Twilio Inc Q3 FY2020 Earnings Call

Good afternoon, and welcome to Twilio's Third Quarter 2020 Earnings Conference Call. My name is Rob, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Andrew Zilli, Vice President of Investor Relations and Treasury. Mr. Zilli, you may begin.

Thanks. Good afternoon, everyone. And thank you for joining us for Twilio's third quarter 2020 earnings conference call. Our earnings 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 virtually 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. In particular, our plans and timing to close the Segment acquisition, including the expected business benefits and financial impacts from the acquisition, and our expectations around the impact of the COVID-19 pandemic on our business, results of operations and financial condition, and that of our customers and partners is 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 or ability to close the segment acquisition in a timely fashion. 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 undertake no obligation to update any forward-looking statements made during this call to reflect the events or circumstances after today, or to reflect the 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, everyone to this quarter's earnings call. Before turning to earnings, I want to encourage all who are listening, especially here in the United States to please vote, have a plan, find a way, and make your voice heard. At the top of our earnings calls from time to time, I may briefly discuss some elements of social justice, policy or societal issues in the hope that it has some impact, and to show that we at Twilio take these issues seriously. At our last call, I referenced the fact that Black Lives Matter. And I want to say it again, because it needs to be said, Black Lives still matter. At Twilio, we will continue to advance the dialogue on this and other issues that we care about. Now, on the earnings. We delivered another quarter of outstanding results. I could not be prouder of what we've accomplished during these trying times. Our success is a testament to the value proposition that Twilio's platform offers businesses: digital engagement, software agility, and cloud scale. Our goal is to build the world's leading customer engagement platform. We're going to achieve this vision by investing in our products, our platform, and our people. The demand and excitement for digital customer engagement was evident during a recent customer and developer conference SIGNAL, where we had tens of thousands of people registered for our first-ever virtual conference. Embracing our builder mentality, SIGNAL was run on Twilio's platform, which our internal team developed in a matter of months to great success. Throughout SIGNAL, we heard from leading enterprises like Nike, Delta Airlines, and Ernst and Young about how they are using Twilio's platform to create new ways to engage with their customers over digital channels. To ensure we continue to meet the needs of our customers, we announced several new products and innovations to help developers continue to build solutions to solve today's challenges, as they execute on their digital transformation initiatives. We know our customers are looking to Twilio Flex to take down the largest and most complex contact center workloads out there. But they want to do that while continuing to use the best-of-breed solutions they've grown to love, such as their workforce management, their CRM. We announced the Twilio Flex ecosystem, enabling customers to access more than 30 validated solutions from partners including Google, Salesforce, Zendesk, and Calabrio, all built to accelerate contact center projects. Usage of Twilio Video has skyrocketed, and we want to get video in the hands of as many developers as possible. So we announced a free version of Twilio Video for peer-to-peer use cases called Twilio Video WebRTC Go. Twilio Frontline is a mobile app that provides a direct messaging-based connection between customer-facing employees and consumers, in a way that's safe, secure, private, and compliant. As non-desk workers far outnumber desk workers, Frontline can help drive greater sales, higher customer satisfaction, and lower costs through more efficient operations. We also announced Twilio Microvisor, a complete device connectivity platform that eliminates the complexity of building for IoT. Microvisor runs on the connected device and creates a secure management one time with the intelligence to connect to different types of networks, including WiFi and, of course, cellular networks. We also recently announced our intent to acquire Segment, the leading customer data platform. Segment enables developers and companies to unify customer data from every customer touchpoint and every system of record, empowering marketing, sales, and service leaders with the insights they need to design and build relevant, data-driven customer engagement. The combination of Segment and Twilio means that we will be able to help any business make their customer engagement across every channel more personalized, timely, and impactful. This is an important step towards our vision of building the world's leading customer engagement platform. We also wouldn't be able to execute on this vision without the strong culture and inclusive workforce that our employees embrace every day. That is why I'm excited to welcome Lybra Clemons, Twilio’s first Chief Diversity, Inclusion, and Belonging Officer. Lybra is responsible for guiding and scaling Twilio’s inclusion strategy and diversity initiatives across the company's global workforce. There has never been a more important time to bring in a Head of Diversity to the C-suite of the company, and I'm excited for where she will lead us. I again want to thank our employees for their continued dedication to our customers and for delivering these great results, and a special thanks to the SIGNAL team for delivering such an outstanding virtual event. I also want to thank all of those who are on the frontlines, those who are fighting the fires in California, those who continue to fight the pandemic, and those who will be working the election poll stations just over a week. Thank you for everything you're doing for the rest of us. And please remember to get out and vote. With that, I'll hand it over to George.

