Good afternoon. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Twilio Q2 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question -and- answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you, Bryan Vaniman, SVP of Investor Relations. You may begin your conference.
Thanks, David. Good afternoon, everyone, and thank you for joining us for Twilio's Second Quarter 2022 Earnings Conference Call. Our prepared remarks, earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me today for Q&A are Jeff Lawson, Co-founder and CEO; Elena Donio, President of Revenue; and Khozema Shipchandler, COO. As a reminder, some of our commentary today may be in non-GAAP terms. Reconciliation between our GAAP and non-GAAP results and further information related guidance can be found in our earnings press release. The information provided and discussed today also will include forward-looking statements, including statements about our future outlook and goals.
These forward-looking statements are only projections and expectations regarding future performance involving risks, uncertainties, assumptions, and other factors that are described in more detail in our most recent periodic reports filed with the SEC, including our most recent report on Form 10-K and subsequent reports on Form 10-Q, and any amendments to any of the foregoing, and are available on our website and at sec.gov. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. Actual results may vary significantly, and we expressly assume no obligation to update any forward-looking statement. With that, I'll hand it over to Jeff for some opening remarks, then we'll open up the call for Q&A.
Thank you, Bryan. Before we dive into questions, I'm pleased to announce that Twilio's customer and developer conference, SIGNAL, will be held virtually November second and third, 2022 in the North American and EMEA regions, and November 3rd and 4th , 2022 in APAC. SIGNAL is our flagship customer and developer conference, and we explore the intersection of technology, innovation, and of course, customer engagement, and we've got a really exciting lineup planned. The main event will be held virtually, and we will host two in-person customer events, our Creator Summit and our new CDP Summit dedicated to our marketing and segment customer audience. Our virtual Investor Day will also take place in alignment with SIGNAL, and more to come about that Investor Day soon. With that, let's open the call for questions.
Thank you. At this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We'll take our first question from Derrick Wood with Cowen. Your line is now open.
Oh, great. Thanks. Elena, maybe I'll start with you. You've been there for a few months. Just wanted to kind of hear what sort of tweaks you're looking to make in the go-to-market and, you know, things around like account structure, product focus, and, kind of, you know, what things you have in mind as you build through the year, and particularly how you're trying to design that to help kind of move more upstack with both the sales force and the partner ecosystem.
Hey, thanks, Derrick. Really appreciate the question. It's been an exciting, eventful few months here, and I'm super excited about the opportunity at hand. Listen, there's a few opportunities we've identified to drive our focus and time towards the highest value outcomes in the business. We're at different stages of sort of executing across each of those. First and foremost, I feel like the organization, our processes, our systems, our tools are really ready to work harder for us. I think what that means is that we should be working much more toward applying human touch to the moments in the customer journey that really require it and to the solutions and solution selling moments that really require it as well. We're looking for efficiency there.
We're also finding efficiencies in marketing, in ensuring our pricing's reflective of the value that we're providing, in exploring new and novel ways to tap into that vibrant partner ecosystem that you mentioned. All of that is leading to an opportunity for us to shift more of our selling capacity to software, while also making sure that we're leveraging more self-service capability for customers that don't actually require hand-to-hand account coverage. I think, you know, the opportunity at hand is massive in those areas. I feel like we have tremendous assets to work with, both in our client relationships, but also in our team, and I'd actually add our products into that as well. I'm excited to begin to push on those levers more aggressively and to just watch our software selling motion take off from here.
Great. I'm sure investors certainly would like to see that. I guess for Khozema, the direction of gross margin coming back down in the quarter, I guess a little surprising given you know you guys raising pricing in the quarter, the thought that you know you'd see a higher mix of domestic messaging post the 10DLC registration stuff. Even if I look at international mix at 35% of revenue was flat sequentially. I know it sounds like you're calling out international mix, but are there other components at play perhaps within international where costs are going higher? Can you just give a little bit more color on the puts and takes on gross margin and perhaps how to think about it directionally in Q3?
