Ladies and gentlemen, thank you for standing by, and welcome to the TwilioSigns Definitive Agreement to Acquire Segment 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. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Mr.
Andrew Zile, VP of Investor Relations and Treasury. Please go ahead.
Thanks, Sharon. Good morning, everyone, and thank you for joining us today on such short notice. Earlier today, Twilio announced its acquisition segment. The details of the transaction can be found in a press release issued this morning at approximately 4 the today to discuss the transaction are Jeff Lawson, Co Founder and CEO of Twilio Peter Reinhart, Co Founder and CEO of Segment and Khozema Shipchandler, CFO of Twilio. Let me remind you that the purpose of today's call is to discuss the Segment acquisition, we will not be discussing our Q3 earnings results, which are scheduled to be released on October 26.
You can also find an investor presentation discussing the transaction on our Investor Relations website at investors. Toolio.com. This discussion and the accompanying presentation contain forward looking statements. All statements other than statements of historical fact, including statements regarding expected market size expansion, growth, opportunities with additional customers, partners and developers, planned products and services, competitive positioning and market trends, expected timing to close the acquisition and management's objectives for future operations as a combined company are forward looking statements. These statements are subject to risks, uncertainties and assumptions.
Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual results could differ materially from these statements. A description of these risks, uncertainties and assumptions and other factors that could impact these forward looking statements are included in our SEC filings, including our most recent report on Form 10 ks and subsequent reports on Form 10 Q. Our remarks during today's discussion should be considered to incorporate these factors by reference. Forward looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law.
Finally, please be advised that any unreleased services or features referenced in today's discussion or other public statements are not yet available and may not be delivered on time or at all. Customers who purchase our services should make these decisions based on features that are currently available. So with that, I will hand it over to you, Jeff.
Thank you, Julie. Welcome everyone and thank you for joining the call. Incredibly excited about our announcement today. We believe that combining Segment's market leading customer data platform with Twilio greatly enhance our vision to build the world's leading customer engagement platform. We started Twilio about 13 years ago to make communications accessible to developers as building blocks because we saw how important communications was to help businesses create great experiences for their customers.
But communications itself is not the goal. The end goal is great customer engagement. Customer engagement is all the touch points that companies, particularly B2C companies, have customers. It's the stuff that makes customers love companies. When their communications are targeted, relevant and personalized to you, we as consumers, we love it.
Companies aren't wasting our time. And that happens across a wide variety of touch points that companies have with their customers, whether it's in their marketing or sales, when they're trying to acquire you as a customer or when you're using a product or about to make a purchase when you need service or support. Several years ago, we started building the next layer of Twilio's customer engagement platform. We started taking our building blocks and assembling them into a fuller vision. We call this the Twilio Customer Engagement Platform.
Twilio Flex was the first step in this vision of creating the leading next generation platform to power amazing customer engagement for every kind of company. But in order to fulfill on this vision, the platform needs customer data to drive smarter decisions and more relevant engagement. And our customers are telling us this too. Building great customer engagement starts with understanding your customers. Yet today, data about customers is spread across many different systems and these data silos are the greatest impediment to companies truly serving their customers across all the touch points.
As I've noted in the past, the hodgepodge of systems and monolithic apps that companies use to engage with their customers is one of the biggest pain points that companies, especially B2C companies face. We've all had that experience when you're browsing, say, men's t shirts on a website and for some reason they start sending you marketing for their sale on women's pants or you call a company and some automated system asks you for your account number and your mom's, dog's maiden name like 3 times on the same call, just so you can find out where your packages. These experiences and many more like them stem from the challenges that companies have fighting these data silos. The funny thing is nobody wakes up in the morning saying they want to create these bad experiences. Most companies know that their customers want better communication and that each customer has different needs, interests and that they have different preferences for how companies engage with them.
Targeted communication are the key to effective engagement as personalization improves responsiveness and customer conversion rates, while personalized customer service leads to brand loyalty. Driving more effective engagement can lead to higher ROI through strong customer acquisition, decreased customer churn and higher lifetime customer value. Personalized communications are the key to engagement and it all starts with data. More importantly, the quality of this data depends on capturing interactions for different systems that each have a piece of the puzzle and it's a hard problem to solve. But Peter and the team at Segment have built up a leadership position doing just that.
