Good day, and thank you for standing by. Welcome to the Twilio Q3 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. If you would like to ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference is also being recorded. If you require any further assistance, you may press star zero. Without further ado, I would like to welcome one of your speakers for today, Mr. Andrew Zilli, Vice President of Investor Relations and Treasury. Sir, the floor is yours.
Thanks, Carl. Good afternoon, everyone, and thank you for joining us for Twilio's Q3 2021 earnings conference call. Our prepared remarks, earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me today for Q&A are Jeff Lawson, Co-founder and CEO, George Hu, our outgoing COO, Marc Boroditsky, CRO, and Khozema Shipchandler, CFO. As a reminder, some of our commentary today may be in non-GAAP terms. Reconciliation between our GAAP and non-GAAP results and further information related to guidance can be found in our earnings press release. Additionally, some of our discussion and responses may contain forward-looking statements which are subject to risks, uncertainties, and assumptions.
In particular, our accretive business benefits and financial impacts from our acquisitions, particularly Segment and Zipwhip, and our partnerships and investments, including the associated transactions, the impact of recent and future privacy changes on certain third-party platforms on us and our customers, our outlook for the quarter ending December 31, 2021, our ability to achieve our targets for non-GAAP gross margin over time and annual growth rates over the next three years, and our ability to manage changes in network service provider fees that we pay in connection with the delivery of our communication on our platform and the impact of those fees on our gross margin are subject to change. Should any of these risks materialize, or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements.
A description of these risks, uncertainties, and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10-K and subsequent reports on Form 10-Q. 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. With that, I'll hand it over to Jeff for a brief statement, and then we'll open the call for Q&A.
Thanks, Zilli. Before we begin Q&A today, I wanted to take a moment to thank our COO, George Hu, for the amazing contributions he's made to Twilio over the past five years. With George's leadership, we really figured out a developer-first go-to-market, which is an incredibly challenging feat, given nearly no other companies have a go-to-market that's as unique or as efficient as ours. George has set us up on a new trajectory and built a tremendous team, starting with his direct reports all the way down the go-to-market organization, and I can't wait to see what you build next, George. I'm also incredibly excited for Marc Boroditsky to be taking the torch and continue driving our forward progress. Marc has built the Twilio sales team from zero to hero to the powerhouse of talent it is today.
He's got the admiration and respect of his teams and a vision for how to continually evolve and grow our go-to-market with developers, enterprises, partners, and digital leaders. I'm excited for the next chapter, Marc. Now on to the questions.
Thank you, sir. Again, as a reminder, if you have questions, please press star one. Our first question comes from the line of Meta Marshall from Morgan Stanley. Please ask your question.
Great. I appreciate the question and congratulations on the quarter. You know, I understand you had a couple hundred basis points headwind from political traffic that contributed to the deceleration in organic revenue growth we saw in Q3. What do you think is kind of the biggest contributor to the slowdown in organic growth and what kind of gives you that continued confidence that you can grow 30% the next three years, a number we kind of understood to be an organic number? Thanks.
Yeah. Hey, Meta. This is Khozema. I would say, first of all, I mean, at 38% organic, we feel great about our overall growth performance in the quarter. Obviously, we're at about 65% on an inorganic basis. If you just look at the breadth of the growth across industries, across use cases, across geographies, and across customers, I mean, we have a lot of confidence in the go-forward capabilities for the business. I would also add that we had a really strong quarter performance from Segment. When we put all those different pieces together, we definitely see our ability to continue growing at elevated levels for the foreseeable future. We feel really confident in our ability to deliver the 30% plus organic growth that we talked about last year over the next three years.
Great. Thank you.
Our next question comes from the line of Fred Havemeyer from Macquarie. You may ask your question.
Hey, thank you very much.
You know, could you talk about your overall M&A philosophy? You know, how do you approach that build versus buy versus partner debate at Twilio? Generally, when you're looking across the landscape, the market landscape, how do you think M&A appetites are progressing in the CPaaS market and, you know, in the customer engagement market?
