Good afternoon. My name is Tashan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Twilio fourth quarter 2016 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Greg Kleiner, Head of Investor Relations for Twilio. The floor is yours.
Thank you. Good afternoon, everyone, and welcome to Twilio's fourth quarter and year-end 2016 earnings conference call. Joining me today are Jeff Lawson, Twilio's Co-founder and CEO, and Lee Kirkpatrick, Twilio's CFO. The primary purpose of today's call is to provide you with information regarding our 2016 fourth quarter and full year performance, in addition to our financial outlook for our 2017 first quarter and full year. Some of our discussion and responses to your questions may contain forward-looking statements, including, but not limited to, statements regarding our future performance, including our financial outlook, our market opportunity and market trends, customer adoption of our products, our momentum, the benefits from our business model, timing and focus of expenses, impacts and expected results from our acquisition of Beepsend, and our ability to execute on our vision. These statements are subject to risks, uncertainties, and assumptions.
Should any of these risks or uncertainties materialize, or should any of our assumptions as outlined in our earnings release, and the documents referred to in that release prove to be incorrect, actual company results could differ materially from these forward-looking statements. Discussion of the risks and uncertainties related to our business is contained in our Form 10-Q, filed with the SEC on November 7th, 2016, and our remarks during today's discussion should be considered to incorporate this information by reference. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today, or to reflect new information or the occurrence of unanticipated events, except as required by law. Also during this call, we may present both GAAP and non-GAAP financial measures.
Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued a short time ago. We encourage you to read our earnings release, as it contains important information about GAAP and non-GAAP results, as well as the reasons why we present guidance for non-GAAP financial measures of loss from operations and net loss per share, but not the comparable GAAP measures. The earnings release is available on the investors.twilio.com page of our website and is part of a Form 8-K furnished to the SEC. Finally, at times in our prepared comments or in response to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly or annual results.
Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update in the future on these metrics. Encourage you to visit our investor relations website at investors.twilio.com to access our earnings release, periodic SEC reports, a webcast replay of today's call, or to learn more about Twilio. With that, let me turn the call over to Jeff.
Thank you, Greg, and welcome everybody. 2016 was a tremendous year of innovation and growth for Twilio. The power of our platform business model drove another set of outstanding results in the fourth quarter. We finished the year on a high note with a Q4 performance far above our guidance. This strength, combined with gross margin adjustments we will describe, also drove our first quarter of non-GAAP profitability. Customers, new and old, are leveraging our platform to create experiences for their end users by integrating communications into the software that they're building. Base revenue grew by 73% year-over-year in Q4. This was driven largely by our continued successes with existing customers, along with seasonal contributions from elections in the U.S. and Brazil.
We also saw another strong performance in our key metrics with dollar-based net expansion rate of 155% and year-over-year active customer account growth of 44%. In total, we added more than 2,000 new active customer accounts in the quarter, with strength in both the enterprise and technology-first organizations. We kicked off a number of new efforts in the fourth quarter with companies such as Capital One, Atlassian, Paymentsense in the U.K., and one of the Blue Cross Blue Shield companies. Authy also added some wins with companies including Scotiabank, Mercado Libre, and William Hill in the U.K. We also entered into a new relationship with one of the largest U.S. airlines. This is another great example of how working with developers within a large organization can pay dividends, as the airline's technology evangelists helped champion Twilio through this process, culminating in a decision by the CIO.
The initial use cases are targeted at internal-facing functions, like incident alerting and conference bridges, with several other potential opportunities identified. You may recall my discussion last quarter of the Enterprise Plan, a product with a host of compliance, security, and administrative features aimed at serving the needs of larger, more complex businesses. The Enterprise Plan was key to unlocking this opportunity. As a federal contractor, this airline has very specific data storage requirements that we can now address through the capabilities of our Enterprise Plan.
We believe this unique combination of developer credibility and enterprise quality not only helped us close the initial transaction, but also identified further potential opportunities to expand our relationship with this customer. Another customer, All Web Leads, is a leading customer acquisition marketing business focused on the U.S. insurance industry, and they were another important Q4 win. The core of All Web Leads' business is the ability to attract, engage, and qualify customers who need to purchase an insurance plan. An important part of that equation is the call center technology that drives tens of thousands of calls for their business every day, and this is what we will be driving for them going forward. The power and flexible nature of our platform, along with our scalability and monitoring capabilities, are key to this win.