Thanks, Jeff. The team delivered another quarter of great results in Q3. Our focus on growing our enterprise presence, expanding internationally, and growing our partner ecosystem continues to drive great outcomes as companies turn to Twilio’s customer engagement platform. Our opportunity is expanding as a result. I'm extremely impressed with our marketing and events team, who created an amazing virtual experience for SIGNAL. In addition to all of the great individual sessions, we hosted our creator summit, where we brought together more than 200 executives from customers and prospects to network, hear from inspirational speakers, and learn about Twilio. We also had more than 800 developer attendees at our super class and delivered 40 hours of content on SIGNAL TV. Our brand experience team built our conference experience from the ground up, incorporating more than 10 Twilio products, including Flex, Video, and SMS. During the quarter, we also announced that Deloitte Digital will be joining the Twilio built partner program as our first premier global systems integrator. Deloitte Digital’s Twilio practice will offer the entire Twilio product suite, including Flex for contact centers, as well as the full set of Twilio communications APIs and platform services, to help clients reinvent their marketing, sales, and service, and radically transform the customer engagement experience. This is a great step forward in our partner program, as it significantly expands our reach and ability to leverage Deloitte's expertise in our top industries, such as healthcare and financial services, where Twilio has helped institutions of all sizes dramatically transform the customer journey to adapt to new circumstances. In healthcare, the innovative solutions that have been built on top of Twilio to address the COVID-19 crisis provide an opportunity for the industry to advance the use of technology to better deliver outcomes for patients and create tools that fit seamlessly within a physician's workflow. This has always been the vision, but the coronavirus crisis highlighted the urgency, immediacy, and magnitude of that need. The team has been hard at work to make many of Twilio’s most critical products HIPAA eligible, such as Twilio SMS, chat, conversations, video, voice, and SIP and runtime tools. As of today, Verify and Look-Up are also HIPAA eligible for healthcare customers. This focus on healthcare is paying off, as you can see with the couple of deals we signed this quarter. We expanded our relationship with Philips, a leading health technology company focused on improving people's lives and enabling better outcomes across the health continuum. In response to COVID, Philips built a virtual waiting room using Twilio SMS to replace the physical waiting space in just six weeks. Health systems like Yale New Haven Health and Boston Medical Center are using these solutions to address issues like COVID-19 and the flu. With this new solution, the patient texts the hospital when they arrive, and the hospital texts them back when the room is available, so they can go straight to an exam room. We entered into a new relationship with Banner Health, one of the largest not-for-profit healthcare systems in the country. After investigating several vendors, Banner Health selected Twilio to power patient notifications across multiple channels, beginning with our voice API. They view Twilio as the leading engagement platform that can power a consistent digital patient experience across Banner Health. In financial services, another highly regulated industry and a key focus area for Twilio, institutions have long had apps, chatbots, and other customer service tools to help them connect with customers. But COVID was the first time that these capabilities were put to the test as the primary way for people to interact with their service providers. As the pandemic hit, consumer banks, wealth managers, and insurance companies were flooded with inbound calls from customers, while being tasked with developing a richer set of capabilities and tools to enable their employees to safely and effectively work from home. Now, as providers look to the future, they're implementing a range of new digital solutions that create a better user experience for customers at any time and on any channel. We saw this in the third quarter as we expanded our relationship with a Fortune 50 bank that was forced to close many branches in response to COVID. They were looking for a better way to engage with customers via digital channels. They selected Flex, integrating it with programmable messaging and Salesforce to power their new omnichannel digital customer engagement strategy, to improve lead conversion and provide better customer service on demand. We also signed a new Flex deal with Robinhood, a pioneer of commission-free trading. As the demand for their platform has accelerated as a result of COVID, Robinhood is continuing to adapt, scale, and power elements of its customer support with Flex. As we discussed, we have a very broad customer base and our platform is used by companies across more than just healthcare or financial services. Some other great deals from the quarter include an expanded relationship with Alaska Airlines, the fifth largest U.S. airline based on passenger traffic. In an effort to reduce direct interaction between employees and guests in response to COVID, Alaska is using our programmable SMS connected to their reservation system to allow agents to send a customer's boarding pass via SMS. We entered a new relationship with Prometric, the global leader in technology-enabled testing and assessment solutions. With the acceleration of digital technology driving new consumer behaviors, as well as an increasing need for remote test proctoring as a result of COVID, Prometric selected Twilio as a video management service for their application, with Flex as the user interface between the proctors, security agents, readiness agents, and test-takers. Overall, our team continues to execute on our strategy as our investments in enterprise go-to-market, international expansion, and our partner ecosystem are paying off. We are extremely well-positioned as we look to close out the year, and we're excited about the massive opportunity ahead of us in the next several years. And with that, I'll hand it over to Khozema.

