Twilio Inc (TWLO) 2021 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Twilio Q3 2021 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is also being recorded. (Operator Instructions)

Without further ado, I would like to welcome one of your speakers for today, Mr. Andrew Zilli, Vice President of Investor Relations and Treasury. Sir, the floor is yours.

Thank you, Karl. Good afternoon, everyone, and thank you for joining us for Twilio's Third Quarter 2021 Earnings Conference Call. Our prepared remarks, earnings press release, investor presentations, SEC filings and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me today for Q&A are Jeff Lawson, Co-Founder and CEO; George Hu, our outgoing COO; Marc Boroditsky, CRO; and Khozema Shipchandler, COO.

As a reminder, some of our commentary today may be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and further information related to 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.

In particular, our expected business benefits and financial impacts from our acquisition, particularly Segment and Zipwhip, and our partnerships and investments, including the associated transaction, the impact of recent and future privacy changes on certain third-party platforms on us and our customers, our outlook for the quarter ending December 31, 2021, our ability to achieve our targets for non-GAAP gross margin over time and annual growth rates over the next 3 years and our ability to manage changes in network service provider fees that we pay in connection with the delivery of our communication on our platform and the impact of those fees on our gross margin are subject to change.

Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by 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-K and subsequent reports 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 then take 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 Jeff for a brief statement, and then we'll open the call for Q&A.

Thanks, Zilli. Before we begin Q&A today, I wanted to take a moment to thank our COO, George Hu, for the amazing contributions he's made to Twilio over the past 5 years.

With George's leadership, we really figured out a developer-first go to market, which is an incredibly challenging feat given nearly no other companies have a go-to-market that's as unique or as efficient as ours. George has set us up on a new trajectory and built a tremendous team, starting with his direct reports all the way down to the go-to-market organization, and I can't wait to see what you build next, George.

I'm also incredibly excited for Marc Boroditsky, who will be taking the torch and continue driving our forward progress. Marc has built the Twilio sales team from relatively zero to the powerhouse of talent it is today. He's got the admiration and respect of his teams and a vision for how to continually evolve and grow our go-to-market with developers, enterprises, partners and digital leaders. I'm excited for the next chapter, Marc.

Now on to the questions.

(Operator Instructions) Our first question comes from the line of Meta Marshall from Morgan Stanley.

Great. I appreciate the question, and congratulations on the quarter. Understanding you had a couple of hundred basis point headwind from political traffic that contributed to the deceleration in organic revenue growth we saw in Q3, but what do you think is kind of the biggest contributor to the slowdown in organic growth and what kind of gives you that continued confidence that you can grow 30% in the next 3 years? And then we kind of understood to be an organic number?

Yes, this is Khozema. I would say, first of all, I mean, the 38% organic. We feel great about our overall growth performance in the quarter. Obviously, we're at about 65% on an inorganic basis. And if you just look at the breadth of the growth across industries, across use cases, across geographies, and across customers, I mean we have a lot of confidence in the go-forward capabilities for the business.

I would also add that we had a really strong quarter performance from Segment. And so when we put all those different pieces together, we definitely see our ability to continue growing at elevated levels for the foreseeable future. And we feel really confident in our ability to deliver the 30%-plus organic growth that we talked about last year over the next 3 years.

Our next question comes from the line of Fred Havemeyer from Macquarie.

Could you talk about your overall M&A philosophy? How do you approach that build versus buy versus partner debate at Twilio? And then generally, when you're looking across the landscape, the market landscape, how do you think the M&A appetites are progressing in the CPaaS market and in the customer engagement market?

Thanks, Fred. This is Jeff. I'll take the question. So first on your question on the M&A philosophy, which has really remained unchanged in the history of the company, which is look, we've got our insights about the market, what they're selling and what our customers need from us. And as a result, we have a road map of the things that we want to accomplish for our customers to unlock this vision of being the leading customer engagement platform, which I see as the greatest enterprise software opportunity over time.