That's why an incredible list of companies have turned to Segment over the past several years. As the leading customer data platform, Segment enables developers and companies to unify customer data from every customer touch points at every system of record, empowering marketing, sales and service leaders with the insights they need to design and build relevant data driven customer engagement. The combination of Segment and Twilio means that we will be able to help time as we combine segment CDP with Twilio Flex, it will facilitate getting the most up to date information about a customer in front of the agent. It's obvious, really. And we believe that it's just the start of the opportunity to bring data and communications together under great APIs to transform how customers build better, more integrated and more relevant engagement across the board.
By leveraging Segment's ability to create a single view of a customer, we will be able to increase communications across channels, improve targeting and personalization and enhance many forms of engagement across the customer lifecycle. So let me pass it over to Peter Reinhart, CEO of Segment to discuss this a bit further. Peter?
Yes. Thanks, Jeff. We're really excited about today's announcement. We've spent years building the tools for businesses to better understand their customers. And Segment helps companies assemble the highest quality first party data and addresses a $17,000,000,000 growth market, with about $2,000,000,000 coming from existing customer data platform software spend in that market and $15,000,000,000 in do it yourself and other software tools used for data We are the leader in the customer data platform market with market share that is just over 2x larger than our closest competitor.
We start by building a tailored stack that is platform and channel agnostic. So we help companies collect customer data wherever they create it. And the next step is ensuring that customer data meets the 4 Cs, so complete, correct, consented and compliant. And this is an important point for us as our mission is to enable customer focused growth with good data, which to us means no third party data. Everyone should have control over their own data and know where and to whom it's being sent.
And like Twilio, we care about data security. We then have the ability to synthesize all this customer data so that it's centralized, resolved, aggregated and accessible. And then finally, we operationalize insights on that data by syncing it in real time, helping folks access raw data, respond to signals and orchestrate outcomes. And all of these core capabilities that we've developed over the years, paired with Twilio's platform will enable us to build the customer engagement platform of the future. So let me talk a little bit about our products, segment connections, segment protocols and segment personas.
So connections helps companies collect all their customer data from every source, whether that's websites, mobile apps, servers, help desks, CRMs, SMS, email, ads, you name it, every customer touch point. And then once you have that data, Connection helps companies take all of that collected customer data and activate it into downstream communication channels like email, SMS, ads, help desks, CRMs and so on. Segment protocols is our second product and it helps companies ensure that all the data entering segment connections is incredibly high quality, accurate and compliant. And then once all this customer data is in segment, our 3rd product segment, Personas, structures all this raw data into unified customer profiles. And personas becomes the segmentation and personalization engine or sort of the brain, if you will, for every company's customer communication.
So with segment personas, the company can personalize messages across channels, optimize ad spend, improve targeting. It's the data driven personalization complement to all the raw communication channels that Twilio has built today. So when we combine Twilio's APIs and marketing campaigns with Segment's data, we'll be able to dramatically improve effectiveness in marketing from attracting and converting new customers to improving upsell, cross sell, promoting brand loyalty. This is an incredibly valuable proposition given that marketing now drives 70% of purchase decisions and targeted communication is the most important factor for lead generation. But it's more than just marketing.
By bringing segments data into Flex, we can drive loyalty via excellent customer service. And this is key for Twilio customers as we know that customer service promoters drive significantly higher long term value and more than 70% of users expect service agents that know their customer profile. The addition of Segment's data platform to Twilio's customer engagement platform will give companies incredible power to drive customer engagement across every communication channel. Let me hand it back over to Jeff.
Thanks, Peter. Let me take myself off mute. Our two companies have a great deal in common. We share the same vision, the same model, the same values. We share the same vision to drive meaningful customer engagement through intuitive technology across every channel.
We share the same model by empowering the developer through a low friction go to market model that is strategic to the enterprise. Our focus on the developers is where it all starts, as they are the ones building these next generation customer engagement solutions. And finally, the cultures of both companies are incredibly aligned. Peter, as a developer CEO, shares so much with me and how we built our respective companies. Citecvic's values like ours combine compassion and performance.
They say karma, we say be humble. They say tribe, we say be inclusive. They say focus, we say ruthlessly prioritize. They say drive, we say be bold. We share a devotion to customers, constant innovation and empowering developers to build new engagement solutions.
This shared culture was a key consideration for this deal. We're excited to add the Segment team to the Twilio family and I look forward to meeting more of Segment's team over the coming months. Segment has built a great business and we have no intention of disrupting that momentum. Once the deal closes, Segment will operate as a division of Twilio with the existing management team intact and Peter leading the way.