Thank you, George, and good afternoon, everyone. Total Revenue for Q3 grew 52% year-over-year to $448 million, and dollar-based net expansion was 137% as we continued to see broad-based strength across the business. As we get closer to the election, political traffic is likely to pick up, and we saw that in the third quarter as political traffic contributed approximately $10 million or 2% to revenue. Excluding political traffic in Q3 2020, revenue grew 48%. Revenue from our top 10 active customer accounts represented 14% of revenue, compared to 15% last quarter, and 13% last year. International revenue was 27% of total revenue in Q3, compared to 27% last quarter and 28% in Q3 2019. WhatsApp contributed approximately 6% of revenue, down from 7% last quarter. Starting in 2021, we will no longer break out WhatsApp as a percentage of revenue. We continue to have a great relationship with WhatsApp. However, as our businesses scale, coupled with the strong revenue diversification we discussed at our Investor Day, disclosing the contribution from a single customer is less meaningful. Verizon's A2P fees contributed approximately $10 million to revenue. As a reminder, this fee is a direct pass-through to customers and does not impact gross profit dollars. I did want to note that we expect to stop breaking this out in 2021, as we lap the implementation of the Verizon fees. If and when we experience fees from other carriers, we do expect to provide that information if relevant. Third quarter non-GAAP gross margin was approximately 55% and was negatively impacted by 130 basis points from A2P fees. As you'll recall from our recent Analyst Day, we discussed that gross margins would be negatively impacted in the short term, as the growth of our messaging product has been reaccelerating, a trend that continued in Q3. To reiterate, this is a trade-off that we will gladly take as it adds gross profit dollars, which we can continue to reinvest, delivering elevated levels of growth. Gross margin was also negatively impacted by about 100 basis points from foreign exchange, primarily from the euro appreciating relative to the U.S. dollar. Non-GAAP operating profit came in at approximately $7 million, stronger than originally forecasted, driven by higher than forecasted revenue and the timing of hiring within the quarter. While we were able to catch up on our hiring plans in the third quarter, the timing of some of the hires meant that we didn't fully recognize the expenses we had forecasted. Moving to guidance. Please note that our guidance today does not include the impact of our announced acquisition of Segment. We expect the acquisition to close during the quarter and we do expect a modest top and bottom line impact in the fourth quarter. As such, on a standalone basis, we expect Q4 revenue of $450 million to $455 million, including A2P fees for year-over-year growth of 36% to 37%, and we expect a fourth quarter operating loss in the range of $10 million to $15 million. While on the topic of guidance, I'd like to update you on our guidance velocity. Going forward, we plan on only providing quarterly guidance. At our recent Investor Day, we provided medium-term guidance that we expect 30% organic annual revenue growth for the next four years. Additionally, our medium-term guidance does not incorporate the pending acquisition of Segment. This guidance was provided based on our forecast for Twilio’s existing business. We are managing the business for the long-term, making decisions that benefit all stakeholders, and our medium-term revenue guidance reflects this. As we discussed at our Analyst Day, some of the investments we plan on making this year did not materialize, as we had originally forecasted due to COVID. We're still finalizing our 2021 plan, and we intend to continue with our investment plans into 2021, which we anticipate will drive operating losses into next year. Also, with our recent announcement to acquire Segment, there will be certain integration costs incurred to further enhance Twilio’s customer engagement platform. Once the deal closes, we expect to provide more information on our Q4 call. Lastly, I encourage those of you that may have missed our Investor Day held on October 1, as well as our announcement acquiring Segment to visit Twilio’s Investor Relations website at investors.twilio.com, to view the presentations and webcasts. I wish everyone well and hope you are healthy and safe. Thank you for joining. Operator, please open the line for questions.