Thanks, Fred. This is Jeff. I'll take the question. First on your question on the M&A philosophy, which has really remained unchanged, in the history of the company, which is, you know, look, we've got our insights about the market and where it's going and what our customers need from us. As a result, we have a roadmap of the things that we want to accomplish for our customers to unlock this vision of being the leading customer engagement platform, which I see as the greatest enterprise software opportunity of our time.
When we look at the things that we're gonna go build, whether it's the teams we have to go hire or technology we have to build, if we see a team out there that's amazing, or we see a product out there that's, you know, really exactly what we might build ourselves, then we might say, "Hey, well, we can achieve this vision faster by bringing that team or that product on board and accelerating our ability to unlock this vision." That's really how we've always looked at it, which is, does it accelerate our ability to achieve our vision of becoming the leading customer engagement platform? I think you had a second question.
Yeah. The second question there was just generally how do you see the overall M&A appetite for Twilio in this market and generally across, you know, the entire CPaaS market? Certainly there's been quite a bit of M&A from other CPaaS vendors out there.
Hey, Fred, this is Shipchandler. I would say that, I mean, we obviously have a really strong balance sheet and a lot of cash on it. I think the way that we look at it is exactly the way that Jeff described, but we will be opportunistic if an opportunity presents itself. I think we obviously have been acquisitive over the last several years. We did Segment, of course, last year, kind of around this time, and then we've done you know, some assets in more of the messaging space since then. But it's not like we see something in front of us that we necessarily have to do. We wanna be selective about the opportunities. We obviously certainly see where valuations are today as well.
I think more than anything, we just feel great about the technology stack that we've already got, and feel really confident, especially coming off of a really strong Signal conference.
Great. Thank you.
Your next question comes from the line of Rishi Jaluria from RBC Capital Markets. Your line is open.
Hey, guys, this is Rishi Jaluria from RBC. Thanks so much for taking my questions. It's always been great to work with you, and all the best with the next chapter. Khozema Shipchandler, congrats on the promotion or new responsibilities. Just wanted to ask one question, which is, you know, from a macro perspective, you know, look, seems like a really strong demand environment. But how should we think about the puts and takes of maybe some of the benefits that we saw from, you know, lockdowns last year potentially fading and maybe the return of travel and specifically business travel, especially given that most industries seem to still be having that put on hold. Just how are you thinking about stuff like that coming back? Thank you.
Sure, Rishi, this is Jeff. I'll answer. I mean, you know, first of all, I agree with you. This is a strong environment for companies who are undergoing digital transformation, and those transformations have been accelerated by the pandemic. You know, something that I think is really important to understand here is that this was not like a left turn or the digital interactions that got put in over the same course of the past year or two was not a deviation from, like, the future of the world was heading toward. It was just an acceleration. We're bringing forward a lot of the innovations that were happening, right? Think about telemedicine, right? You know, you thought telemedicine probably took a decade leap in its adoption. That is gonna continue, I believe, to be the trend.
When I look at, you know, do you wanna drive across town for every doctor's visit? No. Like, if you can see a doctor in 15 minutes on a video call and then go back to work, that's a better experience. Same thing with spaces like curbside pickup or online ordering and all these sorts of things. Like, this has been an acceleration of the natural digital transformation of the world. It's just going faster. When you see that environment exist, businesses are gonna continue to drive those roadmaps because the competitive environment demands it, and customers get accustomed to these efficiencies and these good experiences, and that creates even more demand for digital. I think it's a positive wheel for how customers are now differentiating themselves digitally in this market, and our customer engagement platform now enables this.
When you think about it, like I talked last week at Signal, our big customer conference, about how while the pandemic just accelerated like so many companies, every company we talked to, 250,000 customers, the digital acceleration that has happened has accelerated their digital presence, right? These digital roadmaps. It's also accelerated the digital giants, you know, Amazon, Netflix, Facebook, Google, et cetera. While those companies saw their futures accelerated, so did the giant digital companies. That has increasingly raised the stakes for every company to execute at a first-class level in the digital world.
The platform that we're building, the Twilio Customer Engagement Platform, is designed to give all those other companies the ability to listen to their customers, understand their customers, first-party data, and use that data to build a great understanding of the customer, personalize the journey, and make it relevant, and therefore win their customers' hearts, minds, and wallets. You can think about it, when I talk to customers, everybody out there says, "You know what I wanna do? I wanna acquire a customer once. I wanna delight them with an amazing product and experience and make them a loyal, repeat customer for life.