Yeah, I mean, by and large, the way that you characterized it is right, that the decline in gross margin is largely driven by our strength in international messaging. I think one thing that you do have to bear in mind as you think about the 35%, sequentially quarter-over-quarter, that's based on where the customer's address is or where traffic originates, not necessarily where that traffic ends up terminating. As we have both U.S. customers as well as customers that reside internationally that continue to send messages internationally, you're gonna have a slightly lower gross margin just as a result of the fact that international messaging margins are structurally lower, and that's kind of what's been the drag on our business.
What I would say is that, you know, in general, while that has kind of a margin rate effect, we do feel good about the growth in overall messaging, and it's still a major entry point for us with customers, and it opens a lot of opportunities, related to what Elena talked about a moment ago. We still feel good about our 60%+ gross margin target longer term. In the shorter term, we are taking on some business. Some of that in large part is international. As long as it's profitable business and drives gross profits back into the business, we like that business, and we're happy to take it on as long as it pulls Flex and Segment over time.
Got it. Okay. Thanks for taking my questions.
Thanks, Derrick.
Next, we'll go to, Meta Marshall with Morgan Stanley. Your line's open.
Great. Thanks. You know, in the prepared remarks, you guys mentioned, you know, that you would not be immune from macro factors, and just wanted to get a sense of how those are manifesting thus far and, you know, how you're being proactive with customers where you can help them optimize that spend. Thanks.
Thanks, Meta. It's Elena here. You know, we feel like in general, companies are continuing to prioritize investments that are responsible for driving revenue and efficiency. We're super fortunate in that we have products in all of those spaces. We haven't yet seen any kind of significant degradation in demand, but we do have some exposure areas that I think are worth mentioning. I think we had them in our prepared remarks as well, but in areas like SMBs, consumer and digital natives, that we know could be impacted by a prolonged downturn. With that said, we also have some spaces that we think will operate and continue to perform quite well. We've seen a couple of recent isolated areas of softness, more specifically in areas like crypto, consumer on-demand, social.
Again, that impact's not material. We don't think we're immune, but we also think our products sit in kind of a perfect space for continued investment. We're continuing to watch it really closely, and we're continuing to watch top of funnel, cycle lengths, and things like that. We'll continue to be really sort of diligent in our analysis and certainly as well in our response, to the extent we see additional softness come to fruition.
Yeah. Meta, I'll just add to what Elena said that, you know, as she mentioned, the business has been resilient. While we've seen some isolated pockets, we haven't really seen anything material yet. That said, you know, we're certainly not naive about the way that many of our peers are talking, the way that the macro environment appears to be playing out. We are readying ourselves for a variety of scenarios and you've probably noted that we've taken some actions with respect to slowing down hiring except for some key areas. You know, we guided based on having a real estate charge, which, you know, I think reflects our kind of remote first approach to the way that we're gonna work going forward.
I think both of those things will drive profitability into next year. I think irrespective of the macro environment, we're intending to be profitable next year, and no matter whether it has an impact on growth or not.
Got it. Just was there any FX impact that's worth calling out? Thanks.
Not really. We have a hedging program, and I think in general, that kind of blunts the impacts of any FX, and so it tends not to be a material impact to our business.
Great. I'll pass on.
Next, we'll go to Will Power with Baird. Your line's open.
Okay, great. I wanted to ask about the eight-figure Flex win you announced in the quarter. That seemed like a really nice win for you. I'd love to just kind of hear more, you know, about the processes. Is that a rip and replace? Is it, you know, you know, one segment of the business? You know, maybe thoughts on who you were competing with there, or just kind of any learnings from that because it, you know, it seems like a nice potential litmus test for, and maybe a, you know, a nice reference account going forward.
Yeah.
Yeah. Hey, Will. This is Jeff on.
We're super excited. You go, Jeff.
Okay. Hey, Will. We're really excited to have signed this largest Flex deal ever in Q2. I think it's a great sign of the continued momentum that we are seeing with Flex and broadly with our customer engagement solutions. The Fortune 100 retailer that we mentioned was already a customer of our communications APIs. This also demonstrates the traction that we're making with our strategy of establishing relationships and then moving them up from our core APIs into you know more broad customer engagement solutions. This multinational organization. The connection between their brick-and-mortar stores and their virtual stores using Twilio Flex, video chat, and messaging. It's really a solution that hits a lot of different channels.