Another example of our traction within the traditional enterprise is a new relationship we started with one of the leading service providers to the U.S. automotive industry. Just like Twilio is behind the scenes powering the communications behind many of the services you use every day, this company provides services to a majority of the new cars sold in the U.S. Customer service is vitally important to this company's business as they serve tens of millions of drivers each year. By modernizing their call center operations on Twilio, we'll be helping them to improve automation and self-service options to create advanced call controls and add messaging as a new communications channel. The end result will help to improve both the efficiency of their operations and the customer experience for their millions of end users.
We won this deal in conjunction with our partner, OneReach, another example of our traction with solution partners who help expand our presence in the market. On the product front, we announced a number of new offerings in the fourth quarter. First, Dual-Channel Recording to improve agent productivity and enable advanced analytics in both sales and call center use cases. Second, Interconnect for our programmable voice client offering to enable private Ethernet and MPLS connections to our cloud for our customers' VoIP calls. Third, a Porting API to allow customers to more easily move their numbers over to Twilio in an automated fashion. Finally, we added support for SIP registration to our programmable voice product line for customers to connect their existing phones directly to our platform.
In addition, the R&D team remains hard at work on a number of other offerings we have teed up for major releases this year, like Programmable Chat, Programmable Video, Programmable Wireless, and Notify. We've admitted many customers into the beta programs of these early release products and are expanding the number of customers in the program continually. We're very excited to see what our customers can build with these new building blocks as we move through the final stages of our launch program. We were also pleased to have been included in the bot frameworks launched this past quarter by two of the major platform providers, both Microsoft Azure Bot Service and Amazon Lex framework. We have a number of clients experimenting in this field, and I'm excited to see what comes out of it.
You've heard me talk about our plans to further penetrate the Enterprise market in the past. In Q3, we launched the Enterprise Plan to both aid this effort and monetize the unique needs of larger organizations. More recently, we announced that we received ISO 27001 certification, one of the most widely recognized and internationally accepted information security standards. This is a huge milestone for our company and something that is very important to both our customers and our prospects. I also wanted to take a moment to discuss the acquisition that we announced today. I'm very excited to welcome the Beepsend team to the Twilio family. Lee will walk through the financial details in a moment, but at a high level, the focus of this acquisition is their underlying routing platform and technology team, which we believe will benefit our entire messaging business by improving our Super Network.
We looked at the product roadmap for our Super Network, and we saw a great fit with Beepsend's routing platform and the expertise of their team. In particular, their platform's capabilities to segment traffic and monitor routes will aid our messaging business, especially when combined with the quality data we receive from our proprietary routing platform. In addition to the technical benefits, we're also looking forward to the contribution from their team members as they bring a wealth of knowledge and relationships as we expand our international efforts. Before I turn the call over to Lee, I'd like to take a moment at the end of our first year as a public company to reiterate our vision for the road ahead. Our mission is to fuel the future of communications.
As communications undergoes a once-in-a-lifetime transformation from its legacy in hardware and physical networks to its future in software, we see a tremendous opportunity to influence and power that future. We make continual progress towards that goal of powering the software-based future of communications by doing two things. First, we work to migrate the existing communication workloads of the world onto Twilio. Second, we work to ensure that the future workloads of communication are invented on top of Twilio. We plan to accomplish this by following three steps. First, we seek to build a broad platform that is widely applicable, priced aggressively, and designed to enable developers' creativity to flourish across the widest set of use cases imaginable. To do this, we will continue to provide high-quality offerings across a variety of lower-level building blocks like voice and messaging. We price these offerings to maximize their utility across a broad set of use cases, some of which aren't even invented yet.
That is just the first step. The second step is based on the most common use cases that emerge from that broad platform, we then execute a strategy to drive deep penetration in each. See, we're listening to our customers, watching what use cases they build with our platform, and bringing these learnings to a broader audience. As a result, we may offer higher-level APIs like our use case APIs, Authy and Notify, or we may work with partners such as Zendesk and Salesforce to drive a healthy ecosystem targeting a particular use case. That's the second step. Third, we repeat this process by further broadening our platform.
