Conference Transcript - TWLO 2026-06-02

Arjun Bhatia, Analyst — William Blair

All right, we will go ahead and get started. Thanks, everyone, for joining us. Kazima, thank you for coming. Thanks for having me. Kazima is the CEO of Twilio. Before we get started, a few disclosures. My name is Arjun Bhatia. I am the analyst here at William Blair covering Twilio. For a full list of disclosures, you can go to williamblair.com. Okay, I'm excited for this conversation. Let's dive in. Obviously, as you know, I think the topic of the day is AI. There's been a lot of sort of debate about does AI disrupt incumbents, does it change the competitive landscape? And I want to start maybe start by phrasing that conversation in the context of Twilio. What are the sort of the motes that you have in the business that maybe don't make you at risk of AI disruption? We'll get into how it benefits your platform, but talk just about the motes on the platform that are hard to replicate even though ai has made it easier to code and build things what's where does twilio sort of defend itself in that world yeah i mean our mode is really

Khozema Shipchandler, CEO

difficult to overcome because in many ways it's physical right so sitting underneath our business is what we call the super network and what that basically amounts to is is that we've established 4,800 interconnections across 180 countries around the world, and those are negotiated contracts. They are physical connections between infrastructure. They are a set of compliance hurdles that we've had to climb over with every single one of those interconnections before you even get to the point where you're onboarding customers, and so you can't AI your way there. you can't prompt engineer your way there like it that is a truly kind of physical um very deeply negotiated constructed mode and that's with the carrier sorry that's with the carriers okay and then on top of that what sort of reinforces that mode going forward is the more and more that we layer data into the overall infrastructure that allows us to create another layer of moat where we've established relationships now with our customers that are are also very hard to overcome.

Arjun Bhatia, Analyst — William Blair

What in this world, so you have these 4,800 interconnects with carriers all around the world, so your customers can reach their customers wherever they are and communicate with them. If you're a carrier, what sort of stops a carrier from bolting an API onto their platform and say, hey, we're Twilio now, basically, in other words?

Khozema Shipchandler, CEO

CHRISTOPHER COLLINS- They could, but it wouldn't really help, right? Because the reality is, is that the reason that we have 4,800 across that 180 countries is that no customer wants to reach just a certain constituent of consumers through the one telco, right? So let's just take the U.S. In the U.S. you have like the big three that we all know, but there's like a number of other smaller players that have consumer exposure as well. So let's say that you signed up a contract with AT&T. That might help you for the AT&T subscriber base. It wouldn't help you with the two other carriers, which you would also need to be able to reach their consumers. It wouldn't help you with the other kind of smaller players that are in the U.S. environment. It doesn't help you in Canada. It doesn't help you in Mexico. And it doesn't even get you close to any of the other countries around the world where those interconnections are required as well. And so establishing one, like, that's easy. Establishing 4,800, that's very, very challenging. And again, still has to be done one by one to be able to ultimately develop that, what we call a super network.

Arjun Bhatia, Analyst — William Blair

And it's not code that you're saying is the barrier to build. It's literally having these relationships and negotiation contracts.

Khozema Shipchandler, CEO

I mean, there's a ton of code on top of that, as you know. But yeah, there's sitting underneath that is like physical infrastructure.

Arjun Bhatia, Analyst — William Blair

And then I want to maybe, we'll come back to AI for sure, but I want to just talk about the business and sort of maybe set the lay of the land for for folks here i think when you took over as ceo twilio was growing maybe seven percent organic high single digits call it um there was a trough and you've sort of accelerated growth well beyond that point um now so what has sort of changed at twilio over the years you've gone from this mid high single digit growth to now you're doing mid-teens and there's obviously a lot of sort of momentum behind the business still yeah