And when we look at the things that we're going to go build, whether it's the teams you have to go hire or technology you have to build, if we see a team out there who's amazing or we see a product out there that's really exactly what we might go do ourselves, then we might say, hey, we can achieve this vision faster by bringing that team or that product onboard and accelerating our ability to unlock this vision.

And that's really how we've always looked at it, which is, does it accelerate our ability to achieve our vision of becoming the leading customer engagement platform. And I think you had a second question.

Yes. The second question there was just generally, how do you see the just overall M&A appetite for Twilio in this market and generally across the entire CPaaS market? Certainly, there's been quite a bit of M&A from other CPaaS vendors out there.

Fred, this is Khozema. I would say that -- I mean we obviously have a really strong balance sheet and a lot of cash on it. I think the way that we look at it is exactly the way that Jeff described, but we will be opportunistic if an opportunity presents itself.

I think we obviously have been acquisitive over the last several years. We did Segment, of course, last year kind of around this time, and then we've done some assets in more of the messaging space since then. But it's not like we see something in front of us that we necessarily have to do. We want to be selective about the opportunity. We obviously certainly see where valuations are today as well. But I think more than anything, we just feel great about the technology stack that we've already got and feel really, really confident, especially coming off of a really strong SIGNAL conference.

Your next question comes from the line of Rishi Jaluria from RBC Capital Markets.

This is Rishi Jaluria from RBC. George, it's been great to work with you, and all the best in the next chapter. And Khozema, congrats on the promotion or new responsibilities.

I just wanted to ask one question, which is, from a macro perspective, look, seems like a really strong demand environment. But how should we think about the puts and takes of maybe some of the benefits that we saw from lockdowns last year potentially fading and maybe the return of travel? And specifically business travel, especially given that most industries seem to still be having that put on hold. Just how are you thinking about stuff like that coming back?

Rishi, this is Jeff. I'll answer. I mean first of all, I agree with you. This is a strong environment for companies who are undergoing digital transformation, and those transformations have been accelerated by the pandemic. And something that I think is really important to understand here is that this is not like a less churn of the digital interactions that got put in with, let's say, the course of the past year or 2. It was not a deviation from like the future of the role of [tech going forward]. It was just an acceleration.

We are bringing forward a lot of the innovations that were happening, right? Think about telemedicine, right? You got telemedicine like take a decade leap in its adoption. And that is going to continue, I believe, to be the trend. When I look at -- do you want to drive across town for every doctor's visit? No. Like you can see a doctor in 15 minutes on a video call and they go back to work. That's a better experience. Then you've got like places like curbside pickup or online ordering and all these other things. Like this has been an acceleration of the natural digital transformation of the world. It's just going faster.

When you see that environment exist, businesses are going to continue to drive those road maps because the competitive environment demands it and customers get accustomed to these efficiencies and these good experiences. And that creates even more demand for digital. So I think it's a flywheel for how customers are now differentiating themselves digitally in this market, and our customer engagement platform now enables this.

When you think about it, like I talked last week at SIGNAL, our big customer conference, about how while the pandemic has accelerated like so many companies -- so every company we talked to, 250,000 customers. The digital acceleration that has happened has accelerated their digital presence, right, these digital road maps. Like as well as it's also accelerating with digital giants, Amazon, Netflix, Facebook, Google, et cetera. And so while those companies saw their futures accelerated, so did the giant digital companies. And that has increasingly raised the stakes for every company to execute at a first-class level in the digital world.

And the platform that we're building, the Twilio customer engagement platform, is designed to give all those other companies the ability to listen to their customers, understand their customers' first-party data. And use that data to build a great understanding of the customer, personalize the journey to make it relevant and, therefore, win their customers' hearts, minds and wallets.

And if you can think about it -- and I talk to customers, ask anybody out there say, "You know what I want to do? I want to acquire a customer once. I want to delight them with an amazing product and experience and make them a loyal repeat customer for life." That's what Twilio enables companies to do. And that [statement], I think, accelerated because of the pandemic, which is all part of this digital acceleration that we're experiencing. So yes, there's a strong environment out there, and I think that, that is going to continue. I don't think this is an aberration. I think it's an acceleration.