I believe this is going
to be an amazing combination and I can't wait to see what we can build together. And with that, I'll turn it over to Jose. Co?
Thank you, Jeff. Under the terms of the definitive agreement, Twilio will acquire Segment for approximately $3,200,000,000 in an all stock transaction and we expect the acquisition to close in Q4. The combined companies will have strong financial profile in large, fast growing and still nascent markets. Upon closing the acquisition, Segment will be accretive to our total revenue, growing north of 50% for current year 'twenty and gross margin at approximately 75% on a non GAAP basis. Twilio and Segment's priorities will remain the same, focusing on delivering elevated revenue growth as we address the tremendous opportunity ahead of us.
On top of the great business Peter and team have built, we're confident in our ability to bring the teams together. This confidence stems from our shared goals, culture and values. We've also proven this with the success we've driven following the acquisition of SendGrid as we have accelerated SendGrid's revenue growth and increased the dollar base net expansion while continuing to grow Twilio's core business. I'll also add, while we expect some cost synergies, we plan to reinvest any potential savings to support growth for the combined entity. Thank you for joining the call.
With that, operator, please open the call for questions.
First question comes from Derrick Wood with Cowen.
Great. Thanks and congrats on what seems like a great transaction. Two questions. First, I suspect you guys have a good amount of joint customers, so it would be great to hear a story about how a marquee customers strategically leverages Twilio and Segment or perhaps how you think they will and the 2 are combined. And then second, when you look at the route to market for segment, I think they've typically sold into marketing and sold into the data engineering buyers.
How do you see the end buyers being additive or synergistic with Twilio? Thanks.
I will take the beginning of that. Thank you for the good question, Derek. So as far as how customers use, there are customers who are using both Twilio and Segment in a variety of ways actually. I think
that when
I look at how customers are using it, they start with Segment to say, we have all this data in all these different systems and different data uses different keys to identify customers, has different pieces of the story and they really struggle to bring them together. And so they start by using segment to pull data out of variety of systems, such as e commerce systems, marketing systems, support systems. And then what you see is they take that data and that informs them how they can better engage with customers. And so, for example, putting that data in front of an agent in Flex to enable them to see the full picture of the customer is one obvious use case. Another one is to create smarter segments for their customers to segment those customers into groups to then target better marketing and advertising and things like that.
And so, those are some of the key use cases that we see. But segment is really part of a core data architecture for companies. And that data architecture then allows companies to use the right channel to engage their customer, get the right content in front of that customer or in front of the contact center agent and ultimately create a more relevant, more personalized and more targeted communication across one of the many touch points that companies have. And Peter, why don't I hand over to you to talk about synergies?
Yes. In terms of joint sort of go to market motion, I think it's actually a little bit of a misnomer that Segment would sell primarily into marketing. While we do address marketing use cases, actually one of Segment's core long term differentiators and the way that we approach the customer data platform market was much more by focusing on the developer and the developer experience. We launched as an open source library and the vast majority of our buyers are actually folks on the engineering or IT side or folks who report jointly into IT or engineering. So there's actually a lot of sort of philosophical, spiritual sort of joint go to market alignment between Twilio and Segment.
We've actually looked up to Twilio for many years in terms of how they've approached developer evangelism and designing and building APIs and documentation for that reason. So a key part of the segment differentiation relative to other customer data platforms has always been that we're focused on the developer. Great. Thanks for the color. Congrats.
Next question comes from Michael Turrin with Wells Fargo Securities.
Hey there, thanks. Good morning and congrats from me as well on the deal here. One for me, looking at the stack slide you've laid out with segments sitting there directly below the engagement cloud, it looks to us like there's a lot more you can add to the app layer going forward. So could you maybe expand on how Segment and the customer data platform they're providing here can help enable further innovation on the app side for Twilio over time? Thank you.
Absolutely. If you think about building a great customer relationship really starts with understanding a customer and then acting on that understanding in order to build the relationship. And so the understanding of a customer, that's data. In a modern company, the data that resides in all these various systems when pieced together, that is your best understanding of your customer. Acting on it, that's communications, right?