Khozema Shipchandler, CEO

I mean, so many different things have changed. I would say if I were to like kind of say in a nutshell, like we're just running the business a lot better, you know, to be honest, like and I think it really encompasses three different dimensions. Like in terms of the financial discipline of the company, we're very smart about our OPEX envelope. We've taken a number of actions to keep our headcount about the same, to reduce our stock based compensation, to get ourselves to a point of significant cash generation. So, I'd start there, like doing that allows us to kind of operate from a position of strength. The second thing is, is that on the growth side, we've gotten a lot more clinical about where we're going to focus our growth efforts. And so, maybe said simply, like it's been more of a self-help story than it's been one of like market tailwind. On the self-serve side, which has kind of been the roots of the company, like product led growth, we've done a ton of work behind the scenes to ensure that for every successive customer that on boards the process is made easier and easier for them and so all of that friction that I described earlier in terms of compliance hurdles and onboarding like we've tried to implement a series of protocols that a customer can attach themselves to an API we template eyes a lot of the things that they have to go through and then once onboarded they can connect a pretty awesome technology and then that runs the gamut though from not just self-serve customers all the way over to ISV customers which is sort of a different side of the continuum these tend to be mega senders we've done a lot of work for them as well because these guys have a number of established sub accounts we've also made it easier to onboard those sub accounts which are basically businesses they serve by white labeling us and so we get pulled through but onboarding all of those guys is complex as well we made that process simpler and then finally on the on the innovation side we've actually moved faster by focusing on less right so let's say a couple years ago we would probably have focused on like a hundred things all at once all with equal intensity and now like we pick like what are the seven ish high conviction projects which we think a couple of those will yield really outsized benefits down the road and i'd say it's the totality of those things that's led to some of our recent success

Arjun Bhatia, Analyst — William Blair

okay very interesting and i think um if i sort of drill down into one of the areas where you have been seeing a lot of success specifically um it's voice and there's you know all the rage about voice ai and how ai is going to change the future of voice and we're kind of in this sort of renaissance and your growth sort of reflects that right i think the voice growth is 20 percent um last quarter, so outpacing the business overall and far above where it used to be. So what is happening with voice broadly? Because there are these tailwinds and we sort of hear it everywhere of customers even talking about we want to change the way we communicate with customers through voice. What are you seeing in the business?

Khozema Shipchandler, CEO

Yeah, so there's a lot there. So, I mean, I think first of all, like just a couple of years ago, like we were actually calling for what we believed would be a renaissance in voice. We were using that language, I'm not sure people believed us at the time. But that's the language that we were using because we did anticipate as AI took off, the place that it would take off first is in voice. Voice is more natural, that's the way that we engage with each other. It's the way that you and I are engaging right now. It would be much easier to have this conversation over voice than it is over text message because you get the emotive capabilities. You know when something's going wrong, you know when someone's angry or upset. and so voice lends itself to workloads that work very well in that respect. The honest truth is that while voice is a catalyst for what we're seeing, voice AI is a catalyst for what we're seeing in terms of some of the growth that we're seeing in the overall voice channel, the reality is that voice AI is still a pretty small percentage of what we're seeing in voice overall. Voice, while it's the second biggest channel at Twilio, it is still a relatively small channel relative to the entirety of our business. So why am I saying all that? The point is, is that the AI contribution in terms of voice is still pretty muted. It's not zero, but it's still pretty muted. And so what we're excited about is, is that as we look out and as AI really starts to take off, like a lot of that volume should be on the come.

Arjun Bhatia, Analyst — William Blair

And what do your customers sort of need to do to implement voice AI or scale up usage for you to see this revenue come in the next two, three,

Khozema Shipchandler, CEO

four years? I think we're just in the early stages of the buying cycle. I'd maybe turn the question back on you. The number of times that you've interacted with a voice AI agent in the last one year, I'm going to guess is probably less than five times. It's probably the same for every single person in this room. Now, the reality is the technology is there. It does work. And when it uses a context layer underneath it, like a segment, for example, like it actually does solve customer problems very rapidly. It reduces costs, it generates more revenue. But I think the adoption cycle by enterprises in particular is a little bit slower than, maybe sometimes AI is written about. I think the AI natives are going there very quickly, but enterprises tend to pay the bills, right? And I think you've got two things happening on the enterprise side, just this is maybe crude, but like on the regulated side okay so think financial services insurance healthcare i think there's a lot of experimentation but very very slow adoption okay where we are seeing heavy experimentation and more adoption tends to be on the unregulated side so where the stakes tend to be lower so think food service e-commerce retail and i do think you'll start to see it take off a little bit faster there. My own personal perspective is that in three years, I would be stunned if the first point of contact for any one of us in a service event isn't first a voice AI agent. Not an IVR, but a voice AI agent that's actually able to converse with us in a very natural way.