This means that over time, we will look to add new products to our platform, like Programmable Video and Programmable Wireless, and repeat the cycle again. We plan to invest across several areas in 2017 to execute on this strategy. In product, we will invest to further our lead in this market by increasing the breadth and the depth of our product line to provide customers with more choices, along with demonstrating the superior quality of the products we build. In sales, we'll be adding more fuel to an engine that's working quite well. We'll be adding to both the key accounts and new business teams in an effort to expand our reach, penetrate our existing accounts, and get our customers to production scale faster than ever before.
In marketing, we will invest in furthering our mind share with developers and becoming a trusted asset in the tool belt of every builder in the world. Overall, 2016 was a momentous year for Twilio in many ways. In fact, November was the eighth anniversary of launching the Twilio website. So it's amazing to me all we have accomplished in the past eight years. I'd like to take a moment to thank all the customers, partners, and investors for your ongoing trust in us. And to all of the Twilions, thank you for your continued hard work and devotion to customer success. I'm incredibly proud of what we've accomplished in 2016, and I'm eager for what lies ahead in 2017. It is still day one of our mission to fuel the future of communications. Now I'm going to turn it over to Lee to discuss our financial results.
Thank you, Jeff, and good afternoon, everyone. We are pleased to report strong numbers as we closed out 2016, results which exceeded our guidance. Overall, these results were driven by our continued success in adding new customers and driving further expansion across our existing customer base. We demonstrated a combination of strong revenue growth, operating leverage, and progress across our key metrics. Base revenue for the fourth quarter of 2016 came in at $75.2 million, up 73% year-over-year from the fourth quarter of 2015. This compares to our guidance of $68 million to $69 million. As Jeff mentioned, we saw seasonal strength from marketing campaigns related to the elections, not only here in the U.S., but also in Brazil, that contributed to the results in the quarter. Combined, we believe this activity produced a little over $1 million of revenue.
Total revenue for the fourth quarter of 2016 was $82 million, up 60% year-over-year from Q4 of 2015. Overall, base revenue accounted for 92% of total revenue in Q4, up from 85% in Q4 of 2015. We continue to see strong growth across customers of all sizes. In fact, we ended the year with more than 2,500 customer accounts, driving greater than 10,000 in ARR, a customer segment that grew faster than our overall customer account growth. In terms of customer concentration, our top 10 customer accounts were 29% of total revenue in Q4. Our largest customer organization contributed 17% of total revenue in the quarter. WhatsApp came in at 6% of total revenue. We have a range of customers of all sizes as we go further down the list, extending out to the long tail. We continue to see strong growth across all customer revenue tiers.
As of December 31st, 2016, active customer accounts were 36,606, up from 25,347 as of December 31st, 2015. These figures include eight variable customer accounts in Q4 of 2016, compared to nine in Q4 of 2015. Our dollar-based net expansion rate was 155% in the fourth quarter, demonstrating the power of our platform business model and our continued ability to both retain and expand revenue within our customers. Before moving on to the profit and loss items, I'd like to point out that I'll be discussing non-GAAP results going forward. Our GAAP financial results, along with a full reconciliation between GAAP and non-GAAP results, can be found in our earnings release. Non-GAAP gross margins in the fourth quarter of 2016 were 59%, up from 56% in the fourth quarter of 2015. There were a few factors that impacted our gross margins this quarter.
A favorable mix of usage in higher-margin geographies internationally, ongoing efficiency gains, and some end-of-year refunds and accrual reversals that positively impacted gross margins. Specifically, the end-of-the-year refunds and adjustments I mentioned added roughly 90 basis points or about $750,000 to our Q4 results. While we had a great quarter on the gross margin line, our plans do not anticipate margins continuing at this level. Please recall that we're currently operating our business to optimize for reach and scale to drive revenue growth rather than maximizing for gross margin. Gross margin may fluctuate in the near term as we pursue this deliberate strategy to further extend our market leadership. Non-GAAP operating expenses in the fourth quarter of 2016 in total were $48.2 million or 59% of total revenue. This compares to $34 million for the fourth quarter of 2015, or 66% of total revenue.
