Good day, and thank you for standing by. Welcome to the Twilio Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. You'll then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bryan Vaniman, SVP of Investor Relations and Corporate Development. Please go ahead.

Good afternoon, everyone, and thank you for joining us for Twilio's fourth quarter 2024 earnings conference call. Joining me today are Khozema Shipchandler, Chief Executive Officer, and Aidan Viggiano, Chief Financial Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-Q and our forthcoming Form 10-K. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements except as required by law. And with that, I'll hand it over to Khozema Shipchandler, who will discuss our Q4 and 2024 results. We'll then open the call for Q&A.

Thank you, Bryan. Good afternoon, everyone. Thank you for joining us today. Twilio had a terrific Q4, reaching $1.195 billion in revenue, an 11% increase year over year, and our second consecutive quarter of double-digit growth. Q4 also marked an important milestone for Twilio, as it's the first time we've delivered quarterly GAAP operating profitability in the company's history, well ahead of our initial target. For the full year, we generated $4.458 billion in revenue, representing 9% organic growth year over year. Over the past two years, we've dedicated ourselves to transforming Twilio's business from one primarily focused on growth to one that balances innovation, growth, and profitability. Our results demonstrate the success of those efforts. Not only have we recently accelerated revenue growth, but we've also significantly boosted our non-GAAP profitability while meaningfully accelerating our path to GAAP profitability, plus reducing our net burn rate and outstanding share count. And we've increased annual free cash flow by nearly $1 billion since 2022. All of this illustrates our commitment to operating the company with more discipline, rigor, and focus. There's more work to be done, but the results speak for themselves. At our investor day a few weeks ago, you got a chance to hear about the new Twilio, including our product strategy, growth levers, and financial framework that we have in place to win a much larger addressable market. As marketing, sales, and customer support converge into customer experience as a service, we strongly believe that Twilio's leading communications platform, coupled with contextual data powered by Segment and our innovations in AI, position us to win in this massive market and reinforce our vision of powering every digital interaction between brands and consumers. We've provided a lot of details during our Investor Day. Today, I wanted to reinforce a few of the key takeaways while also sharing some of the highlights from Q4. On the innovation front, in 2024, we launched 251 products, enhancements, and services. These innovations align with our strategy of building a trusted, simple, and smart platform that enables brands to drive more secure, relevant, and personalized interactions with their customers. Throughout the quarter, we continued to invest in our core capabilities to drive even greater customer value. During Cyber Week, Twilio powered more than 5 billion messages, delivered more than 65 billion emails, and supported 678 million calls, all while delivering 100% uptime. The confidence our customers have in Twilio is stronger than ever, and critical periods like Cyber Week prove to our customers that Twilio has the trusted, simple, and smart platform that they need. During the fourth quarter, we expanded our trusted channels to meet our customers' evolving needs by adding new capabilities to support existing channels, including RCS and WhatsApp. For RCS, we also recently announced that rich content cards, media, and rich card carousels are now available and supported by our content template builder. That helps streamline development. RCS is proving a valuable expansion vehicle for existing customers like MarketBeat, who are able to benefit from Twilio's streamlined approach to development on a single messaging API and our universal template management system. It's clear that Twilio continues to be at the center of the AI value chain, as we already have 90% of the Forbes 50 AI startups building on Twilio. We continue to drive ROI with our AI-enabled products, benefitting from emerging AI companies that chose Twilio as an essential component for their customer engagement layer, and partnered with key AI players in the ecosystem like AWS, Databricks, Google Cloud, OpenAI, and Snowflake. In Q4, conversation relay, which helps simplify the process of building robust AI voice agents, went into public beta. While it's still early, we believe that AI will drive a renaissance in voice, and everyone from enterprises to startups will begin orchestrating new voice experiences