So taking everything you know about the customer and having targeted and relevant and timely information for customers, that's how you act on that data in order to build a relationship. If you think about the best experiences that you've had at a variety of companies, it's when they take everything they know about you and they build and they use that to build a great relationship with you. And so, while we think about Flex as an obvious place where we can integrate the CDP, you also think about myriad opportunities around, for example, machine learning, where we can take knowledge of a customer and help our customers to build models that might enable them to, for example, target those messages better, might help them send the right message over the right channel at the right time, individualize with each customer or tailor those messages for even better outcomes. And so, I think there's no shortage of ways in which bringing together knowledge of a customer and how you engage with them over one of those or all of those customer touch points creates opportunities to do a better job of engaging those customers. And that's really what we're focused on.
Next
question comes from Meta Marshall with Morgan Stanley.
Great. Thanks. Just kind of following up on the question on path to market. Clearly, in segment will always kind of be developer led organizations. But just as we think about, Twilio having kind of higher level conversations with more of the CMO or higher level executive decisions.
Just how should we think about segment being brought into that conversation and maybe time that you would expect for kind of an integration to take place so that a joint sale could take place? Thanks.
Absolutely. Thank you, Meta. I appreciate the question. So as I look at it, Twilio has long executed sort of a dual pronged strategy for how we reach customers. When we start more at the grassroots level with developers and developers being able to adopt Twilio's APIs, build things quickly with very little friction and very little upfront commitment, get the ball rolling inside of large companies.
And then we can go in at the executive level in the top down and talk to them about how our customer engagement cloud helps them do the things that executives think about, which is build better relationships with their customers. And so, it's a 2 pronged attack, if you will. And I think that Segment has done a very similar job in how Segment has been brought into these enterprise opportunities. And if you look at how we've evolved our go to market over the past several years, we have successfully taken that developer motion and turned it now into an enterprise sales motion as well. And if you look at SIGNAL, our conference that we held just 2 weeks ago, then you look at we have the CEO of Nike, we have the CEO of Delta Airlines on stage talking about Twilio and that's just a kind of relationship that we might not have been able to unlock 5 or 6 years ago.
And so I think our dual pronged approach with developers at the grassroots level as well as the executive messaging and the more strategic rationale for a customer engagement platform at the executive level is working well. And I think that is segment furthers our ability to fulfill on that story for executives of building the leading customer engagement platform now with a complete understanding of the customer. And I know Segment has had a similar approach as well.
Great. Thanks.
Next question comes from Ittai Kidron with Oppenheimer.
Hey, guys. First of all, congrats on the deal. Very interesting. Jeff, maybe you could talk about a couple of things. First, how do you think about where you draw the line between what you want to bring in into Twilio and just kind of a little bit of perhaps a bigger picture question?
And then as a follow-up, how does segment change your competitive landscape? In what way are you now stepping on people's toes that you haven't before? How do you navigate that going forward? It will be interesting to hear your thoughts on that.
Thank you, Ittai. So for your first question, where do we draw the line? It's a funny way to phrase that. But the way I look at it is like, look, our vision and what we're doing is we're building the leading customer engagement platform because what we've seen by working with customers is that companies, especially B2C companies, have to build their way to having differentiated customer experiences, customer engagement. As the world has turned to digital and increasingly the experience that we have with companies is via a screen, it's via a mobile app, it's via a web browser that the battleground essentially for customers' hearts and minds becomes the digital battleground.
And so companies in that world have to go the answer to the things that customers need in order to differentiate the way they've asked their customers. This is a market that didn't exist 10 years ago because it used to be you just bought some software and you called it a day, but now companies have to go build. And so, in customer engagement, in all the touch points you have with a customer, you in customer engagement, in all the touch points you have with a customer, you really need to be able to have more flexibility, more agility and operate across the myriad channels that customers expect on this digital landscape. And so that's to us what a customer engagement platform looks like. Now I ask the second question, does it change our competitive landscape.
No, it really doesn't. I think this is essentially a net new market because what we've seen is that B2C companies in particular, as they go about building, they have needed essentially a set of products and services that haven't traditionally existed in the world. This is an underserved market because it's been emerging over the past decade and by the way accelerated because of COVID, how companies need to use digital technologies in order to provide great digital experiences. And that's the those are the customers that we're serving and this is the opportunity that customers in many ways are leading us to and they're showing us the ways in which their needs have changed from yesteryear to really compete and win in the current digital landscape. And that's what we're serving.