Your next question is from the line of Samad Samana of Jefferies.

Jeff, maybe one to kick off for you. As you mentioned, the SIGNAL conference, the company rolled out Engage and you've rolled out Frontline long before that. I'm just wondering if you're starting to see -- as you've rolled out more of these solutions on top of the core platform, if you're seeing any difference in the adoption on day 1 from customers or if you're seeing kind of more bundling of the solutions upfront and how that's actually driving volume inside of the business as well.

That's a great question for Marc, our Chief Revenue Officer, today.

Thank you, Jeff, and thank you, Samad, for the question.

Definitely affecting the adoption that we have seen in the recent quarter. As an example, Flex has inspired our partners to consider building the next generation of their offering for contact center on the Flex solution. Likewise, with the announcement of Engage last week at SIGNAL, I had a number of conversations with ISV that are looking at, again, changing their offering overall.

Probably the one that aligns the most to your question, Samad, is the success that we've seen with our partner, Waterfield, who has built a plug-in for Flex and made it possible for us to sell into -- we saw a small company that needed a full solution on day 1 adopting Flex as their first solution from Twilio, which gives us great confidence about the potential that Flex represents from SMB all the way to (inaudible).

Great. That's helpful. And then Khozema, I don't want to put you on the spot with a math question, but I appreciate the additional disclosures, but I still have a follow-up. So if I adjust for political revenue in 3Q, it really implies closer to low 40s organic growth. One, I just wanted to see if that's correct. And then the guide implies, again, kind of low 30s, if you take out political revenue. How should we maybe contextualize that with that go-forward 30%-plus growth as well as you look forward?

Yes. Thanks for the question. Samad. Believe it or not, I actually can't do a little bit of math on the fly. I think the stats that you gave is about right. I mean, I think we continue to see elevated growth across the business, as we talked about earlier. The reality is that we gave a 65% inorganic, 38% organic. I think if you do the math that you just implied, you're at about the ballpark that you just described.

The guidance that we put out for Q4, I mean, we feel really, really good about. We see a nice setup, certainly, for Q4. And as we look out based on a lot of the things that Marc just referenced a moment ago as well as some of the things that Jeff talked about relative to SIGNAL, I mean we see a tremendous amount of opportunity in front of us and have a really, really strong conviction that we can deliver 30% plus over the next 3 years. So I think we just feel really, really good about broad-based strength across the business.

The next question is coming from the line of Derrick Wood of Cowen.

George, good luck in your next endeavor. Khozema, I know it's probably early, but anything you want to share in terms of what your early priorities will be as you move into the COO role? And then you've had a new CRO for a year, Marc, I know you're on the call. Should we assume from a direct sales go-to-market standpoint, we shouldn't anticipate too much change? Or should we be thinking about this taking the time to make bigger tweaks to the model?

Maybe I'll go first, Derrick, and then Khozema, and then I'll turn it over to Marc.

Look, I think from my standpoint, in large part, the role is an expansion of additional responsibilities that I already had. And so I see it more as a continuation of things that we've already been doing. I think in general, we want to -- or I want to, in the role, really help the operating team win as much as possible, as efficiently as possible, as fast as possible. And to create the infrastructure and support systems inside the company, so that all of our great teams inside the go to market and engineering teams can innovate and then, obviously, distribute all the great products and services that we've got.

So I don't think there is like really a sea change in the context of my role. I mean, I'm obviously super excited like to take it on. Even more so, I'm humbled and feel really priveledged to be able to and want to continue to help Jeff and the management team win. Marc?

Thanks, Khozema. A little background. Been with Twilio now for 7 years since the acquisition of my last company, Authy. And as Jeff referenced in his preamble, it was just a handful of sales reps at the time here at Twilio. And when George joined 5 years ago, I had the great privilege to build out the go-to-market strategy that we have been executing on since.