that are two-way and personalized. On the Segment front, the AI innovations that went live throughout 2024 are beginning to generate tangible results for our customers. As an example, with predicted audiences, one company realized a 70% improvement in audience accuracy. In Q4, we found an average of four weeks of data science time saved by giving marketers the ability to predict behavior. Emerging AI startups are continuing to build on Twilio. More than 9,000 companies building in the AI space utilized Twilio services in 2024. Paradox.ai, one of Twilio's AI searchlight winners, is using conversational AI for recruiting and leverages their AI assistant, Olivia, to help with frontline recruitment. Starting as a self-serve customer in 2017, they reached unicorn status in under five years. Today, Twilio powers over 150 million messages a month on their behalf. More importantly, with Twilio messaging, they've been able to help companies like McDonald's, Workday, and SAP get interviews scheduled in minutes versus the manual process that used to take anywhere from five to seven days. We're continuing to partner with established AI companies like OpenAI. During the quarter, we helped OpenAI launch calls and WhatsApp messaging through their Twilio-powered number 1-800-CHAT-GPT, which has seen incredible volume since launch. Our innovation strategy and execution continue to pay off, as we were named leaders in multiple analyst reports. During the quarter, IDC named Twilio a leader in its MarketScape: Worldwide Customer Data Platforms focused on B2C users. Amdia also named Twilio a leader in two reports: the Amdia Universe Customer Engagement Platforms and the Omnia Universe Customer Data Platforms. With respect to distribution, we continued to focus on our self-serve, cross-sell, international expansion, and our partner ecosystem while also optimizing for scale and efficiency. In Q4, our go-to-market team continued to deliver improved execution, as evidenced by strong large deal activity during the quarter. On the communication side, we closed 78 deals worth $500,000 or more, up 47% year over year. In Q4, we closed our largest Segment deal ever with one of the world's largest financial services companies. Within self-serve, we saw a continued acceleration in sign-ups, upgrades, and revenue growth, a testament to the improvements we've delivered to our self-serve experience over the course of 2024. Cross-sell and upsell continue to be massive growth drivers. During the quarter, we had terrific wins, including one with a longstanding Twilio voice customer, a top health system in the U.S. operating 33 hospitals. The customer adopted Twilio's RCS messaging, branded calling, and engagement suite to increase call adoption, establish a stronger brand presence, and increase messaging deliverability and engagement. Additionally, we also signed a deal with a leading web hosting provider. The company has been a long-time Twilio messaging customer and expanded their use to include Twilio's Conversations API to power two-way SMS and voice channels. With Twilio, the company has integrated the product into their own proprietary unified inbox, giving customers the ability to manage their business communication needs on their smartphones, simplifying communication with their own customers. International expansion and partner distribution continue to help us unlock an underpenetrated addressable market. For example, during the quarter, Twilio expanded its relationship with Klaviyo, with several SMS deals in European markets. Finally, we are driving our go-to-market strategy more efficiently by leveraging AI and automation, built upon Twilio's technology. In presales, we're using data to lead the identification process, resulting in shorter sales cycles. Additionally, today, 80% of our new inbound leads are being handled by AI, leading to a faster sign-up and upgrade process for prospects due to quicker responses, multilingual support, and depth of knowledge. Post-sales, our help center assistance achieved a 75% ticket deflection rate when AI is engaged. I'm proud of how our discipline, rigor, and focus have positioned the company well for the years ahead as we drive strategic customer-centric growth with innovation at the core. In many respects, 2024 was about rebuilding the foundation. 2025 is the year we'll focus on executing against our ambitious innovation roadmap to unlock the power of communications, contextual data, and AI. As we do so, every consumer interacting with the 325,000-plus active customer accounts that we power will benefit. Our strategy is clear. Our execution is focused. And our impact is real. I'm incredibly proud to see the hard work paying off as we enter this next phase of growth and create more value for our shareholders in the years ahead. With that, I'll turn it over to Aidan.