I couldn't help but notice that Salesforce shows up as on the leader quadrant in the CDP space. Clearly, they're a customer engagement platform at the application level. So in what way do you see the application guys rubbing against you on the infrastructure layer underneath to enable the engagement?
I think what we do is just different, right? We help companies take their investments in myriad apps they may have bought and actually take the data that exists in silos for most companies, right? They bought a bunch of apps, typically SaaS apps to power their business. They may have an app for marketing, they may have an app for sales, they may have an app for customer support, they have myriad apps across the enterprise. And it's the data silos that result from having bought all those apps.
That is the enemy really of great customer engagement. And so the amazing thing that Segment does is they enable companies to leverage those investments, but still form a complete picture of their customer and then get that data back to those apps so they can make even better decisions. And so, I think Segment allows companies to both have the infrastructure that they've already bought and use it better and then build upon it. And that's what's so powerful about what they do.
Next question comes from Alex Zukin with RBC.
Hey, guys. Thanks for taking my question. I guess maybe just first back to Ty's question, Jeff. If you think about the evolution of the CRM market over the next, call it, few years with both Adobe and Salesforce and Twilio now kind of fully invested in the CDP vision. Do you expect those vendors to try to come into your market around CPaaS anymore?
Do you and also if you think about how you go to market from a pricing and packaging perspective with the product on this is it priced similarly or from
a similar unit economic basis? Thanks. The way we've historically thought about the market here and pricing and things like that is that Twilio breaks down services that companies need and developers need into building blocks and then allows developers to adopt them with ease and with a low commitment model that encourages them to develop. And what this does, this helps give us a very efficient go to market model. If you look at our growth rate, how fast we're growing at the scale we're at, a couple of our spend on sales and marketing, it's one of the lowest in the entire software industry.
And so, it allows us to land at customers very effectively and allows us to expand in those accounts very effectively. And that's represented in a dollar base net expansion rate. And so, we have already any other particular competitor. Like, obviously, I can't speak to what their strategic priorities are or what they might do. But what I can say is that our playbook is pretty well known.
We want to empower developers with the best infrastructure, break down what historically had been monolithic systems into more flexible, agile building blocks and enable those developers to adopt them with ease so that they can get started very easily. And then as they expand, allow us to share in the success when our customers succeed in using our products. And I think that's how we will continue to execute for the foreseeable future. I think segment has a similar pricing and building block philosophy that we did.
Makes sense. And maybe just a quick follow-up. If you think about the proportion of Segment's customers that are using it to power either marketing, sales or service, Can you help break that down for us a little bit? And to the earlier question, where do you expect the first kind of killer app or Flex like app to emerge from this acquisition? Is it on the marketing side?
Is it on the sales acceleration side? Where would you expect that to come from?
I'll pass it over to Peter to talk a little bit more about Segment's customers, how they use Segment's
AI. Yes. It's interesting. When people interact with their customers, there's a huge, huge variety in the number of different And what's really And what's really interesting about Twilio's strategy of building blocks for developers to build things and segments approach and having an open eco partners building on top of that. So Segment integrates with about 300, 350 different partners that help execute on various customer workflows downstream.
That's expanding rapidly and is now something that partners integrate with segment instead of the reverse. So I expect to see that sort of Mar Tech Ecosystem, which is about 7,000 companies today, continue to expand, continue to sort of multiply and will be the customer data
Next question comes from Matt Suttler with William Blair.
Just a couple of quick ones for me. So first off, in terms of what the CDP market looks like, you've identified kind of $17,000,000,000 of current market opportunity, a lot of which looks pretty much on the greenfield. Can you just comment on how fast the market is growing and what you expect the CDP market to look like in 3 to 5 years?
Sure, Peter. Why don't you take that one?
Sure. From all the research I've seen, I think it's probably growing about 30% year over year on a total kind of aggregate basis. But what we're seeing is people moving over to no longer DIY, but buying something off the shelf faster than that. So maybe that gets you in order to magnitude.
Yes, that's helpful. And then obviously the acquisitions closing in Q4, you kind of commented on the structure of the organization. But I guess how much work, how much investment will it take to integrate Segment as a company in terms of the product portfolio, the platform into Twilio to provide the full benefit to the customer? Yes, this is Khazana. Let me take that one.
