Twilio Inc. (NYSE:TWLO) Q4 2020 Earnings Conference Call February 17, 2020 5:00 PM ET

Company Participants

Andrew Zilli - VP, IR
Jeff Lawson - Founder, Chairman and CEO
George Hu - COO
Khozema Shipchandler - CFO

Conference Call Participants

Derrick Wood - Cowen and Company
Mark Murphy - JPMorgan
Will Power - Baird
Fred Havemeyer - Macquarie
Meta Marshall - Morgan Stanley
Michael Turrin - Wells Fargo
Matt Stotler - William Blair
Parker Lane - Stifel
Rich Valera - Needham & Company
Ryan Koontz - Rosenblatt Securities
Alex Kurtz - KeyBanc Capital Markets
Patrick Walravens - JMP Securities
Ittai Kidron - Oppenheimer

Operator

Good afternoon, and welcome to Twilio's Q4 2020 Earnings Conference Call. My name is Jason, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I will now turn the call over to Andrew Zilli, Vice President of Investor Relations and Treasury. Mr. Zilli, you may begin.

Andrew Zilli

Thanks. Good afternoon everyone and thank you for joining us for Twilio's fourth quarter and full year 2020 earnings conference call. Our results press release, SEC filings, and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me virtually today are Jeff Lawson, Co-Founder and CEO; George Hu, COO; and Khozema Shipchandler, CFO. We also Peter Reinhardt, CEO of Twilio Segment joining us for Q&A.

As a reminder, some of our commentary today will be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and 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 plans and timing to close the Segment acquisition, and our expectations around the impact of the COVID-19 pandemic on our business, results of operations and financial condition, and that of our customers and partners is 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. And our remarks during today's discussion should be considered to incorporate this information by reference.

Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect the events or circumstances after today, or to reflect the new information or the occurrence of unanticipated events, except as required by law.

With that, I'll hand it over to you, Jeff.

Jeff Lawson

Thanks, Zilli, and thanks, everybody, for joining the call today. I want to begin today's call by recognizing that it's Black History Month here in the United States. Doing the work of overcoming systemic racism is the work of understanding Black history, not just the surface level history or the story of the civil rights movement, but understanding the deep history of oppression and racism that manifest today in less overt, less intentional ways, but is just as impactful on black lives today.

Black history isn't something of the past, it continues through today and there is an acknowledgment that we're writing Black history and American history today. Twilio's commitment to anti-racism is a commitment to write a better future. That's how I'm contextualizing Black History Month in 2021, differently than I've ever thought of it in the past.

Now, on to company earnings. Our fourth quarter continued the strength and momentum we saw throughout the year. Let me quickly touch on a few of the highlights for the full-year. We delivered nearly $1.8 billion in total revenue, up 55% over last year, incredible growth at this scale.

We acquired Segment, combining the market-leading customer data platform with our leading communications platform. We ended the year with more than 221,000 active customers and more than 10 million developer accounts, and we hosted our first ever virtual SIGNAL with more than 32,000 registrations.

Our 2020 results reinforce the idea that there is a massive generational opportunity in front of us. We have long known that there is a huge shift to more digital experiences and that every company is becoming a software company and that has been fueling our growth for more than a decade.

And what 2020 showed us is just how true it is that companies that embrace building, that embrace software agility, that empower their developers are the companies that are prepared for the unknown. Whether it's a pandemic, more competition in the market or anything else that is threatening to disrupt an industry or business, the companies that embrace software are able to accelerate their ability to respond to the changing conditions in their market.

The pandemic accelerated change overnight. Healthcare had to accelerate the adoption of telemedicine and commerce companies accelerated their e-commerce plans. Companies that hired more developers and upped their digital game during the pandemic are not going back.

The pandemic was a booster and now they're even better at addressing the digital needs of their customers. Digital is here to stay and there are more and more digital businesses in the world that Twilio is powering. That's why we are so excited about the opportunity ahead.

In fact, according to IDC, investments in digital transformation will nearly double by 2023 to $2.3 trillion, representing more than 50% of total IT spending worldwide. And Deloitte recently released a report stating that during the next 18 to 24 months, they expect to see leading companies embrace the bespoke for billions trend by exploring ways to use human-centered design and digital technology to create personalized, digitally-enriched interactions at scale.

Twilio's annual state of customer engagement report, launching next Wednesday, February 24, evidences this change. The study found that digital engagement was critical to survival in 2020 with 96% of business leaders reporting that not digitizing customer engagement would have negatively impacted their business, including making them less competitive, causing a loss of revenue and an inability to meet customer expectations.