The combination of our revenue and gross margin upside drove a small non-GAAP operating profit in the quarter. Non-GAAP operating profit was $100,000 in the fourth quarter of 2016 compared to a non-GAAP operating loss of $5 million in the fourth quarter of 2015. This was better than original guidance of a non-GAAP operating loss of $4.5 million-$5.5 million. Our non-GAAP operating margin improved by approximately 1,000 basis points year-over-year, from -10% to slightly above breakeven. Note that we ended Q4 with 730 employees. Our non-GAAP income per share in the fourth quarter was $0.00 per share based upon a weighted average diluted share count of 100.2 million shares.
This compares to a non-GAAP loss per share of $0.07 per share in the fourth quarter of 2015, based upon a non-GAAP weighted average share count of 70.9 million shares, which assumes the conversion of preferred stock at the beginning of that quarter. There are a few new items in our reconciliation this quarter. Let's take a moment to explain them. The expense related to our charitable donation to the Donor Advised Fund, or DAF, supporting Twilio.org, is fairly straightforward and something I highlighted in our Q3 call, though we were able to execute on this a little ahead of plan. We sold 100,000 shares on behalf of Twilio.org in the follow-on offering in October. This charge is related to the funding of the DAF itself.
The second item, the sales tax accrual reversal, is related to our ongoing effort to establish a basis upon which to appropriately charge state sales tax to our customers. As we've disclosed previously, we've been accruing these sales taxes, including penalties and interest, on behalf of our customers as an expense while we work with each state to determine the appropriate tax rate and put the systems in place to pass these taxes through to our customers. We accrued $3.4 million in the fourth quarter, which is reflected in our G&A line. In the fourth quarter, we made progress across several fronts. We reached agreement with one state, resulting in a reversal of approximately $800,000. We are in advanced discussion with several other states, plus we have sent proposals to all the remaining states in an effort to move this process forward.
While we're encouraged by the progress we have made on this front, this is a complicated issue and we still have significant work to do. We ended the quarter with $306 million in cash and cash equivalents, compared to $252 million at the end of the previous quarter. The follow-on offering completed in October added $65 million net of expenses to this balance. Before turning to guidance, I did want to discuss the financial implications of the Beepsend transaction that Jeff Lawson had mentioned earlier. As a reminder, the focus of the Beepsend acquisition is the overall benefits their technology and team can provide to the Super Network, driving further efficiencies for our messaging business. The acquisition closed yesterday, let me take a minute to describe the financial impact of acquisition, both in the short and long term.
Beepsend has been running in the high six figures of revenue per month, growing modestly and running close to breakeven. Accordingly, we expect the following impacts to our business over the balance of the year. In terms of revenue, we expect Beepsend to contribute roughly $1.5 million in the first quarter for the period post-close and about $10 million for 2017 as a whole on a reported basis. Integration investments should produce a small operating loss in the first half, but the impact to operating income should be negligible by the second half of the year. Longer term, the benefit will largely be felt on the gross margin line in terms of efficiency gains in our messaging business, though this does not change our short-term priority on reach and scale that I discussed a moment ago.
There are a number of variables that impact our gross margin line in the short term. Let me turn to guidance. We're initiating our guidance as follows, please note that these figures include the impact from Beepsend I just outlined. For the first quarter ending March 31st, 2017, base revenue in the range of $78 million-$79 million. Total revenue in the range of $82 million-$84 million. Non-GAAP loss from operations of $6.5 million-$5.5 million. Non-GAAP net loss per share of $0.06-$0.07 based on 88 million weighted average shares outstanding. For the full year ending December 31st, 2017, we expect base revenue in the range of $351 million-$355 million. Total revenue in the range of $364 million-$372 million. Non-GAAP loss from operations of $17 million-$13 million.
Non-GAAP net loss per share of $0.19 to $0.15 based on 90 million weighted average shares outstanding. Our Q4 results capped off a very successful year. We hit breakeven ahead of schedule in Q4 2016, driven by the overall strength of the business, along with some seasonal and one-time items. Looking forward into 2017, our growth investments, including some front-loading of hiring, will drive modest losses in the first three quarters before we achieve breakeven in Q4. To wrap up, I'm very pleased in the performance of the team, both in the quarter and in the year as a whole. We are executing well against our plan, the impetus of our business remains strong, and we are very excited about the opportunity that lies ahead of us.
I'll now turn the floor over to your questions.
At this time, I'd like to remind everyone that in order to ask a question over the phone, you may press star one on your telephone keypad. If you'd like to withdraw yourself from the queue, you may press the pound key. We do ask that you limit your questions to one, to allow time for other participants. We will now pause for just a moment to compile the Q&A roster. Your first question comes from the line of Richard Davis. Your line is open.
