is absolutely true.

I think, at the same time, we're always looking to streamline our cost of sales by reusing patterns that are leverageable across use cases and also across verticals.

So I think you'll see over time, over the next few years, you'll see us start to add some more vertical orientation, let's say, to some of our sales efforts.

We have like some really, I think, very small like kind of green shoots on that front.

And then I do think that, as Jeff said, across industry, there really are some common patterns and there's, depending on which industry, 6 to 9 use cases that we typically promote over and over again and train our sales force, I think, pretty rigorously on.

And I think all of that makes us more confident that we can continue to ultimately long-term scale the investment and maintain good productivity, which is what ultimately this is all helping us do.

Your next question is from David Hynes of Canaccord.

So maybe for Jeff.

One topic that hasn't come up on the call is the opportunity with IoT.

I think we all get the applicability for connected door bells and home security stuff.

But maybe what are some of the less obvious areas where you're seeing customers innovate?

And then big picture, is this opportunity just a nice to have?

Or do you think it could be a material contributor to the business at some point?

Absolutely.

Thank you, David, for the question.

We -- to answer the latter part of your question first, I think IoT is a fantastic opportunity, and I think it can be an enormous business for us.

I kind of think of it as the next platform that we're starting to build.

But if you roll back the clock 12 years when we started the company, we started with voice, and then we added messaging, and that really led us to customer engagement as the big area of the company.

But we're planting seeds now for the next big platform that will expose the next great set of use cases, and that is in the IoT domain.

And that's what we're doing with our Twilio IoT product.

Related to your question, like what are the nonobvious use cases, yes, it is interesting.

When you think of IoT, people often jump to the stuff that you wear, the stuff that's in your house because that's what we as consumers see.

But actually, I think a much bigger area, both of existing marketing opportunity, is in a lot of the industrial type applications and in the smart city type applications.

One customer we had on stage at SIGNAL last year is in the smart garbage space, which is one that -- I don't know about you, like, I never really thought about a lot in my life.

But when the customer explains the problem they're solving, it makes a ton of sense, right?

You've got garbage trucks that drive around blindly just running the same route every week, stopping at every garbage can, and half of them are empty and the other half of them are overflowing.

And so with their solution, they can put a smart sensor inside of a garbage dumpster that says the fill level and then notify essentially which dumpsters need to be emptied and which ones don't.

And then the trucks can drive around to just the dumpsters that need emptying, and it saves fuel because they're not driving to dumpsters that don't need emptying.

Customers are happier because their dumpsters are empty when they need to be.

Everybody wins, and they save a lot of money, and the environmental impacts are great.

So there's a lot of different aspects of it.

And that's a great example of the use case that like I never would have thought of before we launched this product.

Yes.

Now we see in the domain of smart cities and industrial type use cases, fleet tracking, there are tremendous opportunities in IoT.

And we're seeing new use cases arise because of the narrowband opportunity.

In fact, the smart garbage customer, Sensoneo, is really enabled by the fact that NB-IoT has the very lightweight battery drain profile that it does, which means they can put the sensor wirelessly connected to the Internet into a garbage dumpster and not have to recharge it always.

It'll last for years on a single battery.

And that's a key enabler of some of these brand-new use cases.

Your last question comes from Ittai Kidron of Oppenheimer.

I guess I want to focus a lot on you, George, the sales force and the build-out there.

I mean the portfolio is clearly growing quite extensively, and the range of discussions you have with companies is almost on a quarterly basis -- on a quarterly basis is expanding.

Help me understand how do you think about productivity with such a moving goalpost?

And how do you think about the efficiency of the sales force that you have?

How do you measure that, what kind of gains you expect there?

And that will be great.

I mean I think a lot of people understand the push into the enterprise that comes probably with a little bit longer sales cycles, but help me understand what can one person really deliver well within the portfolio that you have right now.

So I think it's a good question.

Obviously, we're not going to go into like all the details of all our sales metrics.

Just at a high level or a conceptual level, we look for how much incremental revenue and margin can a salesperson bring in relative to their cost.

I mean it's not that complex a calculation when you think about it that way.

And our goal is to -- we have very good productivity right now.

And our goal is to, over time, as we scale the sales force, scale it as long as we see that efficiency and approachability staying high and ideally try and maintain it where it is.

I think it's very hard as you scale to large numbers to actually grow the productivity of your sales force dramatically.

So I wouldn't use that term.

But I think if we can maintain high productivity and certainly clear our hurdle rate for investment, then I think we feel good about it, and we're at that point right now still.

So we're expanding.

We have completed the allotted time for questions.

Thank you for participating in today's conference, you may now disconnect.