Their data-driven cross-channel needs here are gonna create a single view of the customer across their organization to provide a seamless, personalized, and just really a great memorable customer experience that starts with their marketing through their sales and through their customer service. They're really reimagining the customer life cycle in this sort of high touch way from physical stores to virtual stores across all these channels. When you kind of think about like how many solutions are out there that can really help power these new and emerging and novel customer engagement, like full life cycle solutions, there really aren't that many out there. We, you know, we were in the competitive landscape with a bunch of other known players as you can imagine.
I think this is where Flex really shines in terms of being able to take a bunch of really interesting new and emerging requirements from a customer who's really looking to reinvent how they engage with a customer, not just when you need support, but really across that full customer life cycle. They do it in multiple different channels across multiple different, you know, venues that they have. This is where Flex really shines. We're really excited about this new customer. I think it's a fantastic win for the platform and look forward to continuing customer success in the account.
That's great. I appreciate that. Maybe just to follow on real quickly on the macro front. Anything you can call out with respect to, you know, linearity kind of across the quarter? Did you start to see more relative weakness, you know, late in the quarter? How has that maybe trended past that? Anything you'd call out just with respect to, you know, geographies, you know, Europe versus elsewhere?
Will, this is Khozema. Not really. I mean, I think globally we had pretty good performance across the board. I think we called out a couple sectors, you know, where we did feel it. We called out some sectors where we saw some ups as well. I think so far at least, as we've said, you know, it's been pretty balanced for us, and we haven't really seen any signs of anything material yet. We're obviously watching it closely, and as I said a moment ago, we're certainly paying attention to what our peers are saying and what's happening in the macro environment more broadly. I wouldn't call out anything beyond what we did, certainly not geographically.
Okay. Thank you.
Thanks.
Next, we'll go to Samad Samana with Jefferies. Your line is open.
Hey, good afternoon. Thanks for getting me in. Maybe first just on the shifting of the selling capacity on the software side and looking to leverage more self-service capability for the customers that don't need direct account coverage. Maybe, Elena, could you help us understand better, is that even for the application layer like Engage and Flex that you're trying to do that as well and for Segment, or is that more for the traditional messaging side? Just help us understand who that's directed at in your base and what that customer looks like and how we should think about that going forward.
Yeah, great question, Samad. Thanks. I think that motion can apply to all of our solutions, but I think it's most effective in our more transactional messaging deals. You'll see us push on it harder there. We really believe that there's a motion across all of our solutions where they're discoverable by developers, where developers have a moment where they can experience the solution, they can play with it, they can build around it. That can lead to bigger and bigger deals and engagements with clients.
That said, we also know that with these solutions, there are, you know, there's pipelines being built and deals going down in the market every day, and we wanna make sure that we're meeting customers where their sales cycle is taking them and with what their process looks like. We'll have enterprise selling motion across all of that as well. We believe that there's really sort of exciting opportunity for us to push harder on self-service and messaging. That doesn't mean that we won't also have those motions working really well across Segment and Engage as well as Flex.
Great. Maybe, Khozema, a follow-up question for you just on the guidance. Does the 3Q guidance include political messaging revenue contribution, or is that going to be excluded as you think about organic growth? Just trying to make sure that we kinda keep all of our ducks in a row on the organic guidance and what's included in that.
Yeah, it'll be included. We're not excluding political from the organic guide, but I would say that it tends not to have much of an effect or as much of an effect in Q3. It tends to be more of a Q4 phenomenon. I wouldn't expect much of an uplift relative to political in the overall guide.
Understood. Thanks, everybody. Appreciate it.
Thank you.
Okay. Next, we'll go to Michael Turrin with Wells Fargo Securities.
Hey there. Great. Thanks. Good afternoon. Appreciate you taking the question. I mean, look, there are clearly a number of moving pieces in the model and the macro currently. We've been fielding a number of investor questions just around the 30% organic revenue growth level. Even with all the moving pieces, you did come in above that this quarter. The guidance suggests fairly close to or above those levels next quarter. Can we just spend some time on the organic profile of the business, the puts and takes of what's playing through currently, and if some of the urgency and adoption patterns you were seeing normalizes, are there points of focus for the sales team just to kind of drive towards or lean into in the current backdrop? Thank you.