Your first question comes from Meta Marshall from Morgan Stanley. Your line is open.

Great. Thanks. Maybe first question, just on SIGNAL. Could you give some color or commentary as to what were the most attended sessions? Or where you kind of saw most customer questions around? And was any of that surprising? And then maybe just Khozema any bounce back worth noting in key verticals like travel and hospitality? That's it for me. Thanks.

This is Jeff. Thank you for the question, Meta. So I think SIGNAL was a broad-based success across the board in terms of attendance for both the technical tracks for the developers and the audience, as well as for the executives with our creator summit. One of the key things about SIGNAL is that as we progressed and built on our engagement cloud strategy, it started really building that dialogue with the technical folks, but also now the executives. This is increasing our strategic positioning and allowing us to sell more broadly into organizations. A much bigger problem remains inside of those companies, such as the broad-based question of customer engagement as opposed to the more narrower view of the particular communications workflows. And so that's fantastic. We're really pleased by the growth of SIGNAL, with 10 times the attendance of prior years. Obviously, a lot of that's driven by the virtual nature of it, and as well as the participation by leading enterprises. So this year, we have the CEOs of both Nike and Delta Airlines talking about their digital transformations and the acceleration of those digital transformations, which have occurred because of COVID. These are some of the key highlights of SIGNAL.

I think the second part of the question was around travel and hospitality or the impacted industries, and Meta, we have seen some traffic in the more heavily impacted industries return, but they're still below pre-COVID levels. I would characterize it more as green shoots.

Your next question comes from the line of Nikolay Beliov from Bank of America. Your line is open.

Hi, thanks so much for taking my questions. It's a question for George. George, as you build out this comprehensive customer engagement platform, at what point do you start running into Salesforce, Oracle, Adobe, the legacy customer engagement vendors? At what point do you guys step back and coexist and compliment them? Just philosophically, I'm just wondering your thinking around this topic, please. Thank you.

Yes, I mean, it's a great question. And we are very complimentary, I would say that many of our customers today are customers of these other companies. We're complimentary and we don't often compete with them because we're coming at the problem in a very different way. We're starting with developers and we're working with them on really the communications and customer engagement, which is really our strong point, obviously, and not where we see a lot of other companies that you mentioned focus. Overall, I would say we're very, very complementary and our customers view it that way. So I think that's going very well for us.

And George, as a follow-up, around Flex. When do you think Flex will become a way to wholesale replace legacy call centers versus complementing them right now? Congratulations on the new wins around Flex. Some of them sound like complementing the existing call center solutions versus wholesale replacement.

I think it's a multi-year journey for us to mature the product. We do have companies that use us as the end-to-end contact center platform. We have many situations where we’re complementary. I view it as normal enterprise software maturity. We continue to mature the product. We're very excited about the evolution of the product over time. We're now several years in and we're seeing that the market recognizes that, and I think you're just going to see normal evolution there. We're going to be more and more able over time to take on larger and larger workloads on the platform. But I just think it's a normal evolution.

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

Great, thanks. Good afternoon. I think the biggest takeaway was around the last point that Khozema laid out for many of us from the Investor Day around the ambition of that 30% organic revenue growth target over the next four years. So maybe going back to that, can you expand on what you guys are seeing in the field today that gives you the confidence in your ability to execute on that multiyear vision, as that would put you in an admittedly rarified air in software if you are able to sustain that pace?

Well, this is George, since you asked for the field perspective. We're seeing digital acceleration. People are, especially in this environment, realizing that there's a greater push than ever to engage consumers and customers on digital channels in new ways and new modalities. Our research shows that this digital transformation is being accelerated by up to six years. In fact, that was just last week at a CXO conference where the CIO of a major retailer also said that they're seeing digital acceleration, or the other three panelists I was with all talked about digital acceleration. So, at every level, I think that this is not just a temporal thing, but part of a new way for companies to engage. This speaks to a generational opportunity for us which makes us believe that we have the market size here to sustain that level of growth and the right platform, message, and go-to-market approach to address that need.