Hey, thanks very much. Just a quick question. Do you have any access to the content that passes through your APIs, such that you could glean information that might be fed back into algorithms that might provide kind of pre-scripted information back to your clients? The reason I'm thinking about that is with voice and video conversation, which is occurring in real time, that might be something you could do. Maybe it's a technical question, but I was just curious.
Thanks, Richard. This is Jeff. I'll answer the question. It depends in many ways on how customers use our product. For a voice product, if you do recordings, we have a marketplace of partners who can do analysis to provide more insights into the content of what was said, things like sentiment analysis, speech recognition, et cetera. For messaging, there's partnerships there as well with companies that are adding value to the messages, just for things like sentiment analysis. We announced this at our conference last year. Yes, in general. Now, other products of ours that we may not have access to, for example, our peer-to-peer video product. That is fully encrypted between the end points, and so as the way it is today, we don't have access to the media.
Really, it ends up being up to customers sort of in how they use our product and whether they give access to us to plug in algorithms that can add value to that content or whether or not they do not want those algorithms to be used. We do see adding value in the form of algorithms that are analyzing content and providing more value to business as a very interesting area, especially with what's happening in the world of artificial intelligence.
Got it. That makes sense. Super. Thank you so much.
Your next question comes from the line of Heather Bellini. Your line is open.
Great. Thank you. I just wanted to follow up on your comment about AI and machine learning. When you think about the company's APIs, when do you see that as starting to be a driver of top-line growth and actually being built into the application set that your customers are using?
Thanks, Heather. Really good question. I think artificial intelligence, the way we look at it, is a technology that's going to affect many parts of business. In some ways, it's like mobile or the web. They end up being used in many different ways to redefine problems and to bring new kinds of solutions to market. We're already using AI for a number of initiatives under the hood, things that are behind the scenes that help Twilio to operate, and especially via our partner ecosystem. We're starting to offer AI-powered solutions to our customers in the form of the marketplace that we launched last year, where we do a revenue share with those partners between our customers.
Things like call analytics, Dual-Channel Recording, things like this, are tools that we're exposing to enable more and more intelligence to be driven out of the content that's being generated on Twilio, but also for our internal operations of Twilio to understand our customers better.
Great. Just a quick follow-up. You have been investing in your enterprise sales force. Can you give us a sense of how much of a focus, if you'll continue the same level of investment in the enterprise sales force in 2017? Thank you.
Heather. We're seeing really good response inside the enterprise. I would say this is our developer-first model at play, where developers are the ones bringing Twilio into the enterprise, just like they've brought us into a number of different types of technology-first companies and things like that. When a developer brings us in to an enterprise, we often do have a more lightweight sales process that goes on behind the scenes to help the customer go from that prototype to a finished shipped product. It's really not that hero kind of sale that you might think of in a traditional enterprise software sense. We are definitely investing in that because we're seeing it bear fruit.
I think overall, our investments in enterprise sales, that team and that whole motion, is going to be commensurate, if not dwarfed by the overall growth of Twilio that we see with our strong dollar-based net expansion rate and everything else.
Great. Thank you.
Your next question comes from the line of Mark Murphy. Your line is open.
Yes, thank you. Lee, the strength in the Q4 gross margin and also reaching non-GAAP breakeven operating margin definitely shows the P&L is trending the right way. I'm curious, you're also guiding a bit below consensus in terms of the bottom line for 2017. I guess I'm just wondering, what's the best way to reconcile the positive trend that we see in Q4 versus that one element of the 2017 guidance? And then I have a quick follow-up after that.
Yeah, sure, Mark. First of all, we're extremely excited by the performance in Q4, both on the top line and in terms of the gross margin, and it does show the power of the platform and then the business hitting and running all of its cylinders. We're committed to growing revenue and acquiring customers, and that's our focus.
We will be investing in both the platform and the sales team. We'll be doing a bit front-loading of some hiring at the beginning of next year. We have a leadership position. We want to continue to take advantage of that. We'll be investing in the first part of the year, but we're still sticking by our commitment to break even in the fourth quarter of 2017.