And as the world seeks to find a new semblance of normal, businesses are not going back. Given the increased importance of digital engagement to company’s success moving forward, nearly all business leaders surveyed, 95% expect to increase or maintain their organization's investment in customer engagement after the pandemic. This is why we've been building out our customer engagement platform that truly serves the end-to-end lifecycle of all customer engagement in the enterprise.

We acquired Segment, the market-leading customer data platform, to provide a unified customer view to help companies better understand customers and engage more effectively over digital channels. Why? Because companies need to understand who their customers are, what products they are looking for, what products they've bought, and where customers are interacting with their brand across multiple touch points.

And our platform allows the developers of the world to build, to take all of those digital data that are siloed throughout the company, build a cohesive picture of the customer, build a world-class customer service experience, and deliver the right communication over the right channel at the right time.

The end game is to meaningfully improve every interaction every business has with every customer. That's incredibly valuable to enterprises because it allows them to create differentiated customer experiences and our results validate that this is what the market wants.

Of course, to make all this work, we have to empower developers. We have more than 10 million developers around the world using Twilio to build the future of customer engagement and we're going to continue innovating to provide them the tools they need. Our developer ecosystem is one of the long-term competitive advantages for Twilio and we're going to continue to focus on making them successful.

Before I turn it over to George, I also wanted to highlight that we launched our first ever Impact Report today, which you can find on our website. The report cover several topics, including our focus on helping our neighbors and communities.

In fact, in 2020, non-profit social enterprises and local governments using Twilio helped reach 266 million people. You will also find information on our latest diversity and inclusion stack, as well as some new ESG initiatives and disclosures.

We also launched our WePledge movement for employee giving to the world, empowering every individual employee to pledge 1% of their time or income to do good. As Twilions, we volunteered more than 7,800 hours and donated more than $1 million in 2020. And Atlassian, Zoom, Okta, and Pledge 1%, all signed on to join the WePledge movement.

There are a couple of recent additions to Twilio I'd like to welcome. In Q4, we hired Jeremiah Brazeau as our CTO to lead our technology, strategy and roadmap. And last month, we added Deval Patrick, former Governor of Massachusetts to our Board of Directors. In addition to his public sector experience, Deval held senior executive roles at Texaco and Coca-Cola and most recently founded the Double Impact Fund at Bain Capital.

Jeremiah and Deval are just the latest additions to our leadership in the last year as we brought on several new senior leaders who will be critical to our success as we continue to grow and scale the company.

And, finally, you may have seen in our press release that our Chief Legal Officer, Karyn Smith, will be leaving the company after six and a half years. Karyn has been a tremendous leader for Twilio and such an important part of our success, from building out our legal team to taking us public and more. I'm extremely grateful for her contributions to the company during her tenure. Karyn is going to stay on for a while, while we find our next General Counsel and ensure a smooth transition in the coming months.

Thank you to all Twilions for helping deliver such outstanding results and doing so much to help our customers, as well as the broader community during such a difficult year. We're extremely excited for 2021 and beyond as we take advantage of this generational opportunity.

With that, I'll hand it over to you, George.

George Hu

Thanks Jeff. I'm so excited about the great performance the team had in Q4, wrapping up an outstanding year in 2020. As you know, in addition to growing our sales capacity, we've been focused on four core areas; developers, enterprise presence, better national expansion, and growing our partner ecosystem. We saw tremendous success in these areas in 2020, but we still believe we are in the early innings and we plan to continue to invest in these four areas for 2021.

On our marketing side, we continue to focus on developers, while also engaging more and more at the executive level. Our team hosted 285 virtual events, including SIGNAL, Engage Everywhere, Superclasses, Twilio Engagement Center sessions, and more, connecting with nearly 40,000 customers and developers to help them build the future of customer engagement using the Twilio platform.

Our developer relations team hosted the largest Superclass event ever during SIGNAL, quadrupled the number of users on Twilio Flex and launched a new developer podcast on YouTube channel to drive further engagement with our expanding developer community.

And, of course, Jeff's new book Ask Your Developer, which, by the way, is a Wall Street Journal business national bestseller, is a great way to engage with enterprises and get them thinking about how they can empower their developers to build solutions for the future of customer engagement.

On the go-to-market side, our investments in the enterprise space are paying off as we become more strategic to the world's largest companies. In fact, in 2020, the number of transactions with Global 2000 customers was up 76% over the last year and the number of seven-figure yields overall was up 93% from 2019. We signed some great enterprise deals in Q4, including one with JPMorgan Chase, the largest bank in the U.S., who chose Twilio to enhance their customer service offering.