That's what Twilio enables companies to do, and that has been, I think, accelerated because of the pandemic, which is all part of this digital acceleration that we're experiencing. Yeah, there's a strong environment out there, and I think that is gonna continue. I don't think this is an aberration. I think it's an acceleration.
All right. Got it. Thank you.
Your next question is from the line of Samad Samana of Jefferies. Please ask your question.
Hi. Good evening. Thanks for taking my questions. Jeff, maybe one to kick off for you. As you mentioned, the Signal conference, the company rolled out Engage, and you rolled out Frontline, you know, long before that. I'm just wondering if you're starting to see, as you've rolled out more of these solutions on top of the core platform, if you're seeing any difference in the adoption on day one from customers or if you're seeing kind of more bundling of the solutions up front and how that's actually driving volume inside of the business as well.
I think that's a great question for Marc Boroditsky, our Chief Revenue Officer, to take.
Thank you, Jeff, and thank you, Samad, for the question. Definitely affecting the adoption that we have seen in the recent quarter. As an example, Flex has inspired our partners to consider building the next generation of their offerings for contact center on the Flex solution. Likewise, with the announcement of Engage last week at Signal, I had a number of conversations with ISV that are looking at, again, changing their offering overall. Probably the one that aligns the most to your question, Samad, is the success that we've seen with our partner, Waterfield, who has built a plug-in for Flex and made it possible for us to sell into more of the market.
This past quarter, we saw small companies that needed a full solution on day one adopting Flex as their first solution from Twilio, which gives us great confidence about the potential that Flex represents from SMB all the way to G2K.
Great. To supplement, Khozema Shipchandler, I don't wanna put you on the spot with a math question, but I appreciated the additional disclosures, but I still had a follow-up. If I adjust for political revenue in Q3 2022, it really implies closer to low 40s% organic growth. I just wanted to see if that's correct. Then, you know, the guide implies, again, kind of low 30s% if you take out political revenue. How should we maybe contextualize that with that go forward 30%+ growth as well, as we look forward?
Yeah. Thanks for the question, Samad. Believe it or not, I actually can do a little bit of math on the fly. I think the setup that you gave is about right. I mean, I think we continue to see elevated growth across the business as we talked about earlier. You know, the reality is that we gave a 65% inorganic, 38% organic. I think if you do the math that you just implied, you're at about the ballpark that you just described. The guidance that we put out for Q4, I mean, we feel really good about. You see a nice setup certainly for Q4.
As we look out, based on a lot of the things that Marc just referenced a moment ago, as well as some of the things that Jeff talked about relative to Signal, I mean, we see a tremendous amount of opportunity in front of us and have, you know, a really, really strong conviction that we can deliver 30%+ over the next three years. I think we just feel really, really good about the broad-based strength across the business.
Great. I appreciate y'all taking my questions. Thank you.
Sure. Thanks, Samad.
The next question is coming from the line of Derrick Wood of Cowen. You may now ask your question.
Thanks for taking my question. George, good luck in your next endeavor. Khozema, I know it's probably early, but anything you wanna share in terms of what your early priorities will be as you move into the CRO role? You've had a new CRO for a year. Marc, I know you're on the call. Should we assume from a direct sales go-to-market standpoint, we shouldn't anticipate too much change? Or should we be thinking about taking the time to make bigger tweaks to the model?
Yeah. Maybe I'll go first, Derek, and then Khozema, and then I'll turn it over to Marc. Look, I think from my standpoint, you know, in large part, the role is an expansion of additional responsibilities that I already had. I see it more as a continuation of things that we've already been doing. I think in general, you know, we wanna or I want to, in the role, really help the operating team win as much as possible, as efficiently as possible, as fast as possible, and to create the infrastructure and support systems inside the company so that, you know, all of our great teams inside the go-to-market and engineering teams can, you know, innovate and then obviously distribute all the great products and services that we've got.
I don't think there's, like, really a key change in the context of my role. I'm, you know, obviously super excited about to take it on even more so. I'm humbled and feel really privileged to be a part of the team and, you know, want to continue to help Jeff and the management team win. Marc?