We're expecting to continue forward with the strategy that we have today. We've got a fantastic team in place. We're well positioned to continue to execute against the already successful execution that we have with developers. We're continuing to progress our success in the enterprise, and we're expanding our overall international footprint. As I mentioned earlier as well, in the examples that I gave, we're making great progress with our partner community, engaging them to build out the business together.

That's helpful. If I could follow up on the financial question back. Your gross margins have certainly been topical with investors. Interesting slide you gave on the bridge to the A2P fees. But you could just take a second to kind of really unpack that and kind of what's been causing the pressure? How we should be thinking about gross margin in the next few quarters and kind of what it's going to take to get to that 60% long-term target.

Yes. Thanks for the question, Derrick. I mean, I think the bridge with respect to the A2P dynamic at least is self-explanatory, right? You can see that it slipped almost 400 bps relative to what we would otherwise have reported were it not for those fees.

I think more broadly, what we've seen is honestly a fantastic problem, which is that our Messaging business has been growing at really accelerated rates. And we gave you some [information] yesterday that basically illustrated the relative gross margins of our different products and services. And so growth is at an accelerated rate, it takes the margin rate down a little bit, which -- that we're more than willing to take, given the fact that we are focused on gross profit dollar expansion so that we can continue to invest in the business.

In terms of the latter part of your question and 60% plus, I mean, we still have a lot of conviction in that 60%-plus longer-term framework. And I think where that's going to come from is the accelerated growth that we're seeing in our application service category. And I think Segment is obviously the most recent example of that. I think certainly a promise.

At the SIGNAL conference last week as well as the fact that Segment had a fantastic quarter sequentially coming off of Q2 into Q3 gives us a lot of confidence that, that business is going to perform well and continue to underpin a lot of different things that we want to do with the rest of the business. And then obviously, we're very excited about the progress of Flex, too. And so I think it's a combination of those things that lead us to continue to believe in that 50%-plus long-term target.

Your next question comes from the line of Michael Turrin of Wells Fargo Securities.

George, certainly wish you the best, know from just a number of these calls, you've been instrumental in things like instrumenting the go-to-market and the partner initiatives there.

Can you just, maybe broadly as a team, talk more about continuity just on the go-to-market side given we're heading into the year-end. We can appreciate that Marc has been with you for some time, but maybe just adding additional context for investors and that evolution and just the confidence of sustaining the tremendous pace that the business has been able to perform at for a number of years now.

Thank you, Michael. This is George. Thank you for the kind words. And certainly, it's a difficult decision for me. I'm so incredibly excited about Twilio and its future, I think, especially coming off of an amazing SIGNAL, where I talked to so many customers that are just excited about this customer engagement platform vision and Segment. But what gives me confidence is the tremendous leadership team we have here.

I've been working with Marc now for a number of years, 4 years. And Marc has done an amazing job. He's really built this entire sales machine and delivered the numbers quarter after quarter. he an incredible leader and has hired all of the great talent we in the sales team. And I know that he'll just do an amazing job going forward. I think there's going to be a ton of continuity. And I think that Marc is also going to evolve the organization as we get to the next level also.

I also -- before Mark chimes in, I also want to really congratulate and acknowledge Khozema. He's going to be an amazing COO for Twilio. He's been an amazing partner, and he's one of the smartest people I have ever worked with right here. And he's going to do phenomenal, phenomenal things for the next chapter at Twilio.

Thank you, George. And Michael, thank you for your question. Right now, the expectations are very solid around the team and how we're going to be progressing into -- how we're going to be progressing with the plan we've got in place. This plan has not -- the plan has been developed over the last 5 years with George and I [in lockstep].

When George joined, he brought expertise that is very familiar to me from my previous enterprise experience, and he supported us in building out a plan that allowed us to reach to the enterprise from a model that's basically developed as self-service and helped us to build out the overall global footprint, and ultimately, our partner initiatives. These are all things that are in flight at great stages of success. I'm very confident of the team that's in place that we will continue this trajectory.