We also signed a deal with one of the world's largest retailers. With the surge in traffic during the holiday season, their on-premise email solution couldn't scale to support their volumes. And they knew it was time to move to the cloud. They selected Twilio SendGrid for the deliverability and scale needed to support the billions of emails they expected to send.

We expanded our relationship with a Fortune 500 P&C insurance company that was looking for a partner to support their multi-channel digital engagement journeys. They selected Twilio for SMS, Verify, Email, and WhatsApp to power several new solutions for their customers.

We also expanded our relationship with H&R Block, a leading tax preparation and financial services company and a Fortune 1000 company. In preparation for the upcoming tax season, H&R Block wanted to provide better virtual tax preparation experiences, while leveraging a single platform. We added Twilio Video for online tax appointments and are also using Voice, SMS, and Chat to provide a unified customer experience.

We are extremely excited about the addition of Segment to Twilio and while it is still early, we are seeing great traction as we signed a deal with Camping World, America's leading recreational vehicle and outdoor retailer and a Fortune 1000 company.

Segment will enable Camping World to quickly and easily understand who their most loyal customers are across domain and allow personalized rewarding experience across all of Camping World's digital touch points.

Internationally, we continue to invest to expand our presence in key markets and we're seeing great returns from those investments. We entered into a new relationship with a G2K insurance provider. They were looking to accelerate their efforts to focus on a digital-first engagement strategy and selected Twilio to build multiple solutions including WhatsApp within Flex for agent and sales communication, video solutions for sale reps who wants to talk to the VIP clients, and video solutions for telemedicine appointments.

Our partner ecosystem plays a critical role in expanding our reach around the world and in different industries. In 2020, consulting partners influenced three times as much revenue of 2019. We're involved in 50% of our top select fields and had a four times increase in influence with G2K customers.

And, of course, we welcomed Deloitte Digital as our first premier global systems integrator and we're already seeing great results from that partnership as we closed several joint deals together in the fourth quarter.

Again, I'm extremely pleased with the performance this year. We've made great progress, but we are just getting started in each of our focus areas and that's what makes this opportunity so exciting. We are going to continue to invest in these areas going forward to address the huge opportunity ahead of us. I couldn't be more thrilled for how we are positioned for 2021 and beyond.

With that, I'll pass it over to Khozema.

Khozema Shipchandler

Thanks George and good afternoon everyone. I'll start by echoing Jeff and George's sentiment. I couldn't be prouder of Twilio's execution in 2020. We saw a year's worth of digital acceleration during an unprecedented time and as we enter 2021, there is plenty of opportunity and plenty of work to be done to continue to grow and scale our business.

We have the right leadership and the right products in place to ensure we are successful to take advantage of this enormous opportunity as we continue building the leading customer engagement platform. As I've mentioned on previous calls, we're also very focused on scaling our systems and processes, which will ultimately lead to greater leverage in the future.

Delving in a bit further, we are investing to create an enterprise data architecture internally, including our ERP, business intelligence, quote-to-cash, as well as continuing to improve other core processes that allow us to scale the company. Additionally, we continue to invest in people, both geographically and through the lens of DEI, further diversifying our employee base.

As George mentioned, the early returns from the Segment acquisition are great. And while Segment is running independently today, as we continue our integration planning, we are working on some integration on the G&A side, as well as some exciting organically-evolving innovation synergies on the product side.

As the executive sponsor for the integration work, I'm heavily involved in the process and the integration is off to a terrific start. The cultures and values are incredibly well-aligned which we can sense from a distance, but are seeing confirmed on a daily basis now. We're also starting to see specific opportunities for joint products, which we will talk about in future quarters. I continue to be excited and energized by the tremendous opportunity ahead for Twilio.

Now, on to the numbers. Total revenue for Q4 grew 65% year-over-year to $548 million, including $23 million from Segment, which closed on November 2. Dollar based net expansion rate was 139% as we continued to see broad-based strength across the business. Remember that Segment does not have an impact in DBNE. As expected, political traffic had a strong quarter as a result of the election, contributing $23 million to revenue. Excluding Segment and political traffic in Q4 2020, revenue grew 52%.

For the full year, we delivered $1.76 billion in revenue, up 55% year-over-year and DBNE for the full year was 137%. Revenue from our Top-10 active customer accounts represented 13% of revenue in Q4 compared to 14% in both last quarter and Q4 of last year.

International revenue was 27% of total revenue in Q4 compared to 27% last quarter and 29% in Q4 2019. WhatsApp contributed approximately 5% of revenue in Q4, down from 6% last quarter.