Arjun Bhatia, Analyst — William Blair

We won't know necessarily.

Khozema Shipchandler, CEO

Well, I think we'll always disclose it. And customers will too. But I think we will not be able to tell the difference versus a human. The technology is already there.

Arjun Bhatia, Analyst — William Blair

And what, like, in this world, so this future of where there are voice AI agents, what is the benefit for, you know, your customers on the unregulated side? You know, if it's a retail store, like, what is their ROI of going down this path? Why are they doing voice AI?

Khozema Shipchandler, CEO

Yeah, I mean, so everybody immediately kind of goes to cost. And I would say that's, like, actually the third benefit that you get out of it. So to be sure, definitely spending a handful of cents on an interaction versus, you know, paying a human agent for an interaction, like there's a huge difference in cost there, but that's really the third benefit. I'll maybe use an example to make the point, okay? So like in the food service industry, right? Like think about like a big day, like an event, okay? Like the World Cup's coming. So during the World Cup, my guess is there'll be a lot of pizza ordered, okay? So during that kind of an event, like what happens, right? Believe it or not, about 35% to 40% of all orders do not happen on web forms. They take place over the phone. So what actually happens, though, is 20 calls get placed. 19 of them immediately hit an IVR menu. You get through a few minutes. The menu is not there to guide you. It's actually there to stall you. It's there to stall you until they can find time to attach a human agent. Now, of that 19, probably a handful of folks drop off because they're like, I'm not going to wait more than a couple minutes. and the business loses those customers, okay? Now fast forward to the world in which it's all AI iterated. So now all 20 of those can be handled simultaneously because the AI can infinitely scale. But that's, so there's like a revenue event there for the customer that becomes pretty interesting. But, got romantic all of a sudden. But the more interesting part of it also actually is for our customers, what they're able to do is like in the context of that one out of 20 that gets through what has to happen because the the person in the store she's got to get through the other 19 she rifles through those calls as fast as she possibly can because she's got to get to the next one that leads to kind of a crappy consumer experience and there's no ability to upsell the consumer okay now just imagine so that what has to happen in 60 seconds or less even if you just double it to like 120 seconds or extend it to three minutes the consumer gets a better experience the ai agent on the other side especially if they're using content a context layer they can revenue upsell the customer the consumer so they can actually now make more money right so the revenue benefit in terms of upsell that's benefit number one benefit number two is the additional revenue benefit by being able to infinitely scale now that's a little bit more complicated because it basically transfers the bottleneck from the ivr to the supply chain if you will yeah and then the third benefit is the cost that we talked about and so the roi here is actually pretty profound yeah that's interesting

Arjun Bhatia, Analyst — William Blair

and i mean you guys get to you get to the other 19 people that were on hold also exactly um what in And I kind of want to maybe flesh out what Twilio's role in this is going to be, because you're obviously the voice infrastructure. So consumption-based model, everything's going to flow through you. But you also have some of these software-like add-ons that you've introduced into the platform on the voice side, conversation relay, intelligence. What role are those playing in this example?