That's all very helpful. If I could just ask a follow-on. Just gross margins were actually -- I know you've gotten a couple of questions here, Khozema, they're actually slightly up. I think many investors are expecting that we might see discontinued headwinds given the international business is now 1/3 of overall.

Are we at a point where things like Segment and Zipwhip are starting to provide the counterbalance? Or anything else you'd call out? You also added a slide on just gross profit growth. So is that a metric maybe just to highlight in terms of just the conversations around these dynamics?

Yes. I would say the inclusion of the gross profit slide isn't necessarily an indication of anything new. We've been saying for a while now, Michael, that we've been focused on gross profit dollar expansion. Obviously, that gives us a lot of fuel to be able to reinvest back into the business. We just thought it would be helpful in terms of providing some additional color. Same thing kind of with the gross margin slide, which is -- I'm not sure if it's really kind of a story behind the story other than, obviously, the ATP has gotten close to us little bit, and you can see that in the bridge that we provided.

I think generally speaking, as I said earlier, like we feel great about the "problem" that we have in that we have this incredibly fast growth messaging business, which has mixed the overall gross margin of the company down. But to your point, whether it's some of the newer acquisitions or Flex or Segment, we do have a number of things that can provide fuel for a gross margin uplift over time. We're, obviously, not guiding to that today per se, but we do have a lot of confidence in our long-term framework of 60% plus over time.

The next question comes from the line of Ittai Kidron from Oppenheimer & Company.

Jeff, I'd like to start with you on Twilio Engage. Super excited for that announcement. I guess help me think about the ramp here. When Flex came out, you were conservative but it clearly did very good out of the gate. You have already an established customer base here with Segment. Is there an opportunity for this business to ramp faster than one would think? And is there -- do you need to make any adjustments on the go-to-market approach in pushing this product?

Thanks, Ittai. It's Jeff. So let me give you some forward-looking projections about this. Just kidding. You asked about the ramp-up. Like, obviously, I can't tell you anything specific about the product. I know it ramps like you see, but what I can say is that you have 2 things. Number one, I think there's a lot of demand in the market for this product, right? Digital growth and digital personalization, how businesses are building their businesses is a tremendous opportunity. And that opportunity is actually accelerated by the sea changes like out in the world of IDFA tags and third-party cookies and all those things getting changed because companies can't rely on what was honestly shenanigans.

Like -- and the changes that have been going on, whether it's cookies use or IDFA tags, like these privacy changes are on the right side of history. And so what Twilio is providing is the antidote to all those changes, which is a personalization and marketing system that starts with first-party data, that starts with a company understanding, making sense of the first-party signals they get in their customer and the data of approach. Then use SIGNAL, use that first-party data to then go personalize and build great relationships with their customers across all these touch points, whether it's marketing, contact center, sales, you name it. Or whether it is other couple different channels, messaging, voice, e-mail, in-app, on the web, et cetera, that's the heart of how companies are going to win the hearts, minds and wallets of their customers.

And the changes in privacy provide a really nice tailwind, I think, in the macro sense of what companies need to do in order to continue growing their relationships with their customers and continue growing their customers. So that's the first thing.

And the second thing I want to point out is I think there's a very natural synergy with not 1 but 2 go-to-market that Twilio has, right? It's a natural upsell from our messaging product, because it makes our messaging even more powerful. And it's a natural upsell from Segment, which allows you to do something new and interesting with your data, which is actually (inaudible). And so I'm really looking forward to that product goes out in GA in 2022, and we're looking forward to being able to bring that product to our customers and really excited about the product.