Thank you, Khozema, and good afternoon, everyone. Twilio finished the year with a strong Q4, delivering our second consecutive quarter of double-digit revenue growth and our first-ever quarter of GAAP operating profitability. For Q4, we generated record revenue of $1.195 billion, representing 11% year-over-year growth. We also generated record non-GAAP income from operations of $197 million and $93 million in free cash flow. We came into 2024 committed to driving durable growth, continued margin expansion, and increased free cash flow generation. I'm pleased with our execution throughout the year. For the full year, we generated revenue of $4.458 billion, representing 9% organic growth, non-GAAP income from operations of $714 million, and free cash flow of $657 million. We completed our prior $3 billion share repurchase authorization, returning over $2.3 billion to shareholders in 2024 alone, and reducing our outstanding share count by 16% since the start of the year. Revenue in our communications business for the quarter was $1.121 billion, up 12% year over year. Messaging revenue growth accelerated for a second consecutive quarter, while email performance remained strong, driven in part by strong volumes during Cyber Week and the holiday season. Political revenue contributed roughly 60 basis points to our reported revenue growth rate. This was partially offset by a 40 basis point headwind associated with sunsetting the software component of our Zipwhip business, which we have now fully lapped. Segment revenue for the quarter was $74 million, down 1% year over year. We were encouraged by the go-to-market execution in the quarter, with bookings slightly accelerating year over year, along with over half of new bookings coming from multiyear deals. Our Q4 dollar-based net expansion rate was 106%, representing our best performance since Q1 of 2023 and reflecting the improving growth trends we've seen in our communications business over the last several quarters. Our dollar-based net expansion for communications was 108%, and the dollar-based net expansion rate for Segment was 93%. We delivered record non-GAAP gross profit of $621 million, up 10% year over year. This represented a non-GAAP gross margin of 52%, down 40 basis points year over year and 100 basis points quarter over quarter. The decline in gross margins was driven by expected higher hosting costs during Cyber Week, as we referenced during our Q3 earnings call, along with an increase in revenue mix from messaging. Non-GAAP gross margin for our communications business unit was 50.6%, down 10 basis points year over year and 110 basis points quarter over quarter. As we referenced on our Q3 earnings call, the sequential decline was driven primarily by higher hosting costs associated with the holiday shopping season as well as higher messaging revenue mix. Non-GAAP gross margin for our Segment business unit was 72.3%, down 210 basis points year over year and up 240 basis points quarter over quarter. The sequential improvement was primarily driven by benefits from our Segment infrastructure migration project as well as hosting credits in the quarter. We largely completed this project during the fourth quarter, which we expect will help support Segment gross margins as we move into 2025. Q4 non-GAAP income from operations came in modestly ahead of expectations at a record $197 million, up 14% year over year, driven by strong revenue growth and ongoing cost discipline. Our non-GAAP operating margin of 16.5% was up 40 basis points year over year and sequentially. We generated $14 million in GAAP income from operations, representing Twilio's first-ever quarter of GAAP operating profitability. In Q4, we incurred $17 million in bad debt expenses related to our customer OI, a Brazilian telecom company, as a result of a slowdown in their ongoing payment activity. We fully reserved our exposure to OI's existing accounts, which reduced operating margin by 140 basis points in the quarter. For the full year 2024, we generated non-GAAP income from operations of $714 million, up 34% year over year, and our non-GAAP operating margin of 16% was up 320 basis points year over year. Non-GAAP income from operations for our communications business was $275 million in the fourth quarter. In the full year 2024, our communications business generated over $1 billion in non-GAAP income from operations. Non-GAAP loss from operations for our Segment business was $10 million in the fourth quarter. Segment operating losses improved sequentially as a result of the gross margin improvement in the quarter and ongoing cost discipline. Our Segment business remains on track to achieve breakeven non-GAAP income from operations by Q2 of this year. Stock-based compensation as a percentage of revenue was down 60 basis points quarter over quarter and 240 basis points year over year, as we continue our efforts to reduce equity compensation. Full year 2024 net burn rate was 3.3%, down 160 basis points year over year. This does not include the impact of share repurchases conducted over the course of the year. We continue to manage dilution on a net burn basis, defined as the number of employee stock units granted in a year net of forfeitures and divided by the prior year ending share count. We generated free cash flow of $93 million in the quarter, down sequentially as anticipated, driven by incremental vendor prepayments totaling roughly $130 million. We periodically pay certain vendors early to secure favorable terms and pricing. For the full year 2024, we generated $657 million in free cash flow, up 81% year over year, representing a margin of 14.7%, which was up 600 basis points year over year. Before I turn to Q1 and fiscal year 2025 guidance, I wanted to recap the financial framework we announced at our Investor Day in January. In 2027, we're targeting non-GAAP operating margins in the range of 21% to 22%, up 500 to 600 basis points compared with our full year 2024 results. From 2025 to 2027, we expect to generate $3 billion plus in cumulative free cash flow. We're targeting GAAP operating profitability in fiscal year 2025 and each year thereafter. We continue to focus on managing stock-based compensation and dilution responsibly, targeting stock-based compensation at about 10% of revenue and net burn at less than 3% in fiscal year 2027. We're orienting the business to deliver double-digit growth over time, so our framework assumes annual revenue growth through 2027 that is similar to our 2025 guidance of 7% to 8%. Finally, our board recently authorized a $2 billion share repurchase program expiring at the end of 2027, targeting an average of 50% of our annual free cash flow and capital returns to shareholders from 2025 through 2027. Moving to Q1 guidance, we're encouraged by the growth acceleration we saw in the second half of 2024, but we're continuing to plan prudently given our usage-based revenue model. For Q1, we're initiating a revenue target of $1.13 billion to $1.14 billion, representing year-over-year growth of 8% to 9%. The quarter-over-quarter decline in revenue reflects both the Q4 seasonality dynamics that we've seen in the last couple of years as well as a modest impact from Q4 political revenue. Notably, there are two fewer days in Q1 compared to Q4, and one fewer day in Q1 compared to the year-ago quarter. That being said, we continue to feel good about our guidance for the year, and we're maintaining our full-year 2025 organic revenue growth guidance range of 7% to 8%. For our profit outlook, for Q1, we expect non-GAAP income from operations to be $180 million to $190 million, and for the full year, we expect non-GAAP income from operations in the range of $825 million to $850 million. As anticipated, free cash flow in Q1 will be impacted by a roughly $120 million payment related to our company-wide cash bonus program that we implemented in 2024 as part of our efforts to reduce stock-based compensation.