Okay. As well, Jeff, I'm just wondering, what has the reaction been in the industry to the announcement that Avaya filed for Chapter 11 bankruptcy? From your perspective, is that a sign that the rate of change to newer models is accelerating? Also, do you think it could open up a higher volume of the next-generation call center opportunities for Twilio?
Well, obviously without commenting too much about a particular company and their situation, other than the fact that I see a lot of their trucks driving around, is that I think this just sort of shows the migration that's going from the legacy of physical on-prem implementations to the cloud, as well as to the more less flexible monolithic application to the very flexible building blocks that Twilio offers. This migration from a 150-year legacy of hardware and physical networks to a future which is software, I think creates an enormous opportunity for Twilio in a number of different segments of the market, and the call center is certainly one of them.
Both for the, you think about the modernization of existing call centers, right, where we extend their existing investment with new functionality as a first foot in the door, or with a sort of net new, like either rip and replace or a net new call center, where essentially we're taking down the entire thing, like you saw, for example, at ING Bank. We do think the call center arena is a nice area for us. It's very well suited to our technologies, and one where we're seeing a lot of great companies, both enterprise all the way down market, being able to build or buy neat solutions powered by Twilio.
Thank you.
Your next question comes from the line of Brent Bracelin. Your line is open.
Thanks for taking the question here, Jeff. I wanted to get your view relative to some of the new platforms coming out. Obviously, you're in the final stages here. I imagine you've got a lot of customer feedback. As it relates to the Programmable Chat, Programmable Wireless, Programmable Video functionality, where's the most customer interest at this point?
Oh, thanks, Brent. You're asking me to pick my favorite child, are you?
Yes, I am.
We're seeing a tremendous amount of interest in all of those products. I mean, albeit from different use cases and different parts of the market because each of those products does different things. We've got thousands of developers who've signed up to get access to these new products. We're really excited to be giving those developers access and really seeing what they build. Some of them are the use cases that we expected that they would build. Other ones are just areas where we had no idea that these products would be useful for this new use case that developers are really showing us the way. I think that as we progress through the year, we'll have more detail on the adoption of these products as we approach GA.
Most of the products that you mentioned, in fact, I think all of them, are still in developer preview or beta stages. It's still the early stages of getting developers' hands on those products and getting the apps that they build out to production scale so that we can learn and push them out to a GA availability to everybody.
Makes sense. One quick follow-up from me, as you think about the success of higher-level APIs like Authy and Notify, what's your appetite to kind of accelerate investments above the stack here in higher-level API functionality to further differentiate the platform? Do you have an appetite to get more aggressive there and further differentiate the platform based on the success of those products so far?
Yeah, absolutely. In the roadshow and previously, we talked about the notion of use case APIs as a way of making it easier for developers to get their use case live and scaling in production even faster than before. Notify is a great example of this, as is Authy. We think it's a great strategy. It's really a win-win because when we build a use case API for a developer, they get their job done faster. They're live and in production faster than if they had to build it themselves. They're happy, and then Twilio's happy because with our usage-based revenue model, the faster we get the customer live and in production, the faster obviously we see revenue from the customer. It feels like a great win-win for us. We think it's a great strategy.
If you think about the multi-step process I outlined earlier in the call, step 1 is building broad horizontal platforms, and then step 2 is for the most common use cases, develop a strategy to really go deeper and to make our customers' lives even easier if they're building those most common use cases, and to build our presence in that area of the market. Notify, Authy, these are just two examples of that.
Got it. Thank you.
Your next question comes from the line of Bhavan Suri. Your line is open.
Hey, guys. Thanks for taking my question, congrats. Just quickly touching on the competitive environment, Jeff, have you seen any change in the competitive environment out there, what with the introduction of a number of messaging players and obviously BlackBerry's interesting announcement with us today, but some comment what you're seeing competitively would be great.
Really, the answer is no. We feel pretty good about our leadership position. We feel we've got the developer mind share. We've got a great product across many different product categories. We're not seeing a change in the competitive environment out there, nothing we haven't seen before.
Got it. A quick follow-up from me. Expanding, as you look at those net dollar expense rates, they're great. Just sort of what level do you think they stabilize at? As you look at the enterprise, you take ING, for example, sort of this broad-based deployment, what does the expansion in an account like that, not them specifically, but a larger account like that look like sort of at maturity? Or is there so much room there to go from just one broad-based customer application to so many other use cases that that's an area of expansion? How should we think about sort of at a mature enterprise account, what expansion could look like at some level? Thank you.