As a reminder, going forward, we will no longer breakout WhatsApp as a percentage of revenue. We continue to have a great relationship with WhatsApp. However, as our business has scaled, coupled with a strong revenue diversification, disclosing the contribution from a single customer is less meaningful.

Verizon's A2P fees contributed approximately $14 million to revenue. As a reminder, this fee is a direct pass-through to customers and does not impact gross profit dollars. As we come up to the anniversary of the implementation of the Verizon fees, we will no longer be breaking out this metric.

However, we do believe another carrier will implement fees in the coming months. And if that happens, we'll provide further information on an upcoming call.

Fourth quarter non-GAAP gross margin was approximately 56% and was negatively impacted by 150 basis points from A2P fees. Twilio's gross margin, ex-Segment, was approximately flat quarter-over-quarter, aided by political traffic in the United States.

As we've discussed recently, organic gross margin continued to mix down as the growth of our messaging product has reaccelerated; a trend that continued in Q4 and a trade-off we'll gladly accept. Non-GAAP operating profit came in at approximately $13 million stronger than originally forecasted, driven by higher than forecasted revenue.

Now, moving on to guidance. Let me quickly highlight a few items as it relates to different aspects of guidance. First, I'd like to remind everyone, we will only be providing quarterly guidance going forward. Second, this guidance does not include any additional A2P fees that may go into effect during the quarter. And finally, we built this guidance off of our fourth quarter results, excluding the political traffic contribution.

So, for Q1, we expect total revenue of $526 million to $536 million, including Segment, for year-over-year growth of 44% to 47%. And we expect our first quarter operating loss in the range of $15 million to $20 million.

With regards to our operating loss guidance for the first quarter, as mentioned on previous calls, some of the investments we planned on making last year did not materialize as we had originally forecast due to COVID. We still intend to make these investments in 2021, primarily centered on people and systems.

To close, we delivered very strong results in 2020 and we are excited about 2021 and the years beyond. We are making the right investments today to scale the company and take advantage of a generational opportunity.

With that, I wish everyone well and thank you for joining. Operator, please open the line for questions.

Question-and-Answer Session

Operator

Certainly. [Operator Instructions]

Your first question comes from the line of Derrick Wood from Cowen and Company. Your line is open.

Derrick Wood

Great. Thanks, and congratulations to everyone with the fantastic finish to the year. And Jeff, congratulations on the release of your new book. I mean, I wanted to ask a question along those lines.

In the book, you focused a lot on the rise and importance of the developer and we've been hearing about developers getting more budget authority in today's digital era. So, it'd be great to hear what you're seeing in terms of changes in buying behavior, particularly when it comes to developer involvement and how you see these trends helping Twilio gain more wallet share in the years ahead?

Jeff Lawson

Thank you, Derrick. Yes, I think one of the things that Twilio really bet upon when we founded the company was the developers would become even more influential as companies having turned to digital, had to become more agile and had to really build for this digital era because developers are the ones who know the tool chain. They know how to get things done.

And when the barriers come down, i.e., instead of having to go spend tens of millions of dollars and sign a contract upfront for some giant's multi-year IT project, but rather get started with little risk, spend a dollar or two building a prototype that the outcome, the benefits of being able to move quickly in that way of building, moving from prototype to a beta to a production rollout, which needs a little treatment along the way that, that would just take over. And I think that we were very right about that in the early days at Twilio, along with other companies in this API economy.

And that's why, as the pace of business has accelerated and the importance of digital has grown to nearly every kind of business and every kind of industry, while developers are able to pick up the tools and the new software supply chain that Twilio was a [technical difficulty] the big logo and you also hear about the digital native companies that adopt Twilio, and we now we have over 220,000 companies, look, the vast majority of those, we were brought in by a developer, that's how the relationship started.

And so they bring us in, they build out prototype. They see that really success. And then we follow in with our sales team and we expand the relationship over time to make them successful in the first use case, in the second and the third.

And that's really the power of the platform business model. It combines a very efficient go-to-market engine. We spend less on sales and marketing than a lot of other companies, especially, when growing at our rate and scale, but then that allows us to not only get in the door, but also expand our presence in that account because we've got those technical champions.

And I think that's a trend that's just going to continue as you look at COVID and you look at how the importance of building and staying agile and responding to changing conditions, whether it's something like a pandemic or just the normal competitive concerns that are out there, the developers get even more prominent as time goes on.

Derrick Wood

Great. Thanks for that color. If I could squeeze one for – one in for Khozema. The gross margin definitely trended better than we've seen sequentially in the last few quarters. I know you called out Segment. Anything else to call out in terms of mix shift changes sequentially and how to think about directional thoughts on gross margins for Q1?