It's good color. Just maybe a quick follow-up. On the dollar-based net expansion metric that stepped back up to 137%, I think we've all been talking more about SendGrid impacts normalization, but that's the highest organic level we've seen since mid-last year. So anything else you can add around what's allowing you to sustain those levels as you move to an even greater scale here? Thank you.

Michael, this is Khozema here. What we're seeing across the board is that there's just broad-based strength across the entirety of the business. There's no one specific thing that I would highlight as a primary driver of that. There are companies that are continuing to digitally transform as we pointed out a few times. We’re really happy with the 137%. We do think that will normalize and fade over time, but we’re certainly really happy about what happened in the quarter.

Thanks. Excellent results. I appreciate it.

Thanks.

Your next question comes from the line of Matt Stotler from William Blair. Your line is open.

Hey, thanks for taking my questions. I guess just to start on IoT. Obviously, a very interesting opportunity for you guys here, especially with the launch of Microvisor. How significant do you see IoT in terms of use cases for Twilio's business today? And how do you think about over time what this could be for you? And kind of how long do you think it will take that business to become a more significant contributor to the overall business there?

Thanks, Matt. I will take this, this is Jeff. So IoT is a market we're very excited about. I think that of all the talk of IoT that's gone on over the last five to ten years, Twilio is still in its infancy. We're investing to capture a market that we feel is going to grow over the next decade or more. That said, it's smaller than our mainstream business, which is customer engagement. The great thing about having a developer platform is you can start at the broadest, most applicable building blocks there, put them in the hands of developers and wait to see what they build. As the market unfolds, developers show us where the big unsolved challenges are, allowing us to make smarter investments over time. We see the IoT roadmap as a long run and a bet that we’re making that the IoT market will be one with tremendous innovation in the years to come. Not necessarily in the places where we see it on a day-to-day basis—people often think about IoT in their homes—but in broader areas, like connecting hundreds of millions or billions of sensors in fields where crops are grown. One of the drivers of IoT is actually the environment, as with better connectedness, we can direct resources better and make our economy more efficient.

Got it. Yes. It's very interesting. I think there's one more just for Khozema. The color around the political contributions is helpful, or at least the political use cases and how they contribute to revenue. Maybe just any thoughts on what you've embedded in terms of guidance for that stable up and down to Q4? And then any impact that that had on the dollar-based net expansion in the quarter will be helpful?

Yes. It's pretty modest in terms of the Q4 impact. I would say it's kind of in the same range. If you recall back to our Investor Day, we called it around this like 1% range, currently it's about 2%. Today, we would expect it to increase a little bit but again, I think it'll be pretty modest. Not a hugely significant impact on the elevation of expansion, obviously that million-dollar contribution will impact it a little bit. The election is a week away, and so I don't think we expect a lot more to transpire after that.

Alright. Understood. Thanks again. Your next question comes from the line of Derrick Wood from Cowen and Company. Your line is open.

Great. Thanks for taking my question, and congrats on a very good quarter. I wanted to ask the first question on Frontline, and it certainly seems to be an interesting opportunity to help further transform customer engagement initiatives. Two questions. First, do you think this could become a fair revenue driver over the next one to two years, especially considering you've already got some interesting referenceable customers? And second, this really seems like a greenfield opportunity that doesn't exist in the market. I'm curious where you think an application like this, where budgets are likely to come from, whether it's on customer service, marketing, or even some other operational line? Thanks.

Thanks, Derrick. This is Jeff. So first of all, we see this as a really emerging workload. The need for these frontline workers has changed, not just as a result of COVID but as a result of the digitization of some of the industries. This role of engaging with customers is growing, and so I think this is an emerging workload that we're investing in. When we talk to customers, we see them using our platform for these types of workloads already organically and you see Frontline facilitating their ability to find success in these use cases. Regarding the second part of your question about budget sources, Frontline is still in beta. So we're not commenting on revenue contribution at this point in time. Obviously, over time, we would expect it to contribute to revenue.