Yeah. Let me start. This is Khozema, and then I'll hand it over to Elena to talk through it in a bit more detail from a sales perspective in particular. I'd say just to start off with, you know, as we mentioned. So far, at least, like, we're not really seeing any material impacts in our business relative to, you know, kind of the macro picture. Obviously we're watching that macro picture quite closely. We monitor our business very closely. It's usage-based, and so we're getting, you know, signals day to day about that. But as I said, so far we're not really feeling anything material.
In terms of, you know, Q2, like we feel really good about the way that Q2 and frankly the first half played out, and we feel quite good about the setup in the second half as well. You know, we're guiding obviously to 30%-32% reported and then, you know, 29%-30% organically despite, you know, kind of a bleaker macro picture perhaps than where we were six months ago. You know, I'd attribute that largely to, you know, the business remaining resilient and, you know, while we have seen some pockets of softness, we're just not seeing that in kind of a broader brush yet. In Elena's prepared remarks, you know, what she alluded to was that we are seeing, you know, some longer sales cycles.
That's being offset in part by, you know, volume gains in some other areas. I think sitting here today, based on what we know, what we see, we feel pretty good about certainly our first half results and the setup for Q3 as well. That said, you know, there's a lot more work for us to do given the magnitude of the opportunity in front of us. Given that, let me turn it over to Elena to talk through that.
Yeah, I mean, I think for us, like our focus is still very much on making sure that we are harnessing the demand that's out there and just making sure we're introducing the best of everything we have to offer into the market. As I mentioned earlier, we are kind of continuing to kind of move our focus up stack, make sure that we're investing in those areas to drive long-term growth with a high focus on profitability. I think Khozema said it well, like we're not seeing any significant degradation of demand. We've seen cycle lengths, just in a couple very small pockets, push out a little bit. We're not hugely concerned in that it hasn't become a pattern. It's just something that we're watching really closely.
I feel good about the setup going forward. I feel good about how the team is focused and moving in the right direction and we'll continue to watch it and make sure that we're responding accordingly and adjusting our message to the market accordingly.
Again, we think that our solutions are really well suited to this point in time, and so even if budgets get for the short period of time scrutinized or held as people are sort of holding their breath, waiting for additional economic data, we also feel really comfortable that when the exhale happens, we're there waiting and that we present a really phenomenal opportunity, particularly in our solutions that allow people to know, engage, sell to, sell through their own customer base that we stand to benefit from that in the end.
Okay. All right, we'll go to our next question. Next we'll go to Nick Altmann with Scotiabank. Your line is now open.
Great. Yeah, thanks guys. Good to hear that you know reaffirm your commitment to profitability in 2023, but just given there's a handful of one-time costs related to office closures and the sabbatical program that are sort of pressuring 3Q, how should we be thinking about EBIT margins as we sort of exit this year and then kind of going into 2023?
Yeah. That's a fair question. So, thanks for asking it. I think the way that we're thinking about it is that irrespective of kind of the macro environment that we intend to be profitable in 2023. We've thought through a number of different scenarios, you know, that could play out that even if there were growth impacts, we still intend to be, you know, profitable in the coming year. In addition to that, you know, we continue to see this massive opportunity as Elena has been talking about with respect to, you know, the software aspects of our business in particular Segment, Flex. In terms of the two dynamics that we called out in our prepared remarks. One of them being the real estate.
The real estate charge, that's a one-time, it's non-cash. It'll start to show up in our operating results next year. Then in terms of the second one, that's also a non-cash charge, and then there'll be some kind of carryover, period to period, but it'll be relatively de minimis in the scheme of things. What we're guiding to for the time being is profitability into the next year. We're not guiding to a margin rate associated with that EBIT number. What we're committed to doing is delivering profitability into the next year.