This will limit free cash flow generation in the first quarter.

That said, we continue to expect to generate strong quarterly free cash flow over the balance of the year, and for the full year, we expect free cash flow in the range of $825 million to $850 million. I'm very pleased with the accelerated revenue growth we delivered in the fourth quarter, as well as our ongoing cost discipline that is driving strong profitability and free cash flow. I'm also encouraged by the innovation we are delivering and the impact new products and features are having both for our customers and on our revenue. We are confident in our plans to drive durable revenue growth, continued margin expansion, and strong free cash flow generation in 2025. And with that, we'll now open it up to questions.

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our first question is gonna come from the line of Jim Fish with Piper Sandler. Your line is open. Please go ahead.

Hey, guys. Thanks for the additional color here following the Analyst Day. Well done again at the Analyst Day. Trying to understand, given some of the macro stuff that's going on, how much of the strength you guys are seeing in messaging and email is due to somewhat this return of the crypto world?

Hey, Jim. This is Aidan. I'll take that question. So, from a crypto perspective, we do see those customers exhibiting stronger volume, though it's nowhere near returning to the levels that we saw from 2020 to 2022. So it's a bit better, but it's relatively immaterial in the grand scheme of things. So not a big driver for the business, messaging, or email.

Alright. And then just it was nice to see Segment here. In terms of, like, while revenue was a little bit down year on year, if I look at that deferred revenue build, it seems that implied billings was up north of 20%. Is the Segment business seeing a bottom, or how much is the sort of billings strength attributable to that big deal you referenced?

Yeah. Maybe I'll comment on the backlog, and if Khozema wants to do anything on the business, you can do so. But yeah, both the RPO balance and the CRPO balance are really driven by Segment. The growth is driven by a combination of bookings growth as well as the percentage of new bookings that are tied to multiyear deals. What we saw in the quarter was bookings were up a bit, but over 50% of the deals that we booked in the quarter were multiyear. So that's been a point that the team has been working on and focused on, and we're starting to see that show up in the bookings metrics. So that's part of what is driving it. And I would say, I would note that any of these metrics that you're looking at on the balance sheet are not fully representative of Segment's book of business.

Jim, all I would say is that this has been sort of a steady-as-she-goes story. Right? There have been a number of improvements that we made in the business. I think going back to the operating review that we announced last year, there were a number of things that we wanted to do to improve performance both on the technology and innovation side as well as in terms of the way that we are running the business. We're starting to see a lot of that show up in the balance sheet item that you referenced. Ultimately, I believe it will turn into revenue. It will take a little bit of time, but sitting here today, we feel pretty good about the standalone business. We feel even better about how the Segment asset actually contributes to the overall growth story we laid out during the Investor Day.

Helpful. Thanks, guys.

Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Michael Turrin with Wells Fargo Securities. Your line is open. Please go ahead.

Hey. Great. Thanks very much. Appreciate you taking the question, and congrats on the return to double-digit growth. Hoping you could maybe just spend some time speaking to the ways you aim to ensure the growth improvements you're seeing prove durable. What are you using to build those initial 2025 assumptions? And then what are some of the swing factors we should contemplate that could keep you at the more aspirational double-digit growth level?