Thanks, Khozema, and thank you, Derrick, for the question. A little background. I've been at Twilio now for seven years, since the acquisition of my last company, Authy. As Jeff referenced in his preamble, it was just a handful of sales reps at the time here at Twilio. When George joined five years ago, I had the great privilege to build out the go-to-market strategy that we've been executing on since.
As you identified, Derrick, we're expecting to continue forward with the strategy that we have today. We've got a fantastic team in place. We're well positioned to continue to execute against the already successful execution that we have as developers. We're continuing to progress our success in the enterprise, and we're expanding our overall international footprint. As I mentioned earlier as well, in the examples that I gave, we're making great progress with our partner communities, engaging them to build out the business together.
That's helpful. If I could follow up on a financial question back to you, Khozema. You know, gross margins have certainly been topical with investors. Interesting slide you gave on the bridge to the A2P fees, but if you could just take a second to kinda really unpack that and kinda what's been causing the pressure. You know, how we should be thinking about gross margin, you know, in the next few quarters and kinda what it's gonna take to get to that 60% long-term target. Thanks.
Thanks for the question, Derek. I mean, I think the bridge with respect to the A2P fee dynamic at least is self-explanatory, right? You can see that it's almost 400 basis points relative to what we would otherwise have reported were it not for those fees. I think more broadly, you know, what we've seen is honestly a fantastic problem, which is that our messaging business has been growing at a really accelerated rate. You know, we gave you some information last year, for example, during our investor day, that basically illustrated the relative gross margins of our different products and services.
As the messaging business grows at this accelerated rate, it mixes the margin rate down a little bit, which honestly is a trade that we're more than willing to take given the fact that we are focused on first dollar expansion so that we continue investing in the business. In terms of the latter part of your question and 60% plus, I mean, we still have a lot of conviction in that 60% plus longer term framework, and I think where that's gonna come from is the accelerated growth that we're seeing in our application services category. The next segment is obviously the most recent example of that.
I think the sort of promise of Engage and what we described at the Signal conference last week, as well as the fact that Segment had a fantastic quarter sequentially, you know, coming off of Q2 into Q3, gives us a lot of confidence that that business is gonna perform well and continue to underpin a lot of different things that we wanna do with the rest of the business. Obviously, we're very excited about the progress of Flex too. I think it's a combination of those things that lead us to continue to believe in that 60%+ long-term target.
Your next question comes from the line of Michael Turrin of Wells Fargo Securities. Your line is open.
Hey there. Thanks. Good afternoon. Appreciate you taking the questions. George, certainly wish you the best. I know from just the number of these calls you've been instrumental in things like instrumenting the go-to-market and the partner initiatives there. Can you just maybe broadly as a team talk more about continuity just on the go-to-market side, given we're heading into the year-end? We can appreciate that Marc has been with you for some time, but maybe just adding additional context for investors and you know, that evolution and you know, just the confidence in sustaining the tremendous pace that the business has been able to perform at for a number of years now.
Thank you, Michael. This is George. Thank you for the kind words. You know, certainly it is a difficult decision for me. I'm so incredibly excited about Twilio and its future. I think especially coming off of an amazing Signal where I talked to so many customers that are just excited about this customer-engaging platform vision and Segment. But what gives me confidence is the tremendous leadership team we have here. I've been working with Marc now for a number of years, four years, and Marc has done an amazing job. He's really built this entire sales machine and delivered the numbers quarter- after- quarter. He's an incredible leader. He's hired all of the great talent we have in the sales team. I know that he's gonna do an amazing job going forward.
I think there's gonna be a ton of continuity. I think that Mark is also going to evolve the organization as we get to the next level also. I also, before I let you know, Mark chime in, I also want to really congratulate and acknowledge Khozema, who's gonna be an amazing COO for Twilio. He's been an amazing partner to me. He's one of the smartest people I've ever worked with, a great leader, and is gonna do phenomenal things for the next chapter of Twilio.