Very good. Maybe a follow-up for you, Khozema on the retention rates. Maybe you can -- I'm sorry, the net expansion. Maybe you can kind of walk us through a little bit, perhaps, the puts and takes of that metric going forward? I know you still have the political activity, which I guess would weigh on that number next quarter. But I think you also are going to celebrate the anniversary of Segment, which will include -- and I don't remember if Segment was above or below average on that standpoint. Can you help us think about what would be the right way to think about how net expansion rate is going to change over the next, call it, 3, 4 quarters?

Yes. So a couple of things there, Ittai. Thanks for the question. So first of all, we feel very good about 131% on the extension rate. The business is growing at really elevated levels. Just given the size that we are at our run rate, we feel great about it. And 131% depends on the range of where we've been over the last several quarters. So really good broad-based [things] across the business.

And we don't guide on expansion rate, as you know. And so I think it'd be a little bit premature for me to kind of talk about where I anticipate that end up -- ending up being in Q4 and beyond. What I will say is that we do intend -- just as we disclosed in our remarks earlier that Segment we will include as part of Q1 being the first full quarter kind of post the anniversary of the acquisition. And we'll publish those results and include Segment at that time. But we'll have to kind of wait and see for that quarter.

Our next question comes from the line of Parker Lane of Stifel.

Jeff, I was wondering if you could talk a little bit about the stickiness of the incumbent platforms in the CRM market. And when you look at the B2C component there, how much appetite do you think there is for disruption of those legacy platforms, particularly as some of your competitors out there in the newer markets are launching their own CDP offerings?

Yes. Thanks, Parker. This is Jeff. So we're really excited about Segment, which is obviously the #1 CDP in the market. We're really excited about Twilio Engage which is on top of it. And interesting, when I look at the market, I just see a huge hole in the market for a platform that is helping B2C companies really understand their customers and then execute on that understanding by personalizing every part of the journey, empowering their employees with great engagement. And the CRM market is a great one, but that's the thing about B2B, is it's not configured to do this. B2B CRM really starts with salespeople entering those, which are 2 completely starting points than B2C companies do.

And so the opportunity that we're going after and what our customers are looking for is how do B2C customers with volumes of data, how they take that data, understand it and act on it across all of the different applications and all touch points that they have. And that's a fundamentally different market that nobody has really cracked it. And that's the opportunity for Twilio's customer engagement platform, and that's the opportunity that customers are pulling us toward because they want to solve it. And so that's what we see as the -- kind of market is going after.

The next question comes from the line of Mark Murphy from JPMorgan.

Jeff, a question on Twilio Engage. What do you see as the differentiation or the line of demarcation there? If we compare it to some of your partners, who provide cross-channel experiences where they're using push and in-app and SMS and e-mail. And then I believe some of them then send their messaging traffic to you. If you could just help us maybe with a little compare and contrast.

Yes. Thanks, Mark. [Marketers] is a really rich landscape. And we have -- with many companies out there doing all sorts of interesting things. And what we're seeing is that customers are really asking for a data approach to their growth automation, an approach that starts with data and then move out some of that data into understanding the customer, building profiles and then building actions from the data. And that's where Segment has always played, and that's where Segment's strength is.

So ultimately, we're serving an unmet need when customers come to us, saying, "Hey, can Segment be used to build these journeys and then ultimately run these campaigns?" And that's certainly the thing about Segment is that not only do we allow marketers to create these rich segmentations, and you heard it at SIGNAL about how Intuit, when they went from like 30 -- sorry, they went from 3 segments but they -- their whole customer base just got 3 segments to now like 450, and that increased the engagement in their customer base from 20% to 50%. That was the story that Mark has told at SIGNAL last week, which is amazing.

And Segment also allows the marketers to use all the data points to see the measure of the effectiveness of their campaign, which I think is another interesting point of Engage. So instead of measuring a bunch of e-mails on just were they delivered, were they opened, were they clicked on, Segment allows marketers to optimize for what actually drives revenue. That results in people buying things, which, of course, is the ultimate goal. So what we're hearing from our customers is that the data-first approach, which starts with having great data by their customers, that unlocks all sorts of new ways for smart growth marketers to do their job and hopefully one that the market [thinks as] helpful.

