All right. We will go ahead and get started. Thanks everyone for joining us. Khozema, thank you for coming. Thanks for having me. Khozema is the CEO of Twilio. Before we get started, a few disclosures. My name is Arjun Bhatia. I am the analyst here at William Blair, covering Twilio. For a full list of disclosures, you can go to williamblair.com. Okay. I'm excited for this conversation. Let's dive in. Obviously, as you know, I think the topic of the day is AI. There's been a lot of debate about does AI disrupt incumbents? Does it change the competitive landscape? I want to maybe start by phrasing that conversation in the context of Twilio. What are the moats that you have in the business that maybe don't make you at risk of AI disruption? We'll get into how it benefits your platform, but talk just about the moats on the platform that are hard to replicate, even though AI has made it easier to code and build things. Where does Twilio defend itself in that world? Yeah, our moat is really difficult to overcome because in many ways, it's physical. Right? Sitting underneath our business is what we call the Super Network. What that basically amounts to is that we've established 4,800 interconnections across 180 countries around the world, and those are negotiated contracts. They are physical connections between infrastructure. They are a set of compliance hurdles that we've had to climb over with every single one of those interconnections before you even get to the point where you're onboarding customers. You can't AI your way there, you can't prompt engineer your way there. Like that is a truly physical, very deeply negotiated, constructed moat. That's with the carriers? Sorry. That's with the carriers. Okay. On top of that, what sort of reinforces that moat going forward is the more and more that we layer data into the overall infrastructure, that allows us to create another layer of moat where we've established relationships now with our customers that are also very hard to overcome. Okay. In this world, you have these 4,800 interconnects with carriers all around the world. Your customers can reach their customers wherever they are and communicate with them. If you're a carrier, what sort of stops a carrier from bolting an API onto their platform and say, "Hey, we're Twilio now," basically, in other words? They could, but it wouldn't really help. Yeah. Right? The reality is that the reason that we have 4,800 across that 180 countries is that no customer wants to reach just a certain constituent of consumers through the one telco, right? Let's just take the U.S. In the U.S., you have the Big Three that we all know, but there's a number of other smaller players that have consumer exposure as well. Let's say that you signed up a contract with AT&T. That might help you for the AT&T subscriber base. It wouldn't help you with the two other carriers, which you would also need to be able to reach their consumers. It wouldn't help you with the other kind of smaller players that are in the U.S. environment. It doesn't help you in Canada, it doesn't help you in Mexico, and it doesn't even get you close to any of the other countries around the world where those interconnections are required as well. Establishing one, that's easy. Establishing 4,800, that's very challenging. Again, still has to be done one by one to be able to ultimately develop that, what we call a Super Network. Yeah. It's not code that you're saying is the barrier to build. It's literally having these relationships and negotiating contracts. Yeah. There's a ton of code on top of that. Yeah as you know. Yeah, sitting underneath that is physical infrastructure. Okay. We'll come back to AI for sure, but I want to just talk about the business and maybe set the lay of the land for folks here. I think when you took over as CEO, Twilio was growing maybe 7% organic, high single digits, call it. There was a trough, and you've sort of accelerated growth well beyond that point now. What has changed at Twilio over the years that you've gone from this mid, high single digit growth, to now you're doing mid-teens, and there's obviously a lot of momentum behind the business still? Yeah, so many different things have changed. I would say if I were to say it in a nutshell, we're just running the business a lot better, to be honest. I think it really encompasses three different dimensions. In terms of the financial discipline of the company, we're very smart about our OPEX envelope. We've taken a number of actions to keep our headcount about the same, to reduce our stock-based compensation, to get ourselves to a point of significant cash generation. I'd start there. Doing that allows us to operate from a position of strength. The second thing is that on the growth side, we've gotten a lot more clinical about where we're going to focus our growth efforts. Maybe said simply, it's been more of a self-help story than it's been one of market tailwind. On the self-serve side, which has kind of been the roots of the company, like product-led growth, we've done a ton of work behind the scenes to ensure that for every successive customer that onboards, the process is made easier and easier for them. So all of that friction that I described earlier in terms of compliance hurdles and onboarding, we've tried to implement a series of protocols that a customer can attach themselves to an API. We templatize a lot of the things that they have to go through. Once onboarded, they can connect to pretty awesome technology. That runs the gamut though, from not just self-serve customers all the way over to ISV customers, which is sort of a different side of the continuum. These tend to be mega senders. We've done a lot of work for them as well because these guys have a number of established sub-accounts. We've also made it easier to onboard those sub-accounts, which are