Thank you, George. Michael, thank you for your question. Right now the expectations are very solid around the team and how we're gonna be progressing with the plan that we have in place. This plan has been developed over the last five years with George and I in lockstep. When George joined, he brought expertise that was very familiar to me from my previous enterprise experience, and he supported us in building out a plan that allowed us to reach to the enterprise from a model that specifically developed at self-service, and helped us to build out the overall global footprint and ultimately our partner initiative. These are all things that are in flight at great stages of success.
I am very confident that the team that's in place, that we will continue those progressions.
That's all very helpful. If I could just ask a follow-on, gross margins were actually—I know you've gotten a couple questions here, Khozema. They're actually slightly up. I think many investors are expecting that we might see discontinued headwinds given the international business is now a third of overall. Are we at a point where things like Segment and Zipwhip are starting to provide the counterbalance or anything else you'd call out? You also added a slide on just gross profit growth. So is that a metric maybe just to highlight in terms of just the conversations around these dynamics?
Yeah, I would say, you know, the inclusion of a gross profit slide isn't necessarily an indication of anything new. You know, we've been saying for a while now, Michael, that, you know, we've been focused on gross profit dollar expansion. Obviously, that gives us a lot of fuel to be able to reinvest back into the business. We just thought it would be helpful in terms of providing some additional color. Same thing kind of with the gross margin slide. You know, I'm not sure there's really kind of a storyline to the story other than obviously the A2P kind of clipped us a little bit, and you can see that in the bridge that we provided.
I think generally speaking, you know, as I said earlier, like, we feel great about the quote-unquote problem that we have in that, you know, we have this incredibly fast growth messaging business, which has mixed the overall gross margin of the company down. To your point, whether it's some of the newer acquisitions or Flex or Segment, you know, we do have a number of things that can provide fuel for a gross margin uplift over time. We're not necessarily guiding to that today per se, but we do have a lot of confidence in our long-term framework of 60%+ over time.
Thank you.
Thanks, Michael.
The next question comes from the line of Ittai Kidron from Oppenheimer & Co. Please ask your question.
Thanks, Jeff. I'd like to start with you on Twilio Engage. Super excited for that announcement. I guess help me think about the ramp here. I know when Flex came out, you know, you were conservative, but it clearly did very good out of the gate. You have already an established customer base here with Segment. Is there an opportunity for this business to ramp faster than one would think? Is there, do you need to make any adjustments on the go-to-market approach in pushing this product?
Thank you, Ittai. It's Jeff. So let me give you some forward-looking projections about the business. Just kidding. You asked, you know, about the ramp-up. Like, obviously, you know, I can't tell you anything specific about a product. You know, nor would I know what the ramp is going to be. But what I can say is that, you know, two things. Number one, I think there's a lot of demand in the market for this product, right? Digital growth and digital personalization for how businesses are building their businesses is a tremendous opportunity. That opportunity is actually accelerated by the privacy changes going on in the world with IDFA tags and third-party cookies and all those things getting changed because companies can't rely on what's honestly shenanigans.
The changes that have been going on, whether it's cookies or IDFA tags, like these privacy changes are on the right side of history. What Twilio is providing is the antidote to all those changes, which is a personalization and marketing system that starts with first-party data, that starts with a company understanding, making sense of all the first-party signals they get from their customer, and then data-driven approach. They use that signal, use that first-party data to then go personalize and build great relationships with their customer across all these touch points, whether it's marketing, contact center, sales, you name it, or whether it is across all these different channels, you know, messaging, voice, email, in an app, on the web, et cetera.
That's the heart of how companies are going to win the hearts, minds, and wallets of their customers. The changes in privacy provide a really nice tailwind, I think, in the macro sense of what companies need to do in order to continue growing the relationships with their customers and continue growing their customer bases. That's the first thing. The second thing I want to point out is I think there's a very natural synergy with not one, but two go-to-markets that Twilio has, right? It's a natural upsell from our messaging product because it makes our messaging even more powerful, and it's a natural upsell from Segment, which allows you to do something new and interesting with your data, which is actually ask them. I'm really looking forward to as that product goes out in GA in 2022.
I'm really looking forward to learning how we can bring that to customers and I'm really excited about the follow-up.