Yeah. Maybe I'll start by kind of what we saw in the quarter. I think it's important when we look at the growth in both Q3 and Q4. First of all, it wasn't driven by political. In Q4, we noted it being 60 basis points, which was largely offset by the end of life of our software business in Zipwhip. It was true 11% operational growth. Importantly, it wasn't one thing driving it. When you look at it by product, we saw strength again and accelerated growth in messaging. Email's been strong all year, and we continued to be strong, with a record-breaking Cyber Week. We saw strength in messaging, email, and voice, as Khozema shared some of those stats in his prepared remarks. ISVs were strong, and self-service was also strong. Regarding industry, we've disclosed the top five at our Investor Day, but we saw strength in tech, financial services, healthcare, retail, e-commerce, and advertising, which all exhibited healthy growth. Geographically, it was similar. This is important for us. It's not one thing driving growth, but it's pretty broad overall. From a planning perspective, we feel good about guiding to 7% to 8% for the year. We know that we're running ahead of that, especially in the second half of 2024, but just given the usage-based nature of our business, we think that it's prudent to continue planning carefully. As for what swing factors could drive double-digit growth, we believe internal actions will play a big part.

There’s nothing, Michael, that I would really add. I think I would certainly echo all of what Aidan said. When you break it down by some of the channels, we feel good about the activity there. We referenced during Investor Day as well as in today's conversation the positives from AI green shoots, which are encouraging. The most important part of this story is that we're tuning the business towards that double-digit number. That guidance aside, that’s the way we’re running the place. A lot of momentum in the initiatives we have ongoing will drive this growth.

That's great. Just as a quick follow-on on gross margin. I know that line can move around a bit. If we're looking at Q4, relative to the rest of the year, is that more seasonal traffic driven, and are you confident in your ability to continue to deliver some level of gross margin expansion as you progress towards those 2027 targets?

So in terms of Q4, we signaled this coming into the quarter. We always have higher hosting costs Q4 just given how much traffic is going over the platform. We provision for that because we aim to maintain trust with customers during critical traffic periods like Cyber Week. Hosting costs were a factor. You will see if you look from Q3 to Q4 in 2023, that it tended to follow this pattern. Another thing driving the quarter was a greater mix of messaging product revenue as a percentage of total. As you know, that business carries lower gross margins. Now as we plan toward the 2027 framework of 21% to 22% operating margin, we indicated that this assumes rather flat gross margins. However, we think over time there is an opportunity for an improvement, especially in products carrying software-like margins.

Thanks very much.

Thank you. One moment as we move on to our next question. Our next question is gonna come from the line of Nick Altmann with Scotiabank. Your line is open. Please go ahead.

Awesome. Thank you. You guys alluded to large deal strength in Q4. At the Investor Day, you highlighted how that $1 million-plus customer cohort was, I believe, the fastest-growing. So, Khozema, can you just maybe talk about the high end and what's driving the strength there? Is that more volume driven? Is it more cross-sell driven? My follow-up is when you look at the improvements in the communications expansion rate, how much of that is being driven by those larger deals or the high-end customers?

As we look at a lot of these larger deals, it's always going to be a combination of new land and expansion via cross-sell. More importantly, many of our customers are seeing value in using multiple of our products together, especially as communications and data interact with AI. So, increasingly, we're observing larger, more sophisticated deployments among enterprise customers aligned with our vision. It's a mix, but there are also many new deals in the pipeline. Regarding the communications expansion rate, trends are broad-based, and I would not point solely to large deals as the primary driver. It’s encouraging to see strength across the board.

Great. Thank you.

Thank you. One moment for our next question. Our next question is gonna come from the line of Mark Murphy with JPMorgan. Your line is open. Please go ahead.

Thank you very much. The number of AI customers that you've racked up is pretty amazing. You had mentioned it at the Analyst Day. Wondering if you could shed light on how much of that is tied to authentication or, you know, something that ties into an app download at the front end of the cycle versus something that might align with an ongoing AI usage pattern. Is that AI business driving any tangible tailwind to revenue growth, for instance, is it greater than where the political contribution tailwind was?

The AI business is indeed a mixed bag of different types of customers. Some are really small and just getting started on our platform. Others are larger enterprise customers building various AI use cases. However, in terms of the growth rate, it's a mix, and I wouldn’t say it's a huge tailwind for our overall revenue right now.