Okay. I think I understand, yes. So the CDP is the basis there.

I had a quick follow-up, maybe for Khozema or Jeff. I think the sequential organic growth in revenue was a bit less than some of the prior quarters. Although interestingly, I think the same thing happened a couple of quarters after you acquired SendGrid in Q3. So I guess we've seen that.

Could you just touch on that? Is that voice or video or something else? And just given you're reaffirming this 30%-plus growth for 3 years, the -- can we presume that you have visibility into some better kind of sequential build into Q4 and early next year?

Yes, Mark. This is Khozema, I'll take the question.

I wouldn't read too much into like product mix dynamics. I think we feel really good, honestly, about the sequential growth and just kind of the overall growth of the company at our scale and based off of our product set. And I think as we talked about, I think, earlier in this call, when you look at some of the things that we announced at SIGNAL and the tools that's going to provide us going forward, we feel fantastic about the overall growth prospects of the business.

So in terms of the setup on the 30% plus, I mean, we provided guidance, obviously, for Q4, and we feel really good about that. And we see continued strong growth into the future. And that 30% plus that we provided last year, we certainly see that on an organic basis over the next 3 years as well.

The next question comes from the line of Matt Stotler of William Blair.

I guess one, just looking at the revenue growth performance in the quarter. So if you look at the relationship between [gross profit dollar] expansion, which to your point, has been incredibly consistent with kind of range on a multiyear stack, when you look at the difference between that and the organic growth that you guys reported, the relationship between those 2 essentially gives you some sense of the incremental revenue that you're generating from new customers in any given quarter.

This quarter, that contribution seemed to be the primary source of the step-down in organic growth sequentially. You're going from 50 to 38. Can you just talk about anything that you're seeing in terms of what might be driving that lower contribution from revenue from new customers on an organic basis this quarter or anything that you're seeing in the market that could help to -- help us to make some sense of that?

Yes. This is Khozema, Matt. I can talk about it from a financial perspective, and then maybe Marc can talk about it in terms of customer adoption perspective.

I'd say, there's nothing specifically that I'd necessarily unpack in terms of new customer growth. I mean, as you saw in the quarter, we had very strong adds in terms of new customers. We had a great expansion rate in the quarter. We had strong overall revenue growth both on an inorganic and an organic basis. I think the math that you're trying to do is kind of directionally accurate, but there is a certain amount to unpack there, which we could essentially do offline. But I think in general, I would say we feel great about the overall prospects of the business. We feel great about the setup for Q4 and have lot conviction in our 30%-plus organic revenue growth over the next 3 years.

Marc, do you want to add to that maybe from a customer adoption perspective?

Certainly, Khozema. Matt, thank you for your question.

From an adoption standpoint, we had a terrific Q3 across all aspects of the business. As you I think you know, we have a very diversified business that is relevant in a variety of economic conditions, which allows us to continue to deliver these strong results.

What's even more encouraging, especially on the heels of SIGNAL is the kind of reaction we're getting through the messages that we shared here today and as Jeff's elaborated on around the customer engagement platform, the value of a solution like Twilio Engage and the progress we're experiencing with Flex, and candidly, just excitement around a data-first model. Everybody is looking for ways to deal with the new challenges that they're facing the market around third-party data, and as a result, we've heard really solid excitement. That gives us confidence around the business as it is.

Got it. That's helpful. And then maybe just one more on -- just a quick one on the gross margin front. So the bridge you gave is very helpful, right, kind of taking out the A2P fees and understanding that was very helpful. You also signed a new commercial agreement with Syniverse earlier this year, which seemed like it would provide maybe a little bit of a tailwind in the gross margin. Is that something that was embedded in the results this quarter? Or is that something you can talk about in terms of how we'll look at it going forward?

Yes. Syniverse isn't something we really can talk about yet. We do expect that investment to take place before the conclusion of the year, but it's not affecting our financial results yet.