Very good. Maybe a follow-up for you, Khozema, on the net expansion. Maybe you can kind of walk us through a little bit perhaps of the puts and takes of that metric going forward. I know you still have the political activity, which I guess would weigh on that number next quarter. I think you also are going to celebrate the anniversary of Segment, which will include it in. I don't remember if Segment was above or below average on that standpoint. Can you help us think about what would be the right way to think about how net expansion rate is going to change over the next call it three, four quarters?
Yeah. A couple things there, Ittai. Thanks for the question. First of all, I mean, we feel great about 131%, net expansion rate. You know, the business is growing at really elevated levels. Just given the size that we are at our run rate, we feel great about it. You know, 131's kind of in the range of where we've been over the last several quarters. Really good broad-based strengths across the business. I mean, we don't guide on expansion rate, as you know. I think it'd be a little bit premature for me to, you know, kind of talk about where I anticipate that end up being in Q4 and beyond.
What I will say is that we do intend. We noted in our remarks earlier that Segment we will include as part of Q1 being the first full quarter kind of post the anniversary of the acquisition. You know, we'll publish those results and include Segment at that time. You know, we'll have to kind of wait and see for that quarter.
Very good. Good luck.
Thanks, Ittai.
Our next question comes from the line of Parker Lane of Stifel. Please ask your question.
Yeah. Hi, thanks for taking my question. Jeff, I was wondering if you could talk a little bit about the stickiness of the incumbent platforms in the CRM markets. When you look at the B2C component there, how much appetite do you think there is for disruption of those legacy platforms, particularly as some of your competitors out there in the newer markets are launching their own CDP offerings? Thanks.
Yeah. Thanks, Parker. This is Jeff. You know, we're really excited about Segment, which is obviously the number one CDP in the market. We're really excited about Twilio Engage, which is built on top of it. You know what's interesting? When I look at the market, I just see a huge hole in the market for a platform that is helping B2C companies really understand their customers and then execute on that understanding by personalizing every customer journey and empowering their employees with great engagement apps. The CRM market is a great one, but that's really about B2B. It's not configured to do this. B2B CRM really starts with salespeople entering notes, which is just a completely different starting point than what B2C companies need.
The opportunity that we're going after and what our customers are looking for is how do B2C customers with volumes of data, how do they take that data, understand it, and act on it across all the different applications and all the touch points that they have? That's a fundamentally different market that nobody has really cracked yet. That's the opportunity for Twilio's Customer Engagement Platform, and that's the opportunity that customers are pulling us towards because they don't have something. That's what we see as the market, how the market is going.
The next question comes from the line of Mark Murphy from JP Morgan. You may now ask your question.
Yes, thank you very much. Jeff, question on Twilio Engage. What do you see as the differentiation or the line of demarcation there if we compare it to some of your partners who provide cross-channel experiences where they're using push and in-app and SMS and email, and then I believe some of them then send their messaging traffic to you. If you could just help us maybe with a little compare and contrast.
Yeah. Thanks, Marc. You know, MarTech is a really rich landscape, and we have, you know, there are many companies out there doing all sorts of interesting things. What we're seeing is that customers are really asking for a data-first approach to their growth automation, an approach that starts with data and then moves out from that data into understanding customer, building profiles, and then building action from the data. That's where Segment has always played, and that's where Segment's strength is.
Ultimately, we're serving an unmet need when customers come to us saying, "Hey, can Segment be used to build these journeys and then ultimately run these campaigns?" That's the really neat thing about Segment, is that, you know, not only do we allow marketers to create these rich segmentations, and, you know, you heard at Signal about how Intuit, you know, when they went from three segments, but their whole customer base was cut into three segments to now, like, 450, and that increased the engagement in their customer base from 20% to 50%. I mean, that was the story that Ferdinand had told at Signal last week, which is amazing.
Segment also allows the marketers to use all the data points to see the measure of the effectiveness of their campaigns, which I think is another interesting point of Engage. Instead of measuring, you know, a bunch of emails on just, you know, were they delivered, were they opened, were they clicked on, Segment allows marketers to optimize for what actually drives revenue, you know, that'll result in people buying things, which, of course, is the ultimate goal. What we're hearing from our customers is that the data-first approach, which starts with having great data about your customers, that unlocks all sorts of new ways for smart growth marketers to do their job and ultimately one that the market hasn't yet solved for.