basically businesses they serve by white labeling us, and so we get pulled through, but onboarding all of those guys is complex as well. We made that process simpler. Finally, on the innovation side, we've actually moved faster by focusing on less. Let's say a couple of years ago, we would probably have focused on 100 things all at once, all with equal intensity. Now, we pick, what are the seven-ish high-conviction projects which we think a couple of those will yield really outsized benefits down the road? I'd say it's the totality of those things that's led to some of our recent success. Okay. Very interesting. I think, if I sort of drill down into one of the areas where you have been seeing a lot of success, specifically, it's voice, and there's all the rage about voice AI and how AI is going to change the future of voice, and we're kind of in this sort of renaissance, and your growth sort of reflects that, right? I think the voice growth is 20% last quarter, so outpacing the business overall and far above where it used to be. What is happening with voice broadly? Because there are these tailwinds, and we sort of hear it everywhere of customers even talking about, "We want to change the way we communicate with customers through voice." What are you seeing in the business? Yeah, there's a lot there. I think, first of all, just a couple of years ago, we were actually calling for what we believed would be a renaissance in voice. We were using that language. I'm not sure people believed us at the time. That's the language that we were using because we did anticipate, as AI took off, the place that it would take off first is in voice. Voice is more natural, that's the way that we engage with each other. It's the way that you and I are engaging right now. It's much easier to have this conversation over voice than it is over text message because you get the emotive capabilities. You know when something's going wrong. You know when someone's angry or upset. Voice lends itself to workloads that work very well in that respect. The honest truth is that while voice AI is a catalyst for what we're seeing in terms of some of the growth that we're seeing in the overall voice channel, the reality is that voice AI is still a pretty small percentage of what we're seeing in voice overall. Voice, while it's the second biggest channel at Twilio, it is still a relatively small channel relative to the entirety of our business. Yeah Why am I saying all that? The point is that the AI contribution in terms of voice is still pretty muted. It's not zero, but it's still pretty muted. What we're excited about is that, as we look out and as AI really starts to take off, a lot of that volume should be on the come. What do your customers sort of need to do to implement voice AI or scale up usage for you to see this revenue come in the next two, three, four years? I think we're just in the early stages of the buying cycle, right? Yeah. I'd kind of maybe turn the question back on you. The number of times that you've interacted with a voice AI agent in the last one year, I'm going to guess, is probably less than five times, right? Yeah. That's right. It's probably the same for every single person in this room. The reality is the technology is there, it does work, and when it uses a context layer underneath it, like a Segment, for example, it actually does solve customer problems very rapidly. It reduces costs, it generates more revenue. I think the adoption cycle by enterprises, in particular, is a little bit slower than maybe sometimes AI is written about. I think the AI natives are going there very quickly. Enterprises tend to pay the bills, right? Yeah. I think you've got two things happening on the enterprise side. This is maybe crude, but on the regulated side, okay, so think financial services, insurance, healthcare, I think there's a lot of experimentation, but very, very slow adoption. Okay. Where the stakes tend to be lower, so think food service, e-commerce, retail, and I do think you'll start to see it take off a little bit faster there. My own personal perspective is that in three years, I would be stunned if the first point of contact for any one of us in a service event isn't first a voice AI agent. Not an IVR, but a voice AI agent that's actually able to converse with us in a very natural way. We won't know necessarily. Well, I think we'll always disclose it. Yeah. Right. Customers will, too. I think we will not be able to tell the difference versus a human. Right. The technology's already there. In this world, this future of where there are voice AI agents, what is the benefit for your customers on the unregulated side? If it's a retail store, what is their ROI of going down this path? Why are they doing voice AI? Yeah. Everybody immediately kind of goes to cost, and I would say that's actually the third benefit that you get out of it. To be sure, definitely spending a handful of cents on an interaction versus paying a human agent for an interaction, there is a huge difference in cost there, but that's really the third benefit. I'll maybe use an example to make the point, okay? In the food service industry. Think about a big day, like an event. The World Cup's coming, so during the World Cup, my guess is there'll be a lot of pizza ordered. During that kind of an event, what happens? Believe it or not, about 35% to 40% of all orders do not happen on web forms. They take place over the phone. Okay, what actually happens, though, is 20 calls get placed, 19 of them immediately hit an IVR menu. You get through a few. The menu is not there to guide you. It's actually there to stall you. Okay. It's there to stall you until they can find time to attach a human agent. All right. Now, of that 19, probably a handful of folks drop off because they're like, "I'm not going to wait more than a couple minutes," and