Khozema Shipchandler

Not really, Derrick. I mean, the way that we characterized it was that we've had kind of a flat quarter-over-quarter gross margin dynamic that was aided by political fees, as we said in our prepared remarks. We've also talked about, as most recently as the Investor Day, that we've had a reaccelerating messaging business as well.

And so that's created some downward pressure on gross margins, but we like that trade-off, obviously, just given the hatch that we've developed in messaging and the gross profits that's kicking off.

Otherwise, I mean, we kind of expect gross margins to sort of be in the mid-to-high 50s as we've said before. And I think you should expect that to continue putting aside like A2P dynamics, obviously.

Derrick Wood

Great. Thanks, again. Congrats, guys.

Operator

Your next question comes from the line of Mark Murphy from JPMorgan. Your line is open.

Mark Murphy

Yes, thank you very much and congrats to all the Twilions. Jeff, I'm interested in the trend you're seeing in two-way or bidirectional messaging. Could you help us understand or just estimate what portion of messages you're processing today that are two-way and maybe what types of discussions are emerging to use it in the future because we're kind of sensing it's starting to creep into some of our own experiences sporadically once in a while from the auto mechanic or after I buy an appliance? So I'm just wondering if there is any tangible outlook there.

Jeff Lawson

Yes. Thank you very much, Mark. I think you're right. It's still very much at its infancy though. It's a relatively small part of our traffic is two-way, but it's been growing in recent years. If you think about it, five, maybe eight years ago, it was sort of novel when a company could text you the status update of a flight or your package shipped or whatever. And we saw a lot of customers building those types of use cases on top of Twilio.

When you got that, it was like, oh, that was delightful, but of course if you replied to it, usually the reply went nowhere. And now you're starting to get the next wave of innovation with messaging, which is actually certain times you can actually reply to it and either a bot or a human being will actually be listening and be able to help you with that engagement.

And I'd say this is still very much emerging. But it's one of these surprising and delightful experiences you have with the brand. It does that. I remember at SIGNAL, in 2019, I talked about some of these companies, the company's experiences.

When you need a service appointment at Tesla and you can text with the service advisors to coordinate that appointments or with one of the earlier actually use cases here of Morgan Stanley who is using Twilio to enable their wealth advisors to text two-way with their clients and a number of other such use cases. And so we continue to see more growth in this area, because it is such a great experience.

And you think about how much companies spend to acquire a customer and to get their phone number and earn the right to communicate with them, only to blast them a message that the consumer can't reply to or if they reply, it's like crickets and how bad of an experience that is.

And that's why we've invested in products like Twilio Conversations that enable those two-way, multichannel communications; and Flex for the contact center that enable those sophisticated messaging-based conversations as a messaging native solution or even Twilio Autopilot that brings the intelligence of AI conversational engine.

These are all designed to help companies to adopt and build two-way messaging experiences that augment and improve the -- oftentimes, the first use case, which is that outbound notification.

Mark Murphy

Excellent. Thank you very much.

Operator

Your next question comes from the line of Will Power from Baird. Your line is open.

Will Power

Oh, great. Thanks for taking the question. Yes, I'd love to maybe start on Segment. I'm just trying to get any color we can on the early progress you're seeing there, what their early use cases on a combined basis look like. And I was kind of intrigued with the comment around the contract with Camping World. It does seem like one of these perfect examples of the opportunity to use that customer data than to engage with those customers. I'm just trying to understand what does that cross-sell look like to take it to that next engagement level?

Peter Reinhardt

Hey, Peter here. So, Segment is still operating primarily independently. Just keep in mind that Segment's only been part of Twilio for the last two months of the year. So, still very early, continuing to execute very well, though, had a strong finish to 2020.

In terms of Camping World specifically, currently, Camping World has three brands: Camping World, Good Sam and Gander Outdoors. Each of those have disparate websites and solid customer data.

And so, what Segment is going to do is allow all that customer data to be collected from the three digital properties in a consistent way and allow for Camping World to draw new insights on all their customers and enable increased personalization across web, email and mobile experiences.

So, as we progress on the integration, we can provide more updates on sort of the long-term and potential to address kind of the generational opportunity ahead of us and continuing to work together to build the leading customer engagement platform.

Will Power

Okay, great. I guess, if I could fit in one more quick one, maybe for Khozema. Just looking at the strong Q4 upside and putting aside Segment and the political traffic, anything else you'd call out in terms of significant upside driver? It sounds like SMS was there but between Video, Flex, any other particular surprises?