I think for the foreseeable future, the way that we see it is that Segment will operate as a division of Twilio. And obviously, over time, we will create a holistic platform. And I think in terms of integrating products and integrating various functions, we'll probably start as we typically do with some of the G and A areas at first. We'll probably flip it a little bit in this case and product dynamics first. I think as Jeff and Peter both alluded to, there's a number of exciting things that we feel like we can do there and then probably get to go to market last.
Got it. That's helpful. Thanks, guys.
Next question comes from Ryan McWilliams with Stephens, Inc.
Thanks for taking the question. Looking at the segment CDP report, I noticed that the second most likely destination segment users were sitting better to was the email marketing platforms. Can you talk about the potential integration and upsell opportunities here with Twilio SendGrid and its marketing campaigns?
Sure. This is Jeff. Yes, I think there's obvious opportunities to help customers to bring data, bring that complete picture of their customer in to power smarter marketing campaigns. Because if you think about it, the better a company can segment and target a customer with the relevant message or the relevant channel and over using the relevant messaging based on everything they know about you, the better those campaigns are going to run. And so integrating the segment capabilities or further integrating because they already are in many ways, integrating segment into marketing campaigns is a logical step.
But I further accentuate by the way, I think the opportunity for this segment goes far beyond marketing campaigns. Like that's an obvious one. Flex is an obvious one. In fact, all of the touch points that companies have with customers are better when they're powered by data, which channel to use, what message to send, which one actually results in more repeat purchases or more customer satisfaction. These are all places where data coming from 1,000,000 places can help companies make better decisions and automated systems and machine learning systems drive better outcomes.
And that occurs across many of the touch points, not just marketing or not just contact center, but really it's everywhere.
Perfect. And I definitely think that speaks to the different number destinations that segments have been set up to. Maybe just one for Peter, that's the important. You said that segment tracked over $500,000,000,000 in events per month on its platform, growing at 60% year over year over 2019. How has COVID affected this growth?
Like have you seen the number of events significantly changed since March? And how have new customer additions been impacted by COVID?
Thanks. Yes, generally growing quite quickly. Surprisingly, COVID has not had a major impact for us in terms of customer adoption and new customers. In terms of overall API usage, we've actually seen dramatic acceleration of API calls and total volume that we're processing there. I don't think I can share numbers on that today, but data volume certainly as everyone has moved to online experiences and so on, we've definitely seen a huge uptick in data volume.
Thanks, guys.
Next question comes from Will Power with Baird.
Well, great. Thanks. Yes, I guess a couple of questions if I can. So maybe first, Peter, I'd love to get your just a little more perspective in your mind what's really kind of set Segment apart from some of the other CDP leaders? It looks like you've got a nice leadership position there, particularly looking at Slide 14 and the presentation deck.
So just trying to figure out from your perspective, I guess, if you will, kind of what the secret sauce has been and the sustainability of that as we move forward here. And then the second question, probably for you Jeff or Zane, I guess you referenced the success you've had with setting good the opportunity to accelerate growth there as it became part of the Twilio platform. So I'd just love to help you kind of crystallize what you see as the parallels there, maybe how you think about the lowest hanging fruit, if you will, as you combine these platforms going forward from a revenue growth perspective? Thanks.
Yes. So this is Peter. To answer the first question on what sets Segment apart from other CDP players, It's interesting. I feel like we've had this focus specifically on the customer data. And when you put the focus on the customer data itself, rather than where most of the players go is to sort of a marketing first workflow, like high level tool UI built specifically for marketers, The differentiation for us has been when you put that focus primarily on the customer data, it leaves you down a path that is actually much more focused on the developer and much more focused on the developer experience of collecting, consolidating, managing and integrating that customer data.
And so fundamentally, it's the approach of what problem are you really solving. If you're solving the customer data and infrastructure problems associated with that, then you really end up in a world where you're building 1st and foremost for the developer to eventually solve the marketer's problem or the support person's problem or so on. That has been the core of our differentiation. We have whole go to market motion around how much like Twilio, we build from developer first adoption up into an executive level sale and a global deployment. So yes, that is the crux of the differentiation and the sort of flywheel that gets created between developers and the adoption of really fixing customer data.
And this is Jeff. I think in terms of the parallels we see with between SendGrid and Segment, I think there's a lot of obvious ones. One is a very developer focused platform that is further enhanced by a mature sales motion. And so, yes, I think there's a lot of similarities there. And I think if you think about SendGrid, what we hear from customers regularly is that they would rather have fewer vendors to work with.