In terms of use cases, it spans the entire spectrum. We have examples of clients doing 2FA, but more compelling examples involve larger enterprise customers ramping up quickly using our infrastructure for various AI applications. It's encouraging to see broad-based strength here.

And thank you for that, Khozema. And a quick follow-up for Aidan. Just curious how commonly we might see this kind of a huge prepayment? You mentioned the $130 million one recently. Should we view it as being an annual possibility in Q4 if you're gonna benefit from some great terms and conditions, or do you think it's gonna be more episodic than that?

I think it'll be more episodic than that, Mark. We happened to have a large prepayment in Q4. This is something we want to continue with different strategic vendors from time to time. It allows us to secure better unit economics and pricing. It won't necessarily happen every Q4, but you will see different prepayments periodically in different quarters. Some quarters may be larger than others. It's not guaranteed every year.

Very clear. Thank you. Appreciate it.

Thank you. One moment as we move on to the next question. Our next question comes from the line of Ryan Koontz with Needham and Co. Your line is open. Please go ahead.

Great. Nice to hear some of your progress in the RCS market, some early wins there. As we look at this, how would you characterize where the market is today? Can it scale? What are the keys to success here? From the industry? Is there multi-operator interconnect working today? Does it work internationally? Can you walk us through just a minute on where we are?

It's incredibly early for RCS. While we are encouraged by early deployments, I still believe there are challenges in the ecosystem, including interoperability. That said, we want to support our customers, and we're excited about RCS because it allows brands to identify themselves during interactions. We find the engagements to be rich without needing to visit an app or a website. However, the utility of it depends on how RCS functions, and we see it as neutral to modestly accretive in terms of growth. The volumes are increasing in relation to where they were, but they are off a low base.

I assume the Android ecosystem is kinda far ahead of the Apple ecosystem right now?

Yes, much further ahead.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open. Please go ahead.

Great. Thanks. Maybe you could just give a sense. I know, obviously, you have a lot of existing customers. And you'll get an idea of their business performance by usage. But just kinda what you're seeing kinda on the business environment as we start the year. Just as you go through sales cycles? And then maybe as a second question, on the Segment piece, you know, the net expansion rate still kinda being below 100%. Just kinda when do you expect some of the new wins and traction that you're seeing to kind of help improve that metric?

We feel pretty positive about the business environment. I don't want to get ahead of Q1 beyond the guidance we provided, but generally based on the trend line we saw in Q4, customers are ready to engage and excited about our products and services. They're enthusiastic about the vision we laid out around communications, data, and AI. Several fielded use cases and products support this optimism. However, we always plan around a neutral macro environment. We could benefit from an improved macro or see some challenges from a deteriorating one, but for now, we’re maintaining a neutral outlook.

In terms of net expansion, we're not running the business strictly on that metric. However, we are seeing more stickiness in deals due to their multiyear nature. We've enhanced customer activation, enabling faster ROI. The improved integration of Segment with data warehouses has been positively received. While it's still a work in progress, we are optimistic about where it stands.

Great. Thanks. Thank you. One moment as we move on to our next question. Our next question comes from the line of Arjun Bhatia with William Blair. Your line is open. Please go ahead.

Perfect. Thank you, guys. Maybe the first one, I’ll focus on NRR on the other side of the business, the comms side. The 108 is pretty impressive here. I'd be curious to hear how much of that is improvements in gross retention versus the investment that's gone into innovation and product cross-sell. The split between that would be interesting to hear. And how do you expect this to evolve? Is this a sustainable level going forward as those initiatives play out? Or, you know, it's Q4 maybe some seasonality in play?

The comms DBNR accelerated to 108% in Q4. It generally tracks revenue growth over time. Breaking it down, we had strength in messaging and email contributing to this positive performance. Churn remained low, and we observed improvements primarily through increased expansion. A modest reduction in contraction also helped. The two segments that performed really well are IS and self-serve at our Investor Day, and they continued to do well in Q4. Regarding how to think about it going forward, it will closely mirror company revenue trends, though we do not provide specific guidance for this metric.

Okay. And you gotta send me a total? And then maybe zooming out, you know, at Investor Day, we talked about kind of cross-sell as a big driver of growth. And I think you had mentioned you have 63% of customers being single product. When you think about the cross-sell opportunity, like, how do you bucket it in terms of maybe the layout of products that you can sell? Are there others that are home runs that are maybe longer sales cycles but where customers could significantly increase in size? How are you approaching that from a product and go-to-market perspective?