Khozema Shipchandler

Yes. It was -- well, it was pretty broad-based strength across the business, I would say, in Q4. The messaging products certainly did see a lot of acceleration. That continued certainly in Q4. So that was a driver of upside.

And then I think just generally, I mean, we had really strong net expansion, as you heard in the numbers, and great net new customer growth. And I think what we're finding is that as customers are looking for digital transformation, they're increasingly coming to Twilio. So, just a great around-the-board performance for us.

Will Power

Okay. Thank you.

Khozema Shipchandler

Thanks Will.

Operator

Your next question comes from the line of Fred Havemeyer from Macquarie. Your line is open.

Fred Havemeyer

Hi, thank you so much for taking my question and congratulations on such a strong quarter. So, I wanted to ask from the perspective of a developer here because I've built apps on Twilio before. And frankly, the platform just makes sense for developers. The alignment of Segment also seems particularly natural, considering how easy it is for developers to roll that out too.

So, on these lines, I'd like to ask, what do you think could be the benefits in your approach to offering the customer experience platform with a platform-up approach in comparison with some of the other software vendors out there who are approaching customer experience from an application down perspective?

Jeff Lawson

Well, thank you, Fred. I think you're right. We believe in the power of developers to influence the technology decisions that companies pick, the vendors they decide to use and actually the strategies of the companies and actually how they go about solving really hard problems for their customers.

And I don't think that's limited to just, say, SMS, Voice or Peter's world, customer data. I think that the infrastructure to build great digital products and great digital experiences spans many categories.

And so, again, as we think about our platform and customer engagements, I think that it is a rich area of opportunity for us to invest in order to unlock developer influence and developers' ability to build the future of these companies, in the same way that we have with communications and customer data, respectively, which is easy-to-adopt APIs, usage-based pricing models, published documentation and things like that, that enable developers to come in, rapidly build solutions to the things that companies need built and then take those prototypes all the way through to production because that's the agile nature of business today.

And I think that there's a lot of opportunity to find more and more areas that we see customers wanting this approach and applying our business model for more and more in the realm of customer engagement.

Fred Havemeyer

It's very helpful. Thank you.

Operator

Your next question comes from the line of Meta Marshall from Morgan Stanley. Your line is open.

Meta Marshall

Great. Thanks. Maybe as a first question, just as you expand your GSI and ISV network and even your kind of enterprise sales force, how is that informing the roadmap or just the different pain points that your customers might be experiencing?

And then maybe as a second question, just on the net expansion rate kind of picking back up, do you think that, that speaks to the cohort as kind of accelerating in their ramp or is it too early to kind of say that, overall, customers are ramping into their use cases quicker? Thanks.

George Hu

This is George. Certainly, on the GSI and the ISV front, I'm glad you asked the question. We see a mass opportunity. And as I mentioned, we're still really in the early innings. I think that it largely aligns -- their requirements align to what the broader customers want, which is obviously to support the digital transformation of their customers.

And that's fully in line with what we see as this massive opportunity. There are some specific things that we are doing to make the product easier to deploy, to build and things like that for some of our ISV and SI partners. And those are things that we're working on, in just normal course and speed. But the big picture is that it's largely, I think, aligned with what our broader customer base wants.

In terms of the net expansion -- the net expansion side, I think that certainly, a bit of that is, as Khozema talked about, seasonal. But probably, I think we just have a lot of strength in our business.

As we've talked a lot about this digital acceleration. I think that we're seeing that play out. I wouldn't say that we're seeing a noticeable shift in individual customer deployment times.

I just think that we're seeing companies really realizing that they need to move to these new digital channels, new modes of digital engagements. And that is supporting the broad near-term results and more importantly, the long-term opportunity that we're so excited about.

Meta Marshall

Great. Thanks and congrats.

Operator

Your next question comes from the line of Michael Turrin from Wells Fargo Securities. Your line is open.

Michael Turrin

Hey there. Thanks all. Good afternoon. On the Q1 guide for topline, you mentioned that builds on Q4 ex-political. Looks like up just a bit sequentially from there. Anything at all you can add around the Segment contribution and what's assumed?

I know you'll have an extra month, but wondering if there's anything from a seasonal or accounting-related perspective for us to be aware of as we look at the implied run rate you provided and start to extrapolate from there.

Khozema Shipchandler

Hey Michael, this is Khozema. Not per se. I mean, we're obviously guiding $526 million to $536 million in revenue in the quarter. That does include the contribution from Segment.

We're not breaking out the Segment contribution at this time, but we will, of course, provide those results on the Q1 call. But there's nothing idiosyncratic to call out, to answer your question directly.