Okay. I think I understand. Yeah. The CDP is the basis there. Yeah, I had a quick follow-up, maybe for Khozema or Jeff. I think the sequential organic growth in revenue was a bit less than some of the prior quarters, although interestingly, I think the same thing happened a couple quarters after you acquired SendGrid in Q3, so I guess we've seen that. Can you just touch on that? Was, you know, is that voice or video or something else? Just given you're reaffirming this 30%+ growth for three years, can we presume that you have visibility into some better kind of sequential build into Q4 and early next year?
Yeah, Mark, maybe to Khozema, I'll take the question. I mean, I wouldn't read too much into, like, product mix dynamics. I think we feel really good honestly about the sequential growth and just kind of the overall growth of the company at our scale and based off of our product set. I think, you know, as we talked about, I think earlier in this call, you know, you look at some of the things that we announced at Signal and the tools that that's gonna provide us going forward, we feel fantastic about, you know, the overall growth prospects of the business. In terms of, you know, the set up on the 30% plus, I mean, you know, we provided guidance obviously for Q4, and we feel really good about that.
We see continued strong growth into the future. You know, that 30%+ that we provided last year, we certainly see that on an organic basis over the next three years as well.
The next question comes from the line of Matt Stotler of William Blair. You may now ask your question.
Hey, guys. Thank you for taking the questions here. I guess one, just looking at the revenue growth performance in the quarter. If you look at the relationship between DBNER expansion, which to your point has been, you know, incredibly consistent in this kind of range on a multiyear stack. If you look at the difference between that and the organic growth that you guys report, the relationship between those two essentially gives you some sense of the incremental revenue that you're generating from new customers in any given quarter. This quarter, that contribution seemed to be the primary source of the step down in organic growth sequentially, you know, going from 50% to 38%.
Can you just talk about anything you're seeing in terms of what might be driving that lower contribution from revenue from new customers on an organic basis this quarter or anything that you're seeing in the market that could help us to make some sense of that?
Yeah. This is Khozema. Karl, I can talk about it from a financial perspective, and then maybe Marc can talk about it from kind of a customer adoption perspective. I'd say there's nothing specifically that I would necessarily unpack in terms of new customer growth. I mean, as you saw in the quarter, we had very strong adds in terms of new customers. We had a great expansion rate in the quarter. We had strong overall revenue growth both on an organic and inorganic basis. I think the math that you're trying to do is kind of directionally accurate, but there is, you know, a certain amount to unpack there, which we can certainly do offline. I think in general, I would say we feel great about the overall prospects of the business.
We feel great about the setup for Q4 and, you know, have a lot of conviction in our 30%+ organic revenue growth over the next three years. Marc, do you want to add to that maybe from a customer adoption perspective?
Certainly. Khozema Shipchandler, Karl answered your question. From an adoption standpoint, we had a terrific Q3 across all aspects of the business. As I think you know, we have a very diversified business that is relevant in a variety of economic conditions, which allows us to continue to deliver these strong results. What's even more encouraging, especially on the heels of Signal, is the kind of reaction that we're getting to the messages that we shared here today and that Jeff Lawson elaborated on around the Customer Engagement Platform, the value of a solution like Twilio Engage and the progress we're experiencing with Flex and candidly just excitement around a data-first model. Everybody's looking for ways to deal with the new challenges that they're facing in the market around first-party data.
As a result, we've heard really solid excitement that gives us confidence around the business as it is.
Got it. That's helpful. Maybe just one more on just a quick one on the gross margin front. The bridge you gave is very helpful, right? Kind of taking out the A2P fees and understanding that was very helpful. You also signed a new commercial agreement with Syniverse earlier this year, which seems like it would provide maybe a little bit of a tail in the gross margin. Is that something that was embedded in the results this quarter, or is that something you can talk about in terms of how it will land going forward? Thank you.
Yeah. I mean, the trade with Syniverse is nothing really to talk about yet. We do expect that investment to take place before the conclusion of the year, but it's not impacting our financial results yet.
Got it. Thank you again.
The next question comes from the line of Catharine Trebnick of Colliers Securities. Your line is open.
Oh, hi. Thank you for taking my question. Can you break down who you think your biggest competitors are at this point with the new reannounced Twilio Engage? Thanks.