Okay. That's helpful. Then it just sounds like there's a sort of a greater pivot to Segment, Engage, and Flex, and I'm just curious sort of what's driving that. Is there something you're seeing in the end market where, you know, maybe the end market for those products is becoming a little bit more attractive or sales productivity selling those products is ticking up a bit? Is it more sort of, you know, you guys are pivoting to selling those products with, you know, a higher gross margin profile than the overall business?
I'll say a couple things and then Jeff Lawson might wanna weigh in as well. On that one, since it's such a sort of large sort of strategic question, but I would say a couple of things. First, you know, messaging and communications end up sort of being the last mile of the things that originate up in the marketing space, in the customer care space, et cetera. We think it's a very, very natural progression that where we started with a fantastic business in communications, that we then help customers make sure that those communications are the right communications at the right times through the right channels to the right individuals, to make the whole flywheel turn better and faster. It happens to have the characteristics of helping us create a better economic profile from a margin perspective for the business long term.
We also think it's just a really, really natural move from a customer perspective. Jeff, I don't know if you have anything you'd like to add to that.
Well, thanks, Elena. I think you said it really well. You know, maybe I'll just add two bits of color to your answer. You know, first is, you know, customers come to us whether they want voice or messaging or email. I mean, they're coming to us for our communications channels 'cause they have some business goal they're trying to achieve, right? Typically, it's they're trying to do better marketing. They're trying to improve their sales process. They're trying to make their product more engaging. They're trying to provide better service and support, right? You know, one of these areas in the customer journey is where they're focused, and so they're using communications to achieve that goal.
When we talk to customers and we learn what it is they're trying to do, we always see these opportunities to say, "Well, how can I help you achieve that goal faster, better?" you know, doing a bunch of the heavy lifting the customers may be trying to do on their own. When we see these trends emerge, lots of customers coming to us for, you know, better contact center, or a lot of customers coming to us for, you know, identity verification, or coming to us for, better marketing, across channels. You know, these are all opportunities for us to go help our customers and get our customers to success faster and to bring them a higher value product, and so that's a win-win.
When you think about what we've been doing, we started with the sort of bottommost layers of, like, the channel APIs. As we learn about customer needs and broad-based customer problems, we can then go into solving those problems for our customers, and everybody wins. As Elena mentioned, obviously that increases our gross margin profile to be solving software problems, but also accelerates our customers' time to value and their success. The second thing I'll say from a strategic standpoint is as we grow our business and we grow our revenue, we want to make money because we help our customers craft and send and engage with better communications with their customers, not just more communications.
I think we all would look at our phone and our inbox and our, you know, all that and say, "You know, we've got a lot of messages. We got a lot of emails." Really what businesses want is more engaging communications, more engaging customer journeys. We see that as a really big opportunity to really get at what our customers truly want, what their real aim is to have more engaged customers, not just more communications. I think it really hits our strategic goals. I think it achieves our customers' strategic goals, and I think it's what end users want as well. I think everybody wins as we continue to drive into more software solutions, to drive smarter outcomes and better customer relationships for our customers.
Got it. That makes a lot of sense. Thank you.
Next we'll go to Mark Murphy with JPMorgan. Your line's open.
Yes. Thank you very much. I am curious, maybe for you, Khozema, how would you assess the response to the SMS pricing increase? I'm wondering if customers view it as reasonable and to be expected in an inflationary environment, or do you think that volume growth would degrade slightly as you roll that price increase through? I have a quick follow-up.
Yeah. Hey, Mark. We haven't really seen much of a detrimental impact to the business. I think volume is broadly held up. We haven't seen a lot of resistance to it. I think it's pretty reasonable in an inflationary environment. You know, as we've talked about in the past, we feel really, really good about our technology, and we do feel like it deserves a premium relative to the competition.
As a quick follow-up, could you describe the trend on the video portion of the business? I think Jeff, you've had several innovations there. Included an application for hosting conferences and virtual events. I think you've had embeddable video. Can you help us understand what kind of experimentation are you seeing and maybe any help on just the trajectory or the prioritization of video?
