Good afternoon. My name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Twilio Q1 2017 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. [Operator Instructions] Thank you. Greg Kleiner, VP of Investor Relations and Treasurer, you may begin your conference.

Thank you. Good afternoon, everyone and welcome to Twilio’s first quarter 2017 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 2017 first quarter performance in addition to our financial outlook for our 2017 second 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, impacts and expected results from changes in our relationship with our largest customer, our market opportunity and market trends, the growth of our customer base, customer adaption of our products, our momentum, the benefits from our business model, timing and focus of expenses 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. A discussion of the risks and uncertainties related to our business is contained in our Form 10-K filed with the SEC on February 22, 2017 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 of which 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 in the Investor Relations page of our website and is part of our 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 maybe one-time in nature and we may or may not provide an update in the future on these metrics. I 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.

Thanks, Greg, and welcome everyone. We had another strong quarter in Q1 as the business showed continued progress across several of our key initiatives. At high level base revenue grew 62% year-over-year to $80.6 million. We saw further expansion within our existing customers as dollar-based net expansion came in at 141% for the quarter. We also added 4,000 new active customer accounts in the quarter, ending the period at 40,696 accounts, up 42% year-over-year. However, before I go further into the highlights of the quarter, I want to discuss some changes in our largest customer Uber, which we expect would dampen our book this year. As you may recall Uber uses Twilio for a variety of used cases including driver and rider communication, driver marketing and several others. Uber has successfully leveraged our global communications infrastructure as it has rapidly grown its business around the world at an unprecedented pace. As a result Uber grew as a percentage of total revenue in each quarter throughout 2016, ending the year at 17% of our revenue in Q4. In the first quarter of 2017, Uber accounted for roughly 12% of total revenue and as Lee will outline in a moment, we expect their contribution to decline further this year. Uber continues to grow rapidly, but they’re changing the way they utilized and consumed communication services. Previously, they used our platform to support most of their used cases in majority of their operating territories. Now, they’re optimizing by used case and by geography, resulting in a more active multi sourcing program. In addition, they plan to move communications for some of their used cases inner. We believe that Uber will remain an important customer for us going forward, but their tremendous growth and the resulting magnitude of their communication spend has resulted in…

Thank you, Jeff, and good afternoon everyone. Our results in Q1 show continued strong revenue growth though restrained by the quarterly decrease in Uber revenue as Jeff mentioned earlier. We continue to add new customers at a rapid clip and drive success for our existing customers. Base revenue for the first quarter of 2017 came in at $80.6 million, up 62% year-over-year from the first quarter of 2016. This compares to our guidance of $78 million to $79 million. Total revenue for the first quarter of 2017 was $87.4 million, up 47% year-over-year from Q1 of 2016. Base revenue as a percentage of total revenue improved 92% in Q1, compared to 84% in Q1 of last year. Our top ten customer counts were 25% in total revenue in the quarter. Uber was the largest customer at 12% and WhatsApp is 5%. The next largest customer continued to be around 2% and scaling down gradually from there. We have range of customers of all sizes as we go further down the list, extending out to the long tail. As of March 31, 2017, active customer accounts were 40,696, up from 28,648 as of March 31, 2016. This includes 353 active customer accounts from the Beepsend acquisition that closed in Q1. Also within this figure were seven variable customer accounts in Q1 of 2017 compared to nine in Q1 of 2016.Our dollar-based net expansion rate was 141% in the fourth quarter, as our platform business model continues to drive our growth. Before moving on to profit and loss items, I’d like to point out that I will be discussing non-GAAP results going forward. Our GAAP financial results along with the full reconciliation between GAAP and non-GAAP results can be found in our earnings release. Non-GAAP gross margins in the first quarter of…

[Operator Instructions] Our first question comes from Mark Murphy of J.P. Morgan. Your line is open.

Yes, thank you very much. I wanted to ask you a question about the active customer additions. It looks like a surprisingly high number at about 4,000. I think if we take out the acquired ones, it is still around 3,700. And in the last four months you’ve been averaging about 2,800, so it’s a much figured number. Would it be wrong to think of that as a decent parameter for the broader class section of the business for instance? Is there anything unusual in that number or does that cohort not have proportionally more future revenue potential than the cohorts from prior quarters?

Thanks Mark. This is Jeff. There is nothing unusual in that number. We feel confident the input’s remained strong to our business and that number I think represents really a lot of investments that we’ve made in streamlining our imbalance funnel, our customer acquisition model, around improvements how customer get started more easily, more quickly and so you see that uptick there. I think it’s a result of the hard work the team here has been doing to get to the offers on board faster than ever before we thought of doing.

Okay and as a follow up, I wanted to try to - I wanted to try to ask you, Lee. If we exclude - if we exclude Uber or the impact of Uber, directionally what are you doing with the base revenue guidance excluding that customer for the year. Are you raising it, are you maintaining it or are you reducing it?