We have concentrated incentives as part of the sales incentive plan to ensure our teams focus on cross-sell. In terms of more accessible options for cross-selling, customers can easily combine SMS and email, which represent classic channels. Our RCS initiatives may also offer opportunities for upselling, particularly as we encourage stronger engagement through voice. We have various deployed use cases showing that customers gain more value by using two channels versus one. Our goal is to demonstrate the benefits of a multi-faceted strategy to our customers, revealing significant value in increasing their usage across our product suite.

Alright. Perfect. Very helpful. Thank you.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Aleksandr Zukin with Wolfe Research. Your line is open. Please go ahead.

Hey, guys. I wanted to ask just maybe again, we're still early in this whole kind of consistent guidance framework. Coming out of the Analyst Day, where you did a great job. Maybe just talk about how much conservatism you've baked into both Q1 and as we get through the year. And then just a quick question about the debt expense. The operating income seemed one-time that impact in Q4. If you could just add a little bit deeper into that.

We’re pleased with the performance in the second half of the year. Strength across a variety of areas informed our guide of 7% to 8% for the year, reflecting prudent leadership for our usage-based model. Our outlook for Q1 is for year-over-year growth of 8% to 9%, which shows the positive trends impacting our forecast. As for the $17 million charge in Q4 related to a Brazilian telecom customer, we noted a decline in their payment activity. Previously, we only needed partial reserves for this customer. Recent changes in behavior prompted us to fully reserve their receivables in Q4, leading to a significant impact on margins.

Perfect. And then just anything on the competitive environment, especially as you continue elevating conversations about the broader platform-based offering?

We feel great competitively. We are the market leader in important categories. Our recent success, especially as AI emerges as a secular trend, is very encouraging. We’re growing at a faster rate than others in the market, and we plan to harness that strength with new R&D investments promoting our double-digit growth mentality. I believe these R&D investments will yield significant value for our customers.

Thank you, guys.

Thank you. One moment for our next question. Our next question comes from the line of Pat Walravens with Citizens JMP. Your line is open. Please go ahead.

Great. And let me add my congratulations. Aidan, can you remind me how to think about the operating margin ramp from, you know, like, the 17% to 18% in 2025 to the 21% to 22% in 2027? I have 26% pretty flat currently with 25%. Is that the right way to think about it?

We’ve committed to 21% to 22%. Given the guidance for 2025, that implies roughly 7.5% in 2025. You should assume accretion each year as we work towards those margins.

Okay. I'll go in the middle. And then, Khozema, where are you using AI agents internally? You detailed areas during the Analyst Day, but where is it working well for your internal operations?

We’ve seen substantial differences in customer support by deploying AI agents, leading to significant deflections. This enhances productivity and allows customers to receive answers far quicker in a self-serve manner. We also apply AI for vetting customer inquiries in our sales department. This impacts cost savings and ensures that when reps engage with vetted accounts, they are much higher quality leads.

Great. Thank you both.

Thank you. One moment as we move on to the next question. Our next question comes from the line of Ryan MacWilliams with Barclays. Your line is open. Please go ahead.

Hey, guys. Thanks for taking the question. Love to hear about how you're seeing any changes in the macro through the end of the fourth quarter or to start this year. If you've noticed any usage perspective changes from a geographic standpoint across North America versus the rest of the world.

I wouldn’t call out anything specific from Q4 to Q1. We always see volume drop-off after the high holiday season, but that’s not unusual in our business. I don't see notable differences between the U.S. and the rest of the world in that regard.

I agree with Aidan. The market remains dynamic, but there hasn’t been anything that significantly impacts our business at this time.

Perfect. And then, Khozema, regarding VoiceAI, we’re still in early days. What potential voice AI use cases do you see making sense for Twilio, versus those that would align more with something like Siri or Alexa? What early use cases are you seeing?

We have numerous customers currently piloting different use cases leveraging VoiceAI. Consider a client who previously relied on IVR to handle workloads. Instead of transitioning to a human agent, AI agents can handle interactions from start to finish. This allows for a more intimate customer experience, and it drives upselling opportunities based on previous transactions. We are witnessing the beginning of conversations around using our AI technology to support various business objectives.

That sounds much better than being stuck in IVR hell. Khozema, I appreciate the color.

Thank you. That concludes today's conference call. Thank you for participating, and you may now disconnect. Have a great day.