Yeah. Absolutely, Mark. We've got our video platform. Started off the first several use cases were more small group conferences and then big group conferences. Then last year we launched Twilio Live, which provides for live streaming experiences, interactive streaming experiences. I think this is still an area for us of experimentation. You know, to be honest, I think the video market is still sorting out. I think there was sort of the market that existed, and then COVID came along, and there was a slow year of activity. There's been some experimentation by entrepreneurs, by bigger companies. It's really small for us in the grand scheme of things.
You know, I think it's a really interesting investment area because I do think that, you know, video is ripe for some more disruption, more interesting applications, whether it's live shopping, whether it's live interactive conferences, et cetera. It's just small for us in the grand scheme of things. You know, it's one of those long bets that we have.
Thank you.
Next, we'll go to Brent Bracelin with Piper Sandler. The line's open.
Hey, thanks for taking the question. Thank you, and thanks for taking the question here. You know, I appreciate you haven't really seen any sort of kind of macro headwinds the business, but we are absolutely seeing churn pop up in other customers. Particularly customers or vendors that have exposure to kind of that SMB smaller customer cohort. I know your software's free, right? So you only pay for what you consume. As you think about the environment shifting here, have you seen any sort of change in the consumption patterns, the messaging patterns at the smaller customer set? Obviously, the return to travel is something that is real. Lots of people are traveling, and so there's gotta be some offsets.
I'm just wondering, as you think about maybe the smaller customer cohort, are you starting to see any sort of change in volume or messaging patterns, that might be maybe offset by larger customers? Thanks.
Yeah. It's a good question. This is Khozema. Let me start, and then, I'll have Elena comment as well. So maybe just to take a step back, I think, you know, one of the things that we've been doing quite actively is analyzing the business along the line of a number of dimensions, as we alluded to in our kind of prepared remarks. We have been looking at it based on customer size. That's one of them. We've been looking at verticals. We've been looking at use cases. At least so far, we're just not seeing much of an impact based on, you know, those cuts.
Now, we did call out a couple pockets of softness in Elena's section of the prepared remarks where, you know, we commented that, for example, in crypto or social or, you know, on-demand related activities that we're seeing a little bit of slowdown. On the flip, you know, we are seeing some strength as well in financial services and IT related spending. That said, you know, as you alluded to in your question, you know, we do have a usage-based business where we get paid based effectively on the basis of every event, and we are looking at it very closely. We're certainly planning for a variety of different scenarios that could unfold. We just haven't seen them in our business just yet.
Irrespective of how those things play out, you know, we're still planning to be profitable into the next year. You know, that's kinda how we're running the business day to day. Let me let Elena comment more on you know, SMBs 'cause I think that was kind of the basis of your question to begin with.
Yeah, thanks. I don't have a ton to add. I would just say it's very natural to sort of assume that, as economic difficulty sort of creates this kind of a moment that, the investments that SMBs are making goes down, some of them may not be around over the next number of quarters or years. We're also excited about the fact that it's also a window for new innovation to kick back up and new companies start to get involved, and to send messages and utilize software. We're definitely watching it. I will tell you, and we don't break this out, but I would say in my organization, we call the group that looks after SMBs our growth team. We're pretty pleased with their performance thus far.
That's, I guess, the only thing I'll add, is that definitely still watching, excited about the progress that team's making. Really sort of where we've seen softness has been much more sort of use case or vertical oriented in the areas that you'd expect and that we talked about in our prepared comments. That's it.
Perfect. That's helpful color. Thank you.
Next, we'll go to Ryan Koontz with Needham & Company. The line's open.
Yeah, thanks for the question. I wanted to reflect on Zipwhip if we could. You know, I really appreciate it's an innovative and unique product. Can you tell me, is it fully integrated into the company now, and how do you see it performing net of the A2P fees, and what are your expectations for the business going forward in terms of any synergies with that? Thank you.
Yeah. I mean, we're not breaking it out per se, but I think we feel great about the Zipwhip product. I think we feel even better about the Zipwhip team. I think they've integrated really nicely into the business. I think a number of different thought leaders that came with that team as well that are helping us innovate. The business performance, as I said, is going really, really well. Obviously, there's an A2P fee component there too, which we break out for you all. I really have nothing but very positive things to say about how Zipwhip has been performing.