Michael Turrin

Okay. And then on Flex, obviously, the contact center market seems to have reached a bigger tipping point towards cloud. You called out strong traction with Flex in the press release. Anything you can add as we're heading into the upcoming year around the demand environment? Are there certain use cases or industries you're finding success with that you'd like to highlight here for us?

George Hu

This is George. Look, I think you hit the nail on the head that there is a massive shift going in the contact center market towards cloud. I think that's the story here. And we are both beneficiaries of that and that we believe also helping to propel that forward with this fantastic product that we have, the architecture we have.

It's a real -- it's a really resonant story with companies that are looking to move to the cloud and don't want to use the legacy technologies and also want a new approach, a much more flexible approach, a much more shared-risk approach and an approach that allows them to really deliver exactly what they needed and not more -- and not to buy more than that. So, I think that's the ultimate story here.

In terms of specific areas of strength, we continue, I think, to work really well in that kind of mid-enterprise size contact center that several thousand seats space seems to be our sweet spot. And we have strength, and we've mentioned insurance few times in other industries as well. Similar to that, but those are all, I think, honestly, smaller trends in the context of just this bigger story we're playing in.

Michael Turrin

Impressive close to the year yet again, nice work, all. Thanks.

Operator

Your next question comes from the line of Matt Stotler from William Blair. Your line is open.

Matt Stotler

Hey guys. Thank you for taking my questions. I guess to start off, maybe just touching on the Deloitte partnership, obviously, very important as the first kind of premier GSI. Last quarter, you talked about the rollout of the partnership being pretty early, some in-house customers, training consultants, etc. It sounds like you started closing big deals. So, are we kind of hitting on all cylinders here? Any other kind of color on early feedback?

And you kind of mentioned that the partnership last quarter isn't necessarily exclusive. So, I'd love to get some commentary around how Twilio is being positioned relative to maybe other solutions in the Deloitte portfolio there.

George Hu

Yes, that's a great question. I would say, overall, we're on track with Deloitte. Things are healthy, strong, going according to plan. I don't think you're going to have radical change in 90 days, but we talked about, as you mentioned, in-house customers, we did get several of those wins. So, I think that if you talk to them, they'd be excited about the partnership; we're excited about the partnership.

And I think that things are going very, very well. And I think we're on track this year to, hopefully, on other SI names to our portfolio as well. So, I think everything is healthy and going well, and we're certainly seeing a lot of energy from partner ecosystem around Flex and all of our products.

Matt Stotler

Great. That's helpful. And then maybe just one for Khozema. Middle of last year, you talked about some investments getting paused or pushed into 2021. Hiring and infrastructure building in places like India.

Since then, some of those investments have been able to move forward, like the opening of the Center of Excellence in India specifically. How are you thinking about any remaining pent-up investments, if you will, and how these kind of layer back into the model as we look forward to 2021?

Khozema Shipchandler

Yes, I mean, as I mentioned, we guided to an operating loss in Q1, and we want to continue investing in several areas. I'd say enterprise is one. International is another partner ecosystem, systems processes. So, kind of the same areas that we talked about last year that we hope to invest in, in a more pronounced fashion. All that got delayed to some degree due to COVID.

Obviously, you've also got Segment, which came in at a loss position. So, I think all of that is going to contribute to our operating losses a little bit throughout the year. We're not providing a guidance for the year, but you can get a sense of it from what we're guiding to in Q1. And again, the investments are anything out of the ordinary, more just a continuation of stuff that we were wanting to work on last year.

Matt Stotler

Understood. Thank you very much.

Khozema Shipchandler

Thanks Matt.

Operator

Your next question comes from the line of Parker Lane from Stifel. Your line is open.

Parker Lane

Hi, thanks for taking my question. I wanted to dive in on the video opportunity for a moment. If you think about the explosive demand of that category and just how many different options there are out there for customers, what are you hearing in real time about your own product? What's resonating from a feature standpoint and maybe your approach to video that's helped distancing you from some of the other offerings out there in the market?

Jeff Lawson

Absolutely. Thank you, Parker. We're really excited about the video opportunity. And I think this is an area where COVID really invigorated the number of use cases and the need for new types of video solutions. And what we're seeing is a lot of new use cases that have been accelerated because of the events of the past year.

One of them is one we've talked about in the past, which is telehealth and telemedicine. And similar to all of the accounts, giving customers the ability to embed these experiences directly in the other software and create these experiences that are differentiated from just kind of a standalone video platform like we probably use every day in our meetings and allows them to create these amazing experiences.

And so, telemedicine is a great example. Like last year, we announced Epic, the EMR company, embedding video directly into the EMR medical system that doctors use every day, so that the charts and the data and the patient information is all there inside that one solution, including things like scheduling.