the business loses those customers. Okay. Now, fast-forward to the world in which it's all AI iterated. Now, all 20 of those can be handled simultaneously because the AI can infinitely scale. There's a revenue event there for the customer that becomes pretty interesting. Oh, g ot romantic all of a sudden. The more interesting part of it, actually, is for our customers, what they're able to do is, in the context of that one out of 20 that gets through, what has to happen, because the person in the store, she's got to get through the other 19. She rifles through those calls as fast as she possibly can because she's got to get to the next one. That leads to kind of a crappy consumer experience. Yeah. There's no ability to upsell the consumer. Okay. Just imagine, what has to happen in 60 seconds or less, even if you just double it to 120 seconds or extend it to three minutes, the consumer gets a better experience. The AI agent on the other side, especially if they're using a context layer, they can revenue upsell the customer, the consumer, they can actually now make more money. Right. The revenue benefit in terms of upsell, that's benefit number one. Benefit number two is the additional revenue benefit by being able to infinitely scale. That's a little bit more complicated because it basically transfers the bottleneck from the IVR to the supply chain, if you will. Yeah. The third benefit is the cost that we talked about. The ROI here is actually pretty profound. Yeah. That's interesting, and you get to the other 19 people that were on hold also. Exactly. I kind of want to maybe flesh out what Twilio's role in this is going to be, because you're obviously the voice infrastructure, consumption-based model, everything's going to flow through you. You also have some of these software-like add-ons that you've introduced into the platform on the voice side, Conversation Relay Intelligence. What role are those playing in this example? Yeah. Okay, let's play back that same example. Yeah entirely through the lens of Twilio. Yeah. Okay. What happens now is that instead of the one of 19, you've got all 20 happening simultaneously. That's 20 revenue events that we now have access to that we didn't have previously. You might say, "Okay, but some of those we're going to get through eventually." Yeah, not in the same cycle time. Right? What used to happen in an hour just went way up because of the infinite scaling properties of AI. We get more voice minutes. Okay in Twilio vernacular, as a result of the infinite scaling, number one. Number two, you get more voice minutes when a call goes from one minute to two minutes or three minutes. Yep. That's the second revenue opportunity. Then the third revenue opportunity is the price uplift on the voice interaction, because none of these voice AI agents works unless they have a context layer underneath, where there's some sort of a data layer that's able to access a consumer's profile in a data warehouse and then able to activate it back to them to be able to solve a customer problem, to be able to upsell them, whatever the case may be. We get additional price there. We win three times. The beauty of this interaction is that do we make more revenue? To be sure, but not at the expense of the customer who's getting way more ROI and also the consumer who's getting a better experience. Yeah. Everybody wins. Right. Interesting. Okay. We could probably talk about voice AI for a long time, but I do want to talk about other parts of the business. Actually, maybe before we go there, one last question on voice. Just, you mentioned it's still a small part of the business. In your mind, as you're thinking of the company over the next several years, is Twilio going to be voice first? Is this going to become a majority of your revenue stream? How do you think about what that mix looks like in the future? I think that we're at the beginning of an AI super cycle, obviously. Yeah. I do think voice will become a major beneficiary. I also think there's a little bit of a demographic gap in terms of who prefers voice versus who prefers other channels. Okay? I'll just use myself and my kids, right? I'm 52, I love voice. Okay? I love interacting with voice agents. I think the technology works, as I said, and I don't mind synchronous communications. Okay? Yeah. My kids can't stand the thought of being on the phone with someone in a synchronized way. They want to be able to deal with it on their own time. The beauty of what we offer and why I think it will bleed over into multichannel as well as perhaps text only is it's asynchronous. Yeah. Yes, it lacks some of the emotive capabilities, but you can deal with that in a voice context and then actually complete the work. Through our Conversation Orchestrator, we can seamlessly transfer that over to another channel where whoever the consumer is can deal with it on their own time through whatever channel preference they have. I'm not sure, right? I don't think I have to have a view on it necessarily. I think we win no matter what. Long as this AI super cycle takes place, all of these channels are going to be consumed in a much more profound way. As the market leader, we have a lot to gain. Yeah. Okay. All right, now let's switch to messaging. Sure. That is, right now, the biggest part of your business. You've also seen on messaging the growth rate accelerate. This is a key driver of the overall top line. What's been happening in that business? What's driving the volume increases and where is the momentum coming from there? Yeah. Messaging is more or less untouched by AI. Like it's not zero, but it's pretty close. Yeah I would say. We haven't really seen the effect of AI there at all. I think by and large, it's just broad-based strength in the business, right? It's not a stable macro environment, so I certainly can't point to that, but