Khozema Shipchandler, CEO

Yeah, okay, so let's play back that same example, but entirely through the lens of Twilio, okay? So what happens now is that instead of the one of 19, you've got all 20 happening simultaneously. That's 20 revenue events that we now have access to that we didn't have previously. You might say, okay, but some of those we're going to get through eventually. Yeah, but not in the same cycle time because what used to happen in an hour just went way up because of the infinite scaling properties of AI. So we get more voice minutes in Twilio vernacular as a result of the infinite scaling, number one. Number two, you get more voice minutes when a call goes from one minute to two minutes or three minutes. So that's kind of the second revenue opportunity. And then the third revenue opportunity is the price uplift on the voice interaction. Because none of these voice AI agents works unless they have a context layer underneath where there's some sort of a data layer that's able to access a consumer's profile in a data warehouse And then able to activate it back to them to be able to solve a customer problem to be able to upsell them Whatever the case may be and so we get additional price there So we win three times but the beauty of this interaction is is that do we make more revenue to be sure? But not at the expense of the customer who's getting way more ROI and also the consumer who's getting a better experience Yeah, so everybody wins right interesting

Arjun Bhatia, Analyst — William Blair

Okay. We could probably talk about voice AI for a long time, but I do want to talk about other parts of the business. Actually, maybe before we go there, one last question on voice. You mentioned it's still a small part of the business. In your mind, as you're thinking of the company over the next several years, is Twilio going to be voice first? Is this going to become a majority of your revenue stream? How do you think about what that mix looks like in the future?

Khozema Shipchandler, CEO

I think that we're at the beginning of an AI super cycle, obviously, and I do think voice will become a major beneficiary. But I also think there's a little bit of a demographic gap in terms of who prefers voice versus who prefers other channels. And so I'll just use myself and my kids. I'm 52. I love voice. I love interacting with voice agents. I think the technology works, as I said, and I don't mind synchronous communications. My kids can't stand the thought of being on the phone with someone in a synchronized They want to be able to deal with it on their own time. The beauty of what we offer and why I think it will bleed over into multi-channel as well as perhaps text only is it's asynchronous. And yes, it lacks some of the emotive capabilities, but you can deal with that in a voice context and then actually complete the work. Through our conversation orchestrator, we can seamlessly transfer that over to another channel where whoever the consumer is can deal with it on their own time through whatever channel preference they have. So I'm not sure. I don't think I have to have a view on it necessarily. I think we win no matter what. So long as this AI super cycle takes place, all of these channels are going to be consumed in a much more profound way. And as the market leader, we have a lot to gain.

Arjun Bhatia, Analyst — William Blair

All right. now let's switch to messaging because that is right now the biggest part of your business and you've also seen on messaging the growth rate accelerate so you know this is a key driver of the overall top line so what's been happening in in in that business what's driving the volume increases and and where's the momentum coming from there yeah so messaging is more or less

Khozema Shipchandler, CEO

untouched by AI like it's not zero but it's pretty close I would say so we haven't really seen the effect of AI there at all I think by and large it's just broad-based strength in the business right like it's it's not really like I mean you know it's not a stable macro environment so I certainly can't point to that but I think it's just strength that we're seeing across the board I mean we analyze the business by channel we analyze it by industry we analyze it by geography and by and large across every one of those vectors like we're seeing strength in the business so that feels pretty good and i think a big part of that is that self-help story that i talked about earlier where we put a lot of work into the plg side of the business and we went even bigger on that at signal where we kind of revamped our one console experience to make it easier not just for a customer to avail themselves of messaging but any channel all at the same time including data um and i think that's going to allow us to

Arjun Bhatia, Analyst — William Blair

to continue the the pace that we've got in messaging what um what is the role that you see some of these add-on like premium add-on capabilities in the messaging ecosystem like what role are they playing it's like you know verify is a big one and i think two-factor authentication is a key use case that you have that you serve how much of an uplift are those

Khozema Shipchandler, CEO

driving and how critical is that yeah i mean i think verify has been growing at a very fast rate for a while now I mean I think we have opportunities for example like with branded messaging like I think that's just starting to take off certainly reinforces trust in the ecosystem so that one's pretty exciting I think we have additional opportunities in terms of utilizing conversation memory in the context of messaging only where you're utilizing knowledge that you have about every one of the transactions that you've had with the consumer to be able to perpetuate your relationship through could be messaging could be voice could be email could be all three at once but i think all of those like it really opens the door and you know we're excited

Arjun Bhatia, Analyst — William Blair

about it does it um impact your margin profile your gross margin profile yeah so all of the