Yeah, no problem.
Yeah. Hi, this is Lee. We'll take that. The expansion rate applies both for our technology first developer accounts and for large accounts like ING. We have multiple vectors of expansion across those. We see that plays out both in a technology first type company, like a Square or a large enterprise like ING. These are terrific expansion rates. At some point as we scale and grow, they won't stay at this level forever, but we see them at very high industry leading rates in the foreseeable future.
Got it. Thank you, guys. Nice job.
Your next question comes from the line of Pat Walravens. Your line is open.
Great. Thank you. The gross margins are great. We won't expect that for next year, but long term, you've told us that we can be at least in the 60%-65% range. I guess two questions on that. One, can you see the path to higher than that long term? Also if you could walk us through what are the levers that you can pull over time on the gross margin front? I think that would be really helpful. Thank you.
Hi, Pat. This is Lee. We do see in the long term operating model gross margin in the 60%-65% range. No, I will not commit to something higher than that at this time. We do have significant levers on those. We talk about it. One is just the product mix. As we bring on more of the use case products, API products that Jeff talked about, those have a much higher margin profile. Our IP-only products, such as our client voice, IP chat, and video products also have a higher profile. That product mix is probably the largest driver. Then we continue to see benefit from efficiency and scale as we expand our operations.
Okay. Is getting sort of more volume discounts from the underlying carrier part of that or not really?
That's part of scale. As we expand and move into new geographies and increase our volume, we do continue to see better deals, and that's part of the Super Network, just driving efficiency through the system.
Great. Thank you.
Your next question comes from the line of Ittai Kidron. Your line is open.
Hi, guys, congrats on a great quarter. Jeff, I want to go back into the enterprise. Maybe you can help us think how penetration here would impact some of the metrics that you're providing. Longer term, do you expect the average potential from an enterprise customer to be higher or lower than a cloud-based born type of an application? What does it do to average revenue per customer, you think longer term, or is the margin profile of an enterprise customer longer term, you think is different?
Yeah, thanks, Ittai. The way I think about it, one of the things that makes them enterprise is just their scale, right? The larger the company is, the larger the customer is, the more potential use cases you are likely to find at that customer, right? A company that's got one operating business unit may have any number of use cases, but a company that's a large enterprise that has 10, 20, 50, or 100 operating business units just has 100 times as many use cases. Every kind of company can really use our platform to improve their communications. We're very big believers in that, whether it's for internal communications or external with your own customers. Every company has that opportunity, and the bigger the company, the more communications occur, and therefore, the bigger opportunity for Twilio.
It's really, for us, it's just about getting that first use case at a customer and then expanding out from there. That's where we see the power of our usage-based model and that developer first model.
Very good. Following up, Lee, on the gross margin side, I understand the dynamics there. Every year for the last three year, gross margin has increased. I know you weren't specific in your guide unless I missed it, should we think about 2017 gross margin to be at least directionally higher than what 2016 is?
I wouldn't make that assumption. Again, we're running the business to increase revenue and increase net customers. We manage the gross margin line tightly, but we're not optimizing for the gross margin in the near term. We're not worried about having some linear increase in fashion. The priority is to take advantage of our leadership position and grow the business.
If you're not seeing much in the way of competition, why do you need to do that?
Yeah. How we think in terms of gross margin, how we look at it is we're leading in a new space. We want to make sure we're out there and priced to bring on more use cases and bring more customers onto the platform. We're not looking to optimize gross margin in the near term. In the longer term, as we introduce our use case APIs and other products, video-only products, that's where we'll start seeing the gross margin expansion.
Very good. Good luck.
Your next question comes from the line of Michael Latimore. Your line is open.
Great. Thanks. Just wondering if you can give the latest developer count. Also comment, are there any seasonal factors that influence first quarter here?
Yes. This is Jeff, I'll take the developer count number. The developer count number is not one of the metrics that we plan to provide at a regular interval. It's one of those special milestone type numbers that we'll probably be more likely to announce in our conference, which is SIGNAL, which occurs in May. We feel really great about the developer growth. In fact, December was one of our biggest months ever in form of new developer account registrations. We feel great about our strength with the developer world and the way that translates into the number of developer accounts on our platform. I believe you had a second question.