They'd like to be able to work with 1 company, give their developers free them to go use a wide variety of services and be able to engage with their customers without having to pull in new vendors all the time. And so, I think that this, like SendGrid, enables us to be able to serve a wider breadth of customer needs and customer engagement that will continue to drive more usage and more customer success. And when we accelerate an ability for companies' abilities to build those customer engagement like apps and experiences that they're trying to build, we can make our customers more successful faster as well as start to do the integration of these services together over time that enables complete customer engagement vision. And so I think SendGrid was part of that hypothesis in terms of like adding another channel that pretty much every company uses email under the umbrella of Twilio. And then I think segment makes the entire platform smarter.
And so that's another thing that I hear from executives and developers, such a wide variety of companies that building that one view of their customer is critical to their success. And now with Segment, they can also do that on top of Twilio. And I think that will help us to accelerate not just the adoption of Segment, but also the adoption of really sophisticated workloads on top of Twilio using all these channels, using data and then using the aspects of our engagement cloud that allow them to deploy these at scale for all these different customer touch points.
That's great. Thank you.
Next question comes from Rishi Jaluria with D. A. Davidson.
Hey, guys. Thanks for taking my questions. Two quick ones. First is on the pricing model and business model differences. I mean, just looking at your segment website, it appears to be more prepaid and annual plan versus the consumption based model for Twilio.
Just can you give us an understanding of is it going to be is there any potential changes to the models or are there going to be customers who would be using Twilio and paying for usage after and prepaying per segment? Maybe help us understand. And then I've got a follow-up.
Yes. I would say, Rishi, in the beginning, what you'll probably see happen is that you'll have a blend. As you probably remember, even from our Investor Day recently, without Segment, we have a blend of both usage as well as subscription like revenues that run through our company. And so I think in the beginning, you're going to see the same sort of dynamic here. We haven't made I mean, we haven't closed the transaction yet, obviously.
We're just announcing it today, and we haven't really made any detailed calls around how we're going to do pricing and packaging sort of together. We obviously like our usage based model. Segment's been incredibly successful with their existing model. And so rather than tinker with that sort of thing too much, I think we're going to wait and see and figure out the right thing for both the combined entity over time.
Okay. That's helpful. Yes. And then just wanted to ask a question just in terms of look, I think the transaction makes a lot of sense, obviously going to be a great fit. Can you help us understand the rationale for doing this as an all stock transaction versus just given the amount of cash that you have, and especially with SendGrid, right, doing that as an all stock transaction and the ultimate purchase price ended
up being a lot higher than
we announced just because the Tourist stock ended up doing so well between announcing the deal and closing. Maybe just help us understand the rationale there? Thanks.
Sure. We view the stock as an attractive acquisition currency today, I would say. And I think as we've said repeatedly, we're in the early stages of disrupting a very large and fast growing market. And when you look at our recent history, as you pointed out, the SendGrid acquisition was an all stock transaction that worked out really well for both companies and really helped align our interests. The value to their shareholders and our shareholders today is a lot greater than what it was when we acquired the business.
So we felt like this was pretty similar in that regard and the right structure.
All right, great.
Thank you.
Next question comes from Jeff Kvaal with Wolfe Research.
Yes, thank you. I wanted to follow-up
on that question a little bit. I mean, you did raise a decent amount of money over the summer. And so I'm wondering what the plans are for that as it stands at the time, like M and A would be a portion of that, if not most
of it. And here we are
with the deal that is mostly stock. So what might be on the agenda for that? I mean, I'm not sure I have a totally different answer. I would say that from our perspective, the 2 follow ons that we've done over the last couple of years were an effort to ensure that our balance sheet was incredibly strong and would provide maximum optionality basically through any cycle. We've been pretty consistent about that.
We are constantly evaluating what the right consideration mix is for these transactions. And we remain focused on a variety of M and A opportunities, and we certainly have a pretty active game board. And if we feel like the right value alignment is there for cash, that's how we'll do it. In this particular transaction, we felt like the right alignment was for stock and so that's why we went that route. Okay.
That makes sense. We'll keep our ears to the ground. And then secondly, I'm wondering what can you tell us, if anything, about what the additional revenues and or costs may be as they come into the model? Yes. We're not there yet.