I think it's just strength that we're seeing across the board. We analyze the business by channel, we analyze it by industry, we analyze it by geography, and by and large, across every one of those vectors, we're seeing strength in the business. That feels pretty good. I think a big part of that is that self-help story that I talked about earlier, where we put a lot of work into the PLG side of the business. We went even bigger on that at Signal, where we kind of revamped our one console experience to make it easier, not just for a customer to avail themselves of messaging, but any channel all at the same time, including data. I think that's going to allow us to continue the pace that we've got in messaging. What is the role that you see some of these add-on, like premium add-on capabilities in the messaging ecosystem? What role are they playing? It's like Verify is a big one, and I think two-factor authentication is a key use case that you have that you serve. How much of an uplift are those driving, and how critical is that? I think Verify has been growing at a very fast rate for a while now. I think we have opportunities, for example, like with branded messaging, like I think that's just starting to take off. Certainly reinforces trust in the ecosystem. That one's pretty exciting. I think we have additional opportunities in terms of utilizing conversation memory in the context of messaging only, where you're utilizing knowledge that you have about every one of the transactions that you've had with a consumer to be able to perpetuate your relationship through, could be messaging, could be voice, could be email, could be all three at once. I think all of those, like it really opens the door and we're excited about it. Does it impact your margin profile, your gross margin profile? Yeah. All of the software add-ons are margin accretive to messaging. Messaging tends to be, it's a huge part of our business, as you pointed out. It tends to be kind of a structural drag on gross margins. We're not honestly that worried about it, like we're more or less, more focused on the gross profit growth profile of our business. We'll take what comes in terms of the gross margin characteristics, so long as we're disciplined on the price side. Okay. Got it. You mentioned, just earlier, this kind of big platform relaunch you did at Signal just last month. What were the key changes that you made? As investors are thinking about what the business outcome should be from this relaunch, what should we watch for? I think the outcome, to answer that question first, should be ultimately accelerated growth. The impetus behind doing it was, you've followed the company for a long time, so you probably know this. I've worked at Twilio for eight years. I probably have 50 different accounts, just because I'm constantly playing around with the console. For the life of me, I, as someone that worked there, couldn't figure out how to onboard myself. with messaging and voice at the same time. I'm using those two channels because those are ones that we organically built. Like that's shameful, right? There's only so long you can have that persist. We did a total revamp of the console to make it super simple, including all of our acquired capabilities, for you to onboard any channel, multiple channels at the same time, to be able to ingest data at the same time, to be able to use the entirety of that conversation suite that we talked about at Signal. The way that it works is once you're in the console, even if you know nothing about communications, and the only thing that you do know is you have a set of use cases that you need to launch, we will help you through an AI assist, such that your use cases will drive the things that we tee up for you, and then we make them super simple to use. In fact, we allow you, with a set of credits, to be able to play around in a sandbox, so you can try before you buy. I would say so far, it's gone great. This is like a freemium motion, essentially. Limited. Limited. Yeah. It's It's boxed. Okay. Yeah, it's boxed. Interesting. It's like a sandbox. Yeah. Okay. What was the process before was sort of very fragmented. The process before is, it was very fragmented. Not only was it fragmented, you had to be sort of an expert engineer to avail yourself of multiple channels. Even if you could, we still sent you a bill that had total fragmentation in it, right? Yeah. Three different bills. Different bills. if you were using Segment. Yeah email, and one of our message voice channels. Yeah. Yeah. And as a part- Not a great customer experience. As a part of this sort of broader platform relaunch, or maybe in general even, how do you think about your pricing power? You have this sort of unique asset, as you talked about with the Super Network, and you're adding these new capabilities on top, these new add-ons that you're obviously charging. How do you think about core sort of messaging or voice pricing, and does that evolve as the platform becomes better and better and better? I think we have some degree of pricing power, and we want to be careful about it. We certainly don't want to gouge our customers, but we also want to be appropriately compensated for our technology. Very regularly, and it kind of varies based upon geo, like we raise our list prices pretty frequently. Now a lot of our contracts are negotiated, and so it takes a little bit of time for that to ripple through the revenue base, but that's a pretty regular motion. I think what's more interesting about all of these console capabilities is our ability to price and package when customers are using multiple of our products. We made that hard for them as well, right? To offer any kind of a discount when you were using multiple products, or for you to be able to consume multiple things at once and get the benefit of that, we made that super