Got it. Thanks, Khozema.
Okay. Next, we'll go to Ryan MacWilliams with Barclays. Your line's open.
Thanks for taking the question. Now that this Syniverse agreement has gone to effect, would you expect any material benefit to gross margins in the next quarter? Do you think there might be any better visibility into gross margins going forward after this agreement?
Yeah. I mean, as you pointed out, that we concluded the Syniverse transaction and we feel good about having them as one of our partners. We did business with them for a long time and you know, strengthening that relationship through an active investment felt like a great next step for us. We do have a commercial agreement alongside the investment that we took and that provides some benefits to the business. You know, we're not guiding the gross margins into the next quarter. You know, we're committed to our long-term model of 60% + over time.
I think rather than that necessarily happening just through a price increase or the Syniverse arrangement, it's largely gonna come through, you know, the growth in our software business, which is in part, one of the reasons that we're so excited about it. Syniverse is definitely accretive and will be helpful over time, but, I wouldn't read too much into it having an impact in the next quarter or so.
Thanks. There's quarterly fluctuations in deferred revenue might not be the best indicator of Segment momentum, but, is there any color you can give around how Segment's doing at this point? And also maybe any update where we are in regards to the Engage rollout? Thanks.
I missed the first part of the question. Did you say deferred?
I was just saying like, you know, deferred might not be the best metric to gauge Segment momentum, but, like, is there any color you can give around how Segment's doing at this point?
Yeah. Segment's going really well, and it's been performing well for a long time for us. I mean, we're really excited about the addition of that product and that team as well into the company. Obviously it comes with a nice software attach. I think it's very additive to what we're trying to do and have been doing for some time with our communication stack. I think we bring that all together with Engage. Engage is still planned for a later this year launch, as we've been saying for some time, and we're super excited about the way that beta program has been going. I think we've been oversubscribed there for a while. Elena would probably know better than I, but I think we feel good about that momentum.
Feel great about the way that Segment's been performing. Obviously that business is integrated fully and we're excited to launch Engage soon.
Okay. Next we'll go to Siti Panigrahi with Mizuho. Your line's open.
Hi, this is Abhinav for Siti. Thanks for taking my question. I guess the first kind of question would be just with Google delaying recently their deprecation of third-party cookies now again from 2023 to 2024, have you seen, or maybe do you expect this to change the demand environment a little bit around CDPs, customer engagement more broadly, and maybe that transition away from third-party? And do you see some of the urgency kind of diminished for some of your customers that are coming in?
Yeah, you're absolutely right in that.
Hey, this is Jeff.
Go ahead, Jeff.
Sorry, we're talking over each other. We're in different places, if you haven't figured that out yet. Thanks for the question. You know, I think what we see is it's taking a little bit of pressure off of companies. I mean, if you think about it, like, 2023 is not that far away, so in some ways it's actually pretty reasonable to give a little more time for such a big change in the internet ecosystem to roll through. That said, I mean, we did a survey and it was like, I think it was 70%, some number like that, of companies were not ready for this change. Now, that creates demand for our products. We also can't imagine that that number of companies are gonna magically, like, flip a switch and completely flip their technology stack in just months' time.
I think it's giving a little bit of pressure relief valve, but it still is a great environment for the CDP, given that customers actually do have a little more time to actually make these thoughtful changes. We are already seeing some fantastic stories from the customer base emerge that really is giving our customers confidence that this first-party data approach is not just gonna be tenable, like this is a big change for folks, but actually it's gonna be tremendously beneficial. You know, a couple of the stories that we've shared publicly is, you know, Allergan using Segment was able to get a 41% reduction in their cost of customer acquisition, which is, you know, those are amazing numbers.
Another great customer story was from Domino's, who in Mexico was using Segment to build smarter customer audiences, and as a result of that, doing better ad buying, and they saw their return on ad spend increase 700%. 700%. That's pretty amazing. Especially in a macro environment like this, where every marketer doesn't have, like, the CMO wheeling over a wheelbarrow of cash to go spend on ads. Like, people have to be incredibly efficient and provide ROI on all of their ad spend.