Yeah, just are there any seasonal factors in the first quarter here, any industry verticals that have positive or negative seasonality?
Yeah. This is Lee. Typically, we see seasonality across individual customers, but across our broad customer base of 36,000 customers, it averages out. We did have a seasonal factor in the fourth quarter, as we pointed out, related to marketing campaigns for election revenue, and that will not repeat in Q1.
All right. Thanks. Nice quarter.
Your next question comes from the line of Jonathan Egol. Your line is open.
Great, thanks for taking my question. Congrats on the strong quarter and actually congrats, Jeff, for your Founder of the Year award. I think that project is challenging and really good for the community. My question is actually on international, ironically, it's probably too polarized domestically here politically. You talked about the wins over in the U.K. and you also talked about how it was a boost for GM for the quarter gross margins. I guess the first one is just a housekeeping. Can you share the breakout between U.S. and the rest of the world? Also my main question is, can you talk about your investing? You're talking about investing for growth, for the revenue and number of customers. How much of that is focused internationally?
Not specific numbers, if you can give us a sense in terms of, at least qualitatively, how big of a focus international is for your agenda. Thank you.
Yeah. Jonathan, I didn't quite get the first part of your question in terms of the breakout.
Oh, I'm sorry, the breakout between U.S. and the rest of the world in terms of revenues.
Oh, sure, yeah. In terms of headquarter-based revenue, 17% of our revenue was outside of the U.S.
Okay. All right.
You had a second question?
Sorry. If you didn't hear me clearly here, my main question is really, can you talk about how much you're investing overseas? You're talking about investing to grow top line and to grow the number of customers, to maintain your leadership position. I guess internationally, I see more of a leadership position from one of your peers. You don't have to give numbers here, but just at least qualitatively, how much of your focus will be on overseas and maybe versus that of domestically?
I was looking at really the two categories. Our investment in our platform, our Programmable Communications Cloud, that's a global investment. When we improve the platform, that's global. When we invest in our Twilio Super Network, that also is a global investment. Our significant investments there apply worldwide. In terms of go-to-market, we did start in the U.S., We are expanding our go-to-market relationships globally. I'll make one last comment. Even though 17% of our business is from companies headquartered outside of the U.S., a significant more amount of our volume is global volume, so customers that either terminate or originate their communications outside of the U.S. This is a very global company.
All right. Thanks. Thank you for that.
Your next question comes from the line of Brian White. Your line is open.
Jeff, in December, you announced that Twilio was part of the new Amazon Lex service. You hinted there were upcoming collaborations. How should we think about Twilio's opportunity to collaborate with Amazon in 2017?
Thanks, Brian. Yeah, we've had a great relationship with Amazon for a long time, both as a vendor to Twilio, as an investor in Twilio, and also now as a customer of Twilio's. As a refresher, we work with them to power SMS messages, part of the Simple Notification Service. We're excited to be part of their Lex launch in Q4. We see significant opportunities to continue growing the relationship with them, nothing that we have any specifics to talk about at this time.
Okay. The Beepsend acquisition, I just want to be clear, what's the logic behind this. I didn't hear a price. We can get a price.
The logic behind it, when we looked at our Super Network and we looked at where we were going and our product roadmap for the Super Network, we looked at a lot of the stuff that we wanted to get done. We took a look around at other companies that were out there. Beepsend really stood out to us as a company that we kind of knew from being in the ecosystem together, had some really great technology to do things like routing and analysis, also had a great team who's been in this market for a long time and had built up a great amount of expertise.
That's why we thought it was a great marriage there, and we're excited to bring the Beepsend team on board at Twilio because we think they're going to accelerate the Super Network roadmap even faster than we've been moving. I think you had a second question.
Is there a price or should we anticipate an uptick? I noticed goodwill amortization saw a pretty significant uptick in December quarter, and I think that's from the RTC deal. Is there a price you can talk about or an increase in intangible amortization in the March quarter from this acquisition, Beepsend?
Yeah. First, you are correct. The goodwill in the fourth quarter was from our acquisition of the Kurento team out of Spain. We have not disclosed the price, but it's not a material transaction.
Okay, thank you.
That concludes the Q&A session. Thank you for calling in and listening to today's conference call. You may now disconnect.