Regarding Q4 guidance, I think it's about flat to up 2% sequentially. That’s much lower than we've historically seen into Q4. Is there something to be aware of that may generate seasonal strength this year versus past years? Or is that mostly just maintaining a degree of conservatism? Maybe you could also just speak to how you feel about the pipeline going into Q4? Yes, I mean, I think we feel good about what we turned in Q3, and we continue to see broad-based strength across what we feel is a really diversified business at this point. There are obviously persistent questions about the macro environment. We're facing an election in the next week or so. We continue to see strength, certainly in Q3, but that macro environment is a little bit uncertain, and so I think we're just being prudent. Our Q4 guidance shows continuing strong growth. We remain cautiously optimistic about our performance in the near term. In the medium term, we provided guidance at the Investor Day of 30% over the next four years. We remain confident in our growth prospects in both the near and medium terms.

Your next question comes from the line of Alex Kurtz from KeyBanc. Your line is open.

Yes, thanks for taking the question, and congrats on the quarter. When you think about the investments you're making for next fiscal year, are there any big changes versus what you're currently run rating through at the end of the year? Is there something that you're going to be layering on, whether it's Flex, the Hypervisor product or maybe just telemedicine? Any changes this year versus next year? And where are the bets being made?

Yes, not really. I would say it's a bit more steady as she goes. We've commented on investments we were going to make at the start of the year, and we've kind of commented throughout the year on how it's been a little bit harder to make those than we originally set out. We’re going to continue making investments in go to market. We feel great about the traction that George has seen, for example, in enterprise and Flex and international. We’ll continue investing in our center of excellence in India, which is off to a good start, along with just building and scaling our company. We’ve talked about systems and processes that we think are important to us. At this point, we're just trying to set up the business to take advantage of our growth and scale.

Your next question comes from the line of Rishi Jaluria from D.A. Davidson and Company. Your line is open.

Hey, guys, thanks so much for taking my questions. And nice to see some continued strong execution. I just wanted to go a little bit deeper into the international side of the business. Can you give us a little bit of color in terms of if there are particular geographies where you're seeing strength? Alongside that, just based on the guidance you gave us at the Analyst Day, how should we think about the investments you're making internationally alongside the trajectory of getting gross margin expansion?

It's George. The overall story is balanced growth globally. I do think that if any area shows strength, it would be in the Americas, both North America and Latin America. We're seeing more strength there. But overall, I would say we're seeing balanced growth. I'll turn it over to Khozema for the question around margins.

Rishi, in terms of margins, really no change from the guidance that we provided at the Investor Day. In the short term, we're very focused on growing gross profits, and we see a lot of opportunity out there. We discussed some dynamics like our accelerating messaging business. We still anticipate our gross margins to creep above that 60% range over time, with no real change in terms of our philosophy there.

Your next question comes from the line of Ittai Kidron from Oppenheimer & Co. Your line is open.

Thanks. It's Ittai. Guys, congrats on a great quarter. A couple of questions for me; first for you Khozema on OpEx. You're trying to hire a lot. It doesn't seem to be working, though, like you're kind of falling short of plans for a few quarters in a row. What's changing internally that will enable you to do that as you move into next year? It makes a lot of sense for you to hire a lot. It seems a little more difficult than planned. So what's going to change that? And I have a follow-up.

Yes. I think there are a couple of dynamics there, Ittai. First, some of the profit that dropped through is just a result of increased revenue, right. There's a little dynamic there. In Q3, it was probably the first quarter in the last couple of quarters that we were able to catch up our hiring. You're right, in terms of Q1 and Q2, we did have a little bit of difficulty, just in terms of some COVID dynamics. But I think now, we've appropriately staffed our talent acquisition team. We'll be in a position to make investments at the pace we would like to, and a lot of those investments will be hiring. We should be in great shape over the next year.

That's great. And then a follow-up for you, George, on the Deloitte Digital deal. Can you give us a little bit more color on how the ramp is going to go? How should we think about the investment that Deloitte has committed to make on these partnerships? How long before results start showing? Is there any exclusivity here? What are the odds we see other Deloitte Digital deals out there?