These types of stats, even ahead of having to make these changes, companies who are getting ahead of the curve are already showing these amazing returns, not just in getting back to parity with where they were before a lot of these privacy changes went in place, but actually accelerating and going beyond and showing tremendous increases in the efficiency of their ad buys.
I think that is gonna drive a lot of the demand in addition to the kind of forcing function at the tail end, which is Google saying, "Come on, you guys, you gotta get off this thing." The forcing function isn't bad, but I actually think the even better driving force is just the high ROI customers see when they use our CDP to understand their customers, create better profiles of their customers, then use those profiles to build better, smarter, more accurate audiences to go then place more effective ads on the likes of Google and Facebook. I think it's a variety of factors that are driving it. It's not just the cookie thing. Cookie thing certainly helps, don't get me wrong.
I think that especially in an environment like this where ROI is the name of the game, that Segment has a fantastic story.
Yep, definitely. That makes a lot of sense, and appreciate the color there. Maybe just one quick follow-up on kind of the political messaging volumes this year. Have you seen any indication about how it's trending versus historically or whether, you know, you'll see more volume this year based on maybe kind of the just the political environment in general, or maybe kind of just waiting to see, you know, how that trends into Q3 or Q4?
Yeah, this is Khozema. I think it's kind of a wait and see. I mean, we haven't seen anything idiosyncratic yet. I mean, we've modeled some for Q3, and it tends to pick up a little bit more in Q4, but nothing that I would call out.
Great. Thank you again for the questions.
We'll go to Patrick Walravens with JMP Securities. Your line's open.
Very much. Jeff, going back to Engage, the October 2021 press release said it would be GA in Q1, and now it's Q3 or Q4, so you guys are inside the expected time. I'd love to hear why. Just secondly on the Engage topic, you know, with that you're gonna be competing more, at least that's the perspective from some investors, against some of your great customers, you know, like a Braze or like a Klaviyo. How do you manage that?
Hey Patrick. Yeah, happy to answer those questions. First of all, you know, GA launch is still expected for the second half of this year. We've got great customers on board with the beta and as I think Khozema Shipchandler said earlier, too many customers wanting into that beta, which is a good problem to have. You know, as often happens in the beta, you learn about which are the most valuable parts of the product, which are the parts that are most differentiated, and it directs your roadmap. That's exactly what's happening here. We're learning great things from our customers, and I think our customers are telling us that we are on a great path, and it shows that there's real latent demand for the solution that Engage is providing.
The second of your questions was like how are we managing the partner ecosystem? I think that's a great question because it's not a direct competitor necessarily to those other solutions. Look, there could be some areas of overlap for sure, but there's a lot of different ways to approach building omni-channel marketing, and our approach is to really start with the data. You know, our point of view is that the hardest part for a marketer to get right is actually having the right data and best profiles to drive what they're going to do. There are other solutions that are more focused on, say, the campaign or analytics and, you know, those are great areas to focus on, but ours starts with the data and then activating that data.
What's interesting is that we've seen actually in some of our early beta customers, that what they want to do is use Twilio to drive building that data and then activate it, and they may activate it with a campaign of their own that they build on Engage, that's maybe an email campaign or a text campaign, but they may also want to trigger campaigns that are in other marketing tools. We've seen opportunities to actually deepen our partnerships because, like, look, we're here to help power our customers' tech stack, and I think that bringing data in and activating that data is frankly really a net new area of the tech stack. That's an area of investment.
I think marketers are going to increasingly spend money on having the best data, and the speed of that data, having real-time event level data for all their customers. Then the things they do with it, sometimes they'll be activating those on Twilio directly, sometimes they'll be activating them on internal tools. We've seen customers wanting to trigger like internal alerts or internal chat applications. We've also seen customers want to trigger activations in other third party tools. That's part of the ecosystem that we're building with Engage, and Engage is a really, really flexible engine to take customer data and in real time as that data is changing, activate that data to trigger flows.
There's a real partner opportunity there too, that we continue to work with our partners to bring to life as we're bringing the product to GA.
Okay. That's super helpful. Thanks, Jeff.
There are no further questions. This concludes today's conference call. You may now disconnect.