Hey, Catharine, this is Jeff. I'll take the question. You know, really our competitive set has always been very diverse. You know, there's typically not one competitor that we see in a whole lot of different situations, and a lot of that is because of our unique developer-first approach. You know, developers bring Twilio into such a wide variety of companies to solve such a wide variety of things that they're building. That leads us into the company in a way that's not like this traditional like, you know, through an RFP-like thing. Many of our deals are like that. That's the history of Twilio. You know, going forward and looking at the new products, our Customer Engagement Platform, which is, you know, it's really a new category.
There aren't products that are meeting the needs of the market, and that's why we're building them. So when I look at what we're building, whether it's Twilio Engage or whether it's, you know, Segment CDP, like, you know, this is the number one CDP in the market. On top of it, building a product that customers have been asking for, which is, you know, a data-first approach to marketing. So, you know, I just don't see it as a direct head-to-head. I think we're building something new, both in terms of each of the individual products. You know, I think Flex was different than what's out there in the market, and we're solving a problem that customers say they have, and that's why we built Flex. Same thing with Engage, same thing with Frontline.
These are the pillars really of our customer engagement platform, which as a whole is certainly solving a really unsolved problem for B2C companies, which is how do I understand my customers and engage with them? There's nobody who's solved that problem at a platform level yet.
All right. Thanks. I'll ask more on the next call. Appreciate it.
The next person to ask the question is Pat Walravens of JMP. You may now ask your question.
Oh, great. Thank you. Hey, Jeff. You know, as we're looking into 2022, and hopefully it's pretty different than 2021 was, I'm curious what you think your top two or three strategic imperatives are?
Yeah. Thanks, Matt. I know obviously we've been really progressing the Twilio Engagement Platform, a customer engagement platform. You know, one of my first priorities this year was making sure that we you know, brought to market Twilio Engage and did it with a great introduction, which we did last week at Signal. I've also been really prioritizing the company and our teams because we're obviously in the second year of a pandemic. These are difficult times for every team out there. Really prioritizing the wellbeing and the productivity and the growth of our team. Our team has grown tremendously throughout the course of the pandemic. Of course, our customers and you know, customers' needs are evolving during this time.
Really sending many new customer challenges, like sending those customers in our direction, helps solve those challenges, whether it's the pandemic, whether it's privacy and the IDFA changes and cookie changes, and just the many things that companies are having to deal with as the world is rapidly evolving. Those companies have to become builders and have to build those relationships with their customers and keep up with the evolving landscape. Those are things that are pushing the customers towards us and giving us a lot of insights about how we can further serve them, and I've been very focused on that as well. You know, those are probably the three big areas, which is, you know, our products, our teams, and our customers, which is, you know, I think the right things for a CEO to be focused on.
Great. Thank you.
Our last question comes from the line of Taylor McGinnis of UBS. Please ask your question.
Hi. Yeah, thanks for taking my question. With gross margins flat this quarter relative to last, and given all the acquisitions you guys had this quarter, how much of that was potentially driven by a mix shift from slowdown in messaging versus maybe more durable factors and efficiencies that you guys might be seeing? Was that just all mix shift related or is there something else driving that?
Yeah. Hey, Taylor, this is Khozema. I'll take the question. I wouldn't say there was necessarily any one factor. I mean, I think what we're seeing is continued strength in the messaging business, and so there's not really like an underlying story relative to that product set. We continue to feel great about the growth prospects there, as they've been over the first half of the year and certainly in Q3 as well. I think equally we feel very excited about the performance of Segment, and we continue to see higher growth in our application services category. In a given quarter, I mean, any one of the kind of product mix dynamics or international or even customers to some degree are gonna influence what the gross margin rate is in a particular quarter.
For now, we're really concentrated on gross profit dollar expansion, and obviously, over time, we do intend to work that gross margin number up. We think that'll come from a mix shift in those application services and certainly stand by our longer term target of 60% plus gross margins.
Great. Thanks.
Thanks, Taylor.
Great. Well, thanks, everybody, for joining today. That'll end the call for us. Look forward to chatting with you throughout the rest of the quarter.
Thank you again for participating. This concludes today's conference call. You may now disconnect.