The next question comes from the line of Catharine Trebnick of Colliers Securities.

Can you break down who you think your biggest competitors are at this point with the newly announced Twilio Engage?

Catharine, this is Jeff. I'll take the question.

So really our competitors has always been very diverse. There's typically not one competitor that we see, and there's a whole lot of different situations. And a lot of that is because of our unique developer-first approach. Their developers bringing Twilio into such a wide variety of companies to solve such a wide variety of things that they're building. And that leads us into the company in a way that's not like a traditional like an [ERP kind of thing]. So many of our deals are like that.

And so that's the historical of Twilio. And going forward, I'm looking at the new products of our customer engagement platform, which is really a new category. There aren't products that are meeting the needs of the market, and that's why we're building it. And so when I look at what we're building, whether with Twilio Engage or whether it's Segment CDP -- like just the #1 CDP in the market on top of it building a product that customers have been asking for, which is a data-first approach to marketing. And so I just don't see it as a direct head-to-head. I think we're building something new, both in terms of each of the individual products.

I think Flex is different than what's out there in the market. We're solving problems that customers say they have, and that's why we built Flex. Same thing with Engage, same thing with Frontline. And these are the fillers, really, of our customer engagement platform, which as a whole is certainly solving a [really unsolved problem] for B2C companies, which is, how do I understand my customers and engage with them. And there's nobody who's solved that problem at a platform level.

The next person to ask a question is Pat Walravens of JMP.

Jeff, so as we're looking into 2022, and hopefully, it's pretty different than 2021 was, I'm curious what you think your top 2 or 3 strategic imperatives are.

Thanks, Pat. So obviously, we've been really progressing the Twilio Engagement Platform, our customer relation platform. And so one of our first priorities this year was making sure that we brought to market Twilio Engage. And we did it with a great introduction, which we did last week at SIGNAL. Have also been really prioritizing the company and our teams, because we're obviously in the second year of the pandemic. These are difficult times for every team out there. So really prioritizing the well-being and the productivity and the growth of our team. And our team has grown tremendously post the pandemic.

And then, of course, our customers. Customers' needs are evolving during this time. And really sending many new customer challenges -- like sending those customers in our direction to help solve those challenges. So there's the pandemic, whether it's privacy, and the IDFA changes, and cookie changes, and just the many things that companies are having to deal with as the world is rapidly evolving. And those companies have to become builders and have to build those relationships with their customers and keep up with the evolving landscape. Those are things that are pushing customers towards us and giving us a lot of insights to how we can further serve them. And I've been very focused on that as well. So those are kind of the 3 big areas, which is our products, our teams and our customers, which is I think the right things for a CEO to be focused on.

Our last question comes from the line of Taylor McGinnis of UBS.

With gross margins flat this quarter relative to last and given all the ATP fees you guys have this quarter, how much of that was potentially driven by a mix shift from a slowdown in messaging versus maybe more durable factors and efficiencies that you guys might be seeing? So was that just all mix shift related? Or is there something else driving that?

Yes, Taylor, this is Khozema. I'll take your questions.

I wouldn't say there was necessarily any one factor. I mean I think what we're seeing is continued strength in the messaging business. And so there's not really like an underlying story relative to that product set. We continue to feel great about the growth prospects there as they've been over the first half of the year and certainly in Q3 as well.

I think equally, we feel very excited about the performance of Segment, and we continue to see higher growth in our application services category. Any given quarter, I mean, any one of the kind of product mix dynamics or international or even customers, to some degree, are going to influence what the gross margin rate is in a particular quarter.

So for now, we're really concentrated on gross profit dollar expansion. And obviously, over time, we do intend to work that gross margin number up. We think that will come from a mix shift in those application services, and certainly stand by our longer-term target of 60%-plus gross margins.

Great. Well, thanks everybody for joining today. That will end the call for us. I look forward to chatting with you throughout the rest of the quarter.

Thank you again for participating. This concludes today's conference call. You may now disconnect.