Yeah, as I discussed in our prepared comments here, this adjustment to our guidance is driven by Uber and the core business remains extremely strong as evidenced by the new customer additions and the expansion rate.

Okay, so Lee let me try to ask you this way. So you’re reducing the base revenue guidance by I believe in round number something like $11 million and so can you just clarify, is that - is it exactly $11 million reduction in your guidance to us relating to Uber?3

Yeah, you’re knocking again to specifics, but its overall view of the guidance in these temporal changes in the relationship with Uber.

Okay and then Jeff, here’s one for you. I’m wondering how many customers do you feel you have that realistically have the scale and the resources to be economically viable to try to dual source or multisource dynamically across providers? I guess I would think the customer would have to be either a web scale company like Uber or Facebook or Lift or Google or someone like that who are otherwise spending many millions of dollars just to contemplate that kind of a move. Is that reasonable because they - I think what we’re trying to understand - I think we’ve probably all expected, when companies do have the kind of customer revenue concentration that you have from the two customers, where you have that - you have that level of concentration. I think it is generally assumed that overtime that that would begin to change and I think what we want to try to understand is that whether it’s reasonable to think that it would most likely be contained to the specific two customers?

Yeah, thank you Mark. Very few customers or very few companies have the means or the desire to really do something like this. In this regard, Uber really is an outlier because this is a substantial undertaking on their behalf. And if you look at our customer base, after Uber and WhatsApp, we’ve very little customer concentration that follow us and so while we’re happy with our position in the market and we think the value we’re providing is great. We do look at customers and you need to spend a lot of money to really justify the substantial undertaking that Uber is undertaking in this regard. And so we don’t feel it representative of anyone else in our customer base beyond those two.

Thank you.

Your next question comes from Heather Bellini of Goldman Sachs. Your line is open.

Hey, thank you. This is Mark Grant on for Heather. I really appreciate the additional color around Uber and commitment to provide that for the next couple of quarters. Just following up real quickly on that, outside of just scale is there anything around geographic distribution or used case between Uber and WhatsApp that gives you confidence that we wouldn’t see a similar change like this in WhatsApp or any of the other customers?

Yeah, Mark I think in most ways Uber is not wired here right. This is for someone who’s the size of Uber who can afford to undertake this kind of undertaking. It’s really unique to them as a result of the scale of their business and the sheer geographic nature of it and just the number of engineers they have and their engineering powers to be able to undertake something - a project of this size. So it doesn’t feel like a - necessarily it sounds like a used case, but really it’s more about the nature of the company and the size of their spend that made Uber make this kind of decision.

Okay, thank you.

Your next question comes from Bhavan Suri of William Blair. Your line is open.

Hi, guys. This is Sarah Shizas in for Bhavan. Just have one again on Uber, just when you guys started to see this shift in the relationship with Uber? I know you said, in Q1 it was down to quarterly, but grew better than your overall revenue growth. Just wondering when this kind of shift started and if you’re seeing this in any other customers?

Thank you, Sarah. Yeah, this is an ongoing development. This is really unfolding right now. It’s not something that we’re going to get into much more detail beyond that. But it’s ongoing development and not something we’re seeing as a broader trend.

Okay, great and I’m assuming that it didn’t breech any of their minimum revenue contracts. Those maybe just higher expectations for them to exceed their original commitment in the first place and that’s why the guidance is now been revised.

That’s correct. Similar to other base customers their spend was well above their minimum commitment.

Okay, thank you.

Your next question comes from Richard Davis of Canaccord. Your line is open.

Thanks. Someone asked the question regarding this. So when customers say that they’re dual sourcing, are developers using multiple vendor tools on the same project and used cases or are the cases more segmented. So basically what people are wrestling with is there is a commodity that I can just - like switching from being to Google or Yahoo or whatever. It’s what I’m trying to explain is, to what extent is it easy or difficult to kind of split one tool to another? Thanks.

Yeah, it’s got mostly to do with the size of customer rise and their - the scale that they’re operating at, it’s coming from larger customers and they make sense when to use multiple vendors for various parts of their technology stack and that’s not really communications alone that’s - you know there’s different databases for different used cases, there’s different operating systems, things like that. And so it’s not uncommon for a company who’s large enough to be able to put in multiple vendors. And sometimes it’s for redundancy, sometimes it’s for cost savings and something that’s based on the requirements of a particular used case, maybe it’s a geographic reach thing or something like that. But initially we believe that if there is a dual vendor situation, which is not uncommon in large companies that Twilio performs well and we won the trust of our customers.

Okay, thank you.

Your next question comes from Patrick Walravens of JMP Securities. Your line is open.

Yeah, hi. This is actually Natasha on for Pat. Just basically looking at your largest two customers for Uber, how is your gross margin on Uber’s revenue compared to overall gross margins and what you may have done differently looking at 20-20 hindsight. And then shifting over to WhatsApp, what are you assuming in your guidance for WhatsApp and what steps are you taking in light of Uber’s experience?