That's a great question. We're very excited about the Deloitte Digital partnership. This partnership really speaks to the progress we're making in both enterprise and our broader platform story. We just kicked off the partnership. We're ramping them up and getting them trained. They're committing a certain number of consultants to get educated on the Twilio platform. We're also in progress with a couple of lighthouse customers to jumpstart the partnership. The mutual vision we have with Deloitte is pretty big. It's not an exclusive partnership, but it's exciting, and we think this is just the beginning of how we continue to expand our SI program, especially at the GSI level.

Your next question comes from the line of Scott Wilson from RBC. Your line is open.

Hey, guys. This is Alex Zukin. Thanks for taking my question. I guess because I'm the first one for you at a high level, if I think about the acceleration in the business terms that you're seeing both at new customer levels and existing customer levels, how important is bidirectional messaging to the business today? What percentage of messages that you send are going in both directions? How should we think about that over the next three years? And I've got a quick follow-up.

Yes. I mean, we don't break it out at that level, Alex. We have a number of breakouts in terms of our product split at the Investor Day, and I think that’s about the direction we’re planning to go down in terms of disclosures. What I'll say is that I think bidirectional is super important to us in the long term. The nature of bidirectional messaging is still in its relative infancy, and the products we have, in particular the conversations product we launched last year, is being adopted well. Most businesses are still sending messages one way, and we think there's opportunity there over time.

Got it. And then maybe another kind of big picture one, which is if you think about, you obviously have been executing quite well this year. But there are still likely some headwinds to your business that could potentially turn into tailwinds next year, presuming the economy continues to recover. What are those? If you remind us of what those headwinds that could become tailwinds next year would be, and how we should think about that as a growth driver?

Yes. I mean, I think in terms of the way we have guided, we've said that over the next four years, we feel like we can continue delivering 30% revenue growth annually. Over the last year or so, there's been consistent and broad-based revenue strength across the entirety of the business. Now, going into COVID, there were some heavily impacted industries like rideshare and travel hospitality. As we talked about earlier in this call, the traffic in those industries is still lower than pre-COVID volumes, and we would expect some bounce back in that. We're not calling exactly when that is, but some of the acceleration we've seen in healthcare and education, e-commerce, we also think those use cases are going to be pretty resilient. I don't think they’re going to be ephemeral. In fact, we see a lot more opportunity in those industries, so I think that's going to provide ongoing tailwinds over the medium-term as well.

Got it. Khozema, if I could sneak one more and just ask about Segment. A question I've gotten continuously is what roughly percentage of the revenue stream there is usage-based versus subscription? And how is that going to impact the deferred write-down?

Yes. Alex, we're just not in a position to be able to provide financial information on the Segment transaction right now. We're not closed yet, and I think once we get close, as we disclose our Q4 results, we'll give you a lot more information there. We're not going to provide accounting impacts and financials today.

Your next question comes from the line of Brent Bracelin from Piper Sandler. Your line is open.

Thank you. Good afternoon. I guess, Jeff, maybe I'll start with you. I know you can't provide a lot of financial detail around Segment. But I did see that Peter's keynote at the CDP event last week came your way even more impressed with the opportunity here. My question: could you share any feedback from customers and partners that you've heard recently?

I think what we've heard so far from customers or partners is a lot of excitement because we're going to be able to accelerate not only SendGrid's or Segment's roadmap and vision but what we can do together. A lot of customers are looking for a single customer engagement platform that can take them end to end. We started with communications, but that's a means to an end. For B2C companies, engaging with your customer starts with understanding your customer. All that data resides in different systems, giving us the complete picture. When you're able to assemble that picture, you can engage effectively. This is our goal: to bring together customer data with relevant, timely, and impactful communications that can make customers more loyal and happier. That's generally what customers have told us, the problem they want solved, which is why we're building the customer engagement platform.

Brent, we have seen two-fold quarters of deal acceleration in a post-COVID era. The enterprise customer journey is evolving. We're landing with Flex and messaging, and discussions are much broader. Expands are accelerating. We've had a fantastic year, much bigger participation from leading enterprises, great participation as well as leadership. The need for digital transformation is growing, and we have the capabilities and investments made that are allowing broader discussions and to accelerate.

Awesome. Thank you. That’s all I had. Thank you.

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