I mean, I think what I will say is this, is that we pointed out that they're going to be accretive to our growth rate. They've been a 50% grower, and so we're pretty excited about that. The second dynamic is gross margins where we're certainly excited about where their non GAAP gross margins are, excuse me. We're anticipating this closes in Q4. So it's going to be a pretty modest contribution to calendar year 2020, but we'll certainly provide more details as we go forward.
Okay. On the closing perhaps?
Perhaps.
Next question comes from Brent Bracelin with Piper Sandler.
Thank you. One for Jeff and one for Peter, if I could here. Jeff, totally get the strategic rationale around adding the segment APIs a day later. But my question is more around the why now? Is this all around accelerating the vision here, customer pain points, recent thresholds?
Maybe just spend a little bit more time around the why now? And then for Peter, you've got billions of events and API calls flowing through segment today. How much heavy lifting from a technology standpoint would it be required to automate the segment data layer with the Twilio engagement layer essentially automating real time events with sending a direct customer kind of message? Thanks, Matt. So your first question was why now?
And look, I think that first of all, we've been hearing from customers for a long time that assembling the single view of their customers is one of the biggest challenges they have. And segment as a leader in this space is doing a great job of solving that really hard problem. And then the second thing I think is as you see us pushing into customer engagement with things like Flex, the value of having that single view of the customer becomes even more important and even more front and center for the kinds of services that we are now building. And so it's at some point becomes obvious that solving this problem enables us to serve customers even better, allows us to unlock new types of use cases and outcomes that our customers want us to power for them. And so, this is a fantastic time.
The more I've gotten to know Peter and the segment team over the past several years, the more conviction that both I and Peter had developed around, hey, this makes a ton of sense. And our gut instinct from what our customers are showing us as far as the problems they need solved, our ability to solve it together is a fantastic one. And so in some ways, that's why the deal and that's why now.
On the second question of
how much heavy lifting to automate things, I'd say there's a few pieces of sort of deep infrastructure this segment has already built that are probably the heavy lift. One is just how you accept and collect and process and manage all of data flowing in,
in real
time. Hundreds of thousands of data points per second, sort of order of magnitude to think about here. So that is the heavy lift on infrastructure. The second heavy lift is how you manage identity. So as you have user IDs and other things flowing in, how do you understand how to stitch those things together into a user profile?
That already exists within Segment. That is fundamentally our 3rd product, Segment Personas, which I spoke about earlier. So when you think then about what's the lift required to integrate that and into a sort of deeper engagement layer, actually the really hard infrastructure problems are things that already exist inside segment today. And the beauty of an API based model is that these things are connectable by developers and engineering teams. So I think the hard problems are solved already.
Next question comes from Siti Panigrahi with Mizuho.
Thanks for taking my question. Congratulations. Just to ask Brainscale same question a little differently, Jeff. So what triggered you to acquire segment? I mean from a communication platform, you could have gone many different ways.
So is it the goal to get into CDP or CRM or is it something that in segment that we saw or is it segment wanted to merge with Twilio? So anything would be helpful if you could help us like what triggered you to at your segment?
Yes, absolutely, Sudi. Our goal all along has been, as we've communicated for a long time, is to be the leading customer engagement platform. And as such, there's really 2 parts to great customer engagement or great customer relationships, right? It's understanding a customer and then acting on that understanding to build that customer relationship. And so understanding the customer, that's customer data, acting on it, that's communications.
And so Segment really adds that next layer of understanding and intelligence to our platform that enables us to fulfill on that vision. And so I think it understanding customers holistically is just a critical part for every company. And the more we talk to customers, the more we work with businesses, both at the developer level and at the executive level, we've come to realize even more and more and more over time just how important building this understanding of your customer is. And that's why this combination makes so much sense.
Thank you.
Your last question comes from Shelby Sayrafi with FBN Securities.
Yes, I want to know about
the revenue multiple being 20 times. Is that a latest 12 month statement, which would imply around $150,000,000 for segment revenue?
Yes. Again, we're not going to break out the revenue, but you're in the ballpark based upon the multiple that we're talking about. As we said, based on the 3.2, it's more or less in line with prior transactions, but not breaking out the exact specifics.
Okay. Thank you.
At this time, I will turn the call over to the presenters.
Great. Thank you, Sharon, and thank you everybody for joining us today. We're really excited about this transaction and look forward to speaking with you in a couple of weeks when we report our Q3 earnings.
And this concludes today's conference call. You may now disconnect.