Yeah, hi. We really don’t comment on gross margin for a customer. Keep in mind, our gross margin can vary across customers. It varies by international, mid traffic, product type, scale and what you have. And there is that second part of your question, if you could repeat that?

Yeah, I can. And on - so basically shifting over to WhatsApp, what are you assuming in your guidance for WhatsApp and then what steps are you taking with respect to WhatsApp in light of the Uber experience?

Yeah, WhatsApp has been in our variable customer category for a while. We’ve called it out and we report that as variable customer separately. And really no changes, we really focus on base revenue and drive the business by base revenue, so no changes with WhatsApp.

Okay, great. Thanks.

Your next question comes from Mike Latimore of Northland Capital. Your line is open.

Yeah. Hey guys, this is Nikhil Mannan [ph] for Mike. Thanks for taking my question. Can you just give a little bit more detail on Uber. Were you guys displaced in a certain used case, were you displaced as the primary provider and perhaps you’re now the secondary provider, does this have anything to do with the troubles that have been going on at Uber. Just really anymore information you can give would be really helpful. Thanks.

Yeah, Nikhil. This is Jeff. I’ll take the question. So what’s going on really varies by the used case and by the geography. So there’s no single answer to how we plan to use Twilio along with potentially other vendors, but we did want to provide this visibility. And this change has nothing to do with Uber, their breath continues.

Great, thank you.

Your next question comes from Jonathan Kees of Summit Redstone. Your line is open.

Great, thanks for taking my question. No substitutions here. This is Jonathan for Jonathan. And I wanted to - yeah, [indiscernible]. I wanted to I guess deviate from the Uber questions and ask about Amazon and congratulations on the Connect win there. Just curious for Connect results with Chime and other applications, the other parts, were those competitive bids or do you dual source or did they just - since there an investor due Twilio, we’re just going with you?

Yeah, this is Jeff. Thank you, Jonathan. I’ll take the question. So as a matter of practice, in the US and Amazon as a company, they dual sourced everything. And so while Twilio is not the sole vendor in there, they do dual source things, we do feel really good about our position as a vendor.

So would you say you’re the dominant vendor then of that’s the case?

We don’t have perfect visibility, you’d have to talk to Amazon to really understand that, but we do feel it’s a great relationship and we can think that within certain products we’re definitely dominant, but Amazon Connect for example, a new product just coming out, so it’s early to say.

Okay and if I can sneak one more. I want to ask about visibility, it seems like Uber - I guess I will get back to Uber, they kind of surprised there with this change. Even though that they’re base customer with contractual obligation within obviously minimum use. Is there a chance that there’s others and I realize your number three is only 2%, but there’s others that they could deviate through a timeframe and therefore provide challenge in terms of your visibility?

Yeah, hi. This is Lee. I’ll chip in. As indicated I mean, Uber is an outlier and they were a significant amount of revenue, 70% of revenue in the fourth quarter. Jeff indicated really our next largest revenue is 2% of our revenue. So even though most of our customers are over the base of a minimum commitment, we have strong predictability with those customers. So we don’t expect any similar changes. That’s what occurred with Uber.

Okay, great. Thanks for the color.

[Operator Instructions] Your next question comes from Ittai Kidron of Oppenheimer. Your line is open.

Thanks. Sorry to beat the dead, but Jeff going back to Uber situation, can you give us a little bit more color on - first of all when did Uber announce this change to you, number one and number two, when you say that they’ll take a more active approach by used case and geography and as a result of that you expect to lose some business, is that just a reflection of price? Does mean that they’ll go for the lowest price by used case or by geography or do you feel that technology wise in some cases whether there’ll be technology used cases or specific regions, your technology is not up to par with some competitors and therefore they’ll use another technology provider.

Yeah, thank you Ittai. As far as the question of how we’re going to balance this in the ongoing situation, but we did want to provide visibility into this. As far as the question of how they maketh their decisions, it does depend on the used case, it does depend on the geography and what they’re going to do is they’re going to look at the combination of price as well as quality and make decisions about which vendors they might use. And I think that Twilio focuses quite a bit on quality and so we feel great about that and they’re going to do the math. They’re going to figure out how they value quality and how they value price and make the decisions probably not just once on how they’re going to prioritize quality and price in their decision making.

So when you look into your guidance and in the way you factored Uber in the next quarter for example or in the fiscal year ahead. Are you already seeing lower activity level or is that you’re making an assumption based on what was communicated to you, you’ll lose business. I’m trying to understand how much of it is you kind of looking at the crystal ball, trying to figure this one out or are you already seeing this as change in [indiscernible] activity from the customer?

Yeah, hi. This is Lee. As I mentioned in my prepared remarks, we do expect it to be down sequentially next quarter and year-over-year.

Thank you.

This concludes today’s conference call. You may now disconnect.