hard for you. In addition to all of the stuff that customers can see, there's a fair amount of work that we did in our back office, too, to completely revamp our billing system. That's underway, I would say. We keep launching new packages and prices every quarter or so, and we'd expect that work to be done by next year. On the just context side, that's become a more and more important story. You're obviously not just the communications infrastructure, you're also serving up ways to make the customer engagement more relevant. Maybe part of this is Segment, part of this is other sort of enhancements you've made to the platform, but what are those capabilities sort of you're introducing into this customer value prop? Where does sort of pricing for that fit in? Are you just kind of hoping increased consumption drives those? Are those priced separately? How do you think about that piece? You can buy them separately. Yeah if you want to. I think ultimately, what we really want to be able to do is infuse data enrichment into every one of our channels. Look, if you're an AI user, the best way to drive down cost of the LLMs is to add a context layer, because now the LLMs are referencing the data that is super specific to what you need to get done versus the data set at large. Token consumption goes way down as a result, and consumer outcomes go way up because it's referencing the specific attribute, specific experience, specific purchase history of you. It's just a better all around experience for our customers and then ultimately their consumers. As I said, we intend to price it in the way that customers want to buy it, could be separate SKUs. I think likely it will be packaged and priced in that way more than anything. It's a super compelling offering, and I think whether it's persistence, whether it's memory, whether it's orchestration, all of these things allow our customers to ultimately create a much, much better experience for theirs. Okay. In the time that we have left, I want to turn to another topic, which is just profitability and some of the improvements on operations that you've talked about before. I think a core part of my thesis on Twilio, obviously the top line growth is big, but you're also gaining efficiencies, and you're driving margins, and op income and free cash flow growth higher. What are you doing internally from just an operations perspective that is allowing you to scale margins, and how much more sort of room do we have on the profitability front for that to continue its trajectory? We certainly intend to continue producing operating leverage over time. Some of that will come from volume leverage, some of that will come from cost efficiencies. On the cost side, what I would say about that is over the last couple of years, our headcount has basically been flat. While the company's growth has materially re-accelerated. Last year, actually, our OPEX, as you know, fell, right? I wouldn't anticipate that's necessarily a permanent feature, but I don't think that we have to add a lot of headcount to pursue any of our future ambitions either. I think it'll tick up a little bit. I don't want to pretend like it's not going to grow at all. We are expecting operating leverage going forward. Look, there's a lot that kind of gets written about the gross margin characteristics of the company. I think so long as we continue to grow the gross profit line at a sporty rate, we can drive operating leverage as a result. We can continue growing into new areas by reinvesting some of the profits that we have, but also saving money with a variety of initiatives inside the company, using AI in some cases, retiring tech debt in other cases, increasing our exposure to different parts of the world in terms of our workforce. We're already remote first. That provides us a real strategic advantage. In doing so, also reduce materially, we have so far and we continue to do this, reduce our stock-based compensation, which we think is a great outcome for investors. What are you doing internally with AI? How are you using it across the organization? There's two things that we've gone big on. There's a variety of others. The two big ones I would say are both with respect to customer service as well as inbound sales. Virtually all of that now is handled by virtual agents. Okay? Now, the form factor is a little bit, or the channel I should say, is a little bit different, right? In both of those instances, it could happen over email, it could happen over voice, could happen even over text. It varies a little bit based on the channel that a customer would utilize. There's kind of a twofer in the benefit. The customer service side, our agent there is generally able to solve the customer's problem without them even realizing they're interacting with an AI agent, even though we disclose it. On the inbound sales side, what's cool there is that not only do we get the productivity benefit in terms of lowered cost, but more importantly, the digital sales reps that we have, they can now attach themselves to an actual qualified lead versus something random that came in. Okay. The other area is on the engineering side. We obviously are using Claude Code, or maybe it's not obvious we're using Claude but we are using coding tools. Claude Code is the one that we've employed. We use Gemini more broadly for the entirety of the workforce. We use some functionally specific tools. I would say on the engineering side, we've definitely improved velocity. I wouldn't say it's reduced cost much. just because we're not prepared to push production code that hasn't gone through a pretty heavy review. Yeah. Then in the G&A functions, I think it's very early days, but I do expect productivity there over time. All right. Fascinating conversation. That's all the time we have. Khozema, thank you so much. Great. Thanks for having me.