Khozema Shipchandler, CEO

software add-ons are margin accretive to messaging messaging tends to be it's a huge part of our business as you pointed out it tends to be kind of a structural drag on gross margins we're not honestly that worried about it like we're more or less more focused on the gross profit growth profile of our business and so you know we'll take what comes in terms of the gross margin characteristics so long as we're disciplined on the price side okay got it um and then you you

Arjun Bhatia, Analyst — William Blair

mentioned um just earlier this kind of big platform relaunch you did at signal uh just last month what were the sort of the key changes that you made and as we're thinking of investors are thinking about you know what the business outcome should be from this relaunch what should we

Khozema Shipchandler, CEO

watch for i mean i think the outcome to answer that question first should be ultimately accelerated growth um the the kind of the impetus behind doing it was i mean you followed the company for a long time so you you probably know this like i mean i you know like i've worked at Twilio for eight years, I probably have like 50 different accounts, just because I'm constantly playing around with the console. For the life of me, I as someone that worked there, couldn't figure out how to onboard myself with messaging and voice at the same time. I'm using those two channels because those are ones that we organically built. That's shameful. There's only so long you can have that persist. So we did a total revamp of the console to make it super simple, including all of our acquired capabilities for you to onboard any channel multiple channels at the same time to be able to ingest data at the same time to be able to use the entirety of that conversation suite that we talked about at signal and it's the way that it works is once you're in the console even if you know nothing about communications and the only thing that you do know is you have a set of use cases that you need to launch we will help you through an ai assist such that your use cases will drive the things that we tee up for you and then we make them super simple to use. In fact, we allow you with a set of credits to be able to play around in a sandbox so you can try before you buy and I would say so far like it's gone great. This is like a

Arjun Bhatia, Analyst — William Blair

freemium motion essentially to... Limited. Limited. It's boxed. Okay. It's interesting. It's like a sandbox. Yeah. Okay. What and what was the the process before was sort of very fragmented? The

Khozema Shipchandler, CEO

The process before is, I mean, it was very fragmented. Not only was it fragmented, you had to be sort of an expert engineer to avail yourself of multiple channels.

Arjun Bhatia, Analyst — William Blair

And then even if you could, we still sent you a bill that had total fragmentation.

Khozema Shipchandler, CEO

So three different bills if you were using a segment, email, and one of our messaging voice channels.

Arjun Bhatia, Analyst — William Blair

And as a part of this sort of broader platforming launch, or maybe in general even And how do you think about your pricing power? Because you have this unique asset, as you talked about, with the super network. And you're adding these new capabilities on top, there's new .

Khozema Shipchandler, CEO

But how do you think about core messaging or voice pricing?

Arjun Bhatia, Analyst — William Blair

And does that evolve as the platform becomes better and better and better?

Khozema Shipchandler, CEO

I think we have some degree of pricing power. And we want to be careful about it. We certainly don't want to gouge our customers. But we also want to be appropriately compensated for our technology and so very regularly you know and it kind of varies based upon geo like we raise our list prices like like you know pretty frequently now a lot of our contracts are negotiated and so it takes a little bit of time for that to ripple through the the revenue base but but that's a pretty regular motion I think what's more interesting about all of these console capabilities is our ability to price and package when customers are using multiple of our products and so we made that hard for them as well. So to offer any kind of a discount when you were using multiple products or for you to be able to consume multiple things at once and get the benefit of that, like we made that super hard for you. So in addition to all of the stuff that customers can see, there's a fair amount of work that we did in our back office too, to completely revamp our billing system and that's underway, I would say. and we keep launching new packages and prices every quarter or so and and we'd expect that

Arjun Bhatia, Analyst — William Blair

work to be done by next year okay um and then on the just context side that's become a more and more important story like you're you know you're obviously not just um the the communications infrastructure you're also serving up ways to make the engagement the customer engagement more relevant what and maybe part of this is segment part of this is other sort of enhancements you've to the platform but what what are those um capabilities sort of you're introducing into this customer value prop um and where does sort of pricing for that fit in are you just kind of hoping increased consumption drives are those priced separately how do you think about that piece

Khozema Shipchandler, CEO

you could buy them separately if you want to but i i think ultimately like what we really want to be able to do is infuse data enrichment into every one of our channels and look if if you're For an AI user, the best way to drive down cost of the LLMs is to add a context layer because now the LLMs are referencing the data that is super specific to what you need to get done versus the data set at large, and so token consumption goes way down as a result. And consumer outcomes go way up because it's referencing the specific attributes, specific specific experience, specific purchase history of you. So it's just a better all-around experience for our customers and then ultimately their consumers. As I said, we intend to price it in the way that customers want to buy it. And so could be separate skews. I think likely it will be packaged and priced in that way more than anything, but it's super compelling offering. And I think whether it's persistence, whether it's memory, whether it's orchestration, like all of these things allow our customers to ultimately create a much, much better experience for theirs.

Arjun Bhatia, Analyst — William Blair

In the time that we have left, I want to turn to another topic, which is just profitability and some of the improvements on operations that you've talked about before. I mean, I think a core part of my thesis on Twilio, obviously the top line growth is big, big, but you're also gaining efficiencies and you're driving margins and op income and free cash flow growth higher. What are you doing internally from just an operations perspective that is allowing you to scale margins? And how much more sort of room do we have on the profitability front for that to continue its trajectory?

Khozema Shipchandler, CEO

I mean, we certainly intend to continue producing operating leverage over time. Some of that will come from volume leverage. some of that will come from cost efficiencies. Like on the cost side, what I would say about that is like over the last couple of years, our headcount has basically been flat. You know, while the company's growth has materially re-accelerated. You know, last year actually, like our OPEX, as you know, fell, right? So I wouldn't anticipate like that's necessarily a permanent feature, but I don't think that we have to add a lot of headcount to pursue any of our future ambitions either. I think it'll take up a little bit, like so I don't want to pretend like it's not going to grow at all, But we are expecting operating leverage going forward. And, you know, look, like there's a lot that kind of gets written about, like the gross margin characteristics of the company. I think so long as we continue to grow the gross profit line at a sporty rate, we can drive operating leverage as a result. We can continue growing into new areas by, you know, reinvesting some of the profits that we have, but also saving money with a variety of initiatives inside the company using ai in some cases getting retiring tech debt in other cases uh increasing our exposure to you know different parts of the world in terms of our workforce we're already remote first that provides us a real strategic advantage and in doing so also reduce materially we have so far and we continue to do this reduce our stock-based compensation which we think is a great outcome for investors

Arjun Bhatia, Analyst — William Blair

What are you doing internally with AI? How are you using it across the organization?

Khozema Shipchandler, CEO

There's two things that we've gone big on, and then there's a variety of others. So the two big ones, I would say, are both with respect to customer service as well as inbound sales. Like virtually all of that now is handled by virtual agents. Now, the form factor is a little bit, or the channel, I should say, is a little bit different. So in both of those instances, it could happen over email, it could happen over voice, could happen even over text. So it varies a little bit based on the channel that a customer would utilize, but there's kind of a twofer in the benefit. So the customer service side, our agent there is generally able to solve the customer's problem without them even realizing they're interacting with an AI agent, even though we disclose it. On the inbound sales side, what's cool there is that not only do we get the productivity benefit in terms of lowered cost, but more importantly, the digital sales reps that we have, they can now attach themselves to an actual qualified lead versus something random that came in. The other area is on the engineering side. I mean, we obviously are using Claude code, or maybe it's not obvious we're using Claude, but we are using coding tools. And Claude code is the one that we've employed. We use Gemini more broadly for the entirety of the workforce. We use some functionally specific tools. I would say on the engineering side, we've definitely improved velocity. I wouldn't say it's reduced cost much, just because we're not prepared to push production code that hasn't gone through a pretty heavy review. And then in the G&A functions, I think it's very early days, but I do expect productivity there over time.

Arjun Bhatia, Analyst — William Blair

All right. Fascinating conversation. That's all the time we have. Kazima, thank you so much. Great, thanks for having me.