We're also seeing strength in areas like proctoring and like administering tests remotely. Some people don't have to go into a physical storefronts to take a test. That's an interesting area. And we talked about Prometric in a prior call and others.

And another one we talked about is H&R Block, right, doing tax prep and giving help, something like that from the convenience of your computer, while not being limited to like I can only call someone or I can only chat with someone, but actually on a face-to-face video call. And this is another interesting area to help in terms of customer care and really creating a high-touch experience for customers.

And so, these are the areas where we're seeing a lot of investment. And if you think about these use cases, right, they require a lot of high availability. They require scale. They require security. They require compliance with things like, yes, if you're dealing with healthcare or tax information, customers want to know that these are secure, that these are compliant, that privacy is of the utmost importance in these use cases and these are areas where we see customers really turning to Twilio and implementing these solutions.

Parker Lane

Got it. That's really helpful. And then I know it's early and remains in beta, but I'd love to hear just the opportunity you think there is for Twilio Frontline, given the new hybrid environment that we're seeing a lot of companies discuss that are going to implement for their workforces going forward.

Jeff Lawson

Yes, absolutely. Thanks for the question. We're really excited about Frontline. Obviously, as you said, it's a new product for us. So, it's still in the early stages of the adoption lifecycle. And as a reminder, when we have ATI products, we have customers who choose to adopt to implement it, bring it out, roll it out to their customers. And so it does take some time for customer rollouts to happen.

But that said, we are really pleased with the early start that Frontline is seeing in the market. And I think that there is certainly a change in how the workforce, especially that frontline workers are actually using digital technologies to engage with their customers.

We saw at SIGNAL this past year, we had John Donahoe from Nike, talk about how their retail sales associates, they had people who used to only work in the store and greet you when you walked in the door are now able to help their customers from -- their e-commerce customers from wherever the customers are solely with their computer or their mobile phone and wherever the athletes are. The athletes are what they call their salespeople. And so they can be working from home and serving customers or working in the back of the store.

And so I think this trend, whether it's delivery drivers, whether it is retail salespeople, whether it is even knowledge desk workers working from a variety of places using omni-channel communications to actually do two-way communications, build relationships and where the company wants to track those communications.

They want a record of it. They wanted to make sure it's compliant and doing it all in a way where they can build some history of that customer. That's the opportunity that we're seeing with Frontline.

And like you said, it's very early days of that product, but we're very happy with the reception we've gotten so far from materially customers, the adoption rollout. And so we're excited for where that's going to go.

Parker Lane

Thanks again. Congrats on the quarter.

Operator

Your next question comes from the line of Rich Valera from Needham & Company. Your line is open.

Rich Valera

Thank you for taking the question. A question on the portion of your business that was adversely impacted by COVID. I think you included kind of ride share, hospitality and travel. Can you remind us kind of what percentage of the business that was coming into COVID and where that cohort is today relative to pre-COVID levels?

Khozema Shipchandler

Yes, this is Khozema. I'll take the question. We hadn't broken out that percentage previously. It's relatively small. I think there was some investor concern around that back in Q1. And I think as the results showed back then, despite those industries being down, the results were still pretty strong.

All that said, I would say that we are seeing some modest rebound in those industries, travel and hospitality in particular, and then ride-sharing is still fairly well below pre-COVID-19. Less than 10% is actually what we said previously.

Rich Valera

Got it. And then just a quick follow-up on, wondering about SIP Trunking. There's been a lot of talk about providing Voice into the Teams environment by some of the UCaaS vendors. And I know you guys have a SIP Trunking product that can also do that. Just wanted to get your thoughts on the opportunity for SIP Trunking broadly and maybe Microsoft Teams voice more specifically for you guys?

Jeff Lawson

Yes, this is Jeff. I'll take the question. Yes, SIP Trunking is an exciting product category for us, where we've got a very flexible product. It works in many countries around the world, beyond one interface and also scales elastically unlike a lot of solutions where you have to pre-buy a fixed amount of capacity.

Our Elastic SIP Trunking product, that's what we call it, we call it that for a reason in that it can scale up and down based on customers' needs in real time. And that works really well in cloud environments, right, as opposed to like a fixed location where there's only a certain number of desks, let's say, in a cloud environment, you may need that first capacity rushed up and down.

And that's where we've seen a lot of traction with our SIP Trunking product, especially with ISVs who are building cloud-based software products, also with enterprises who need to power in a very flexible way their workforce, whether they're -- it's a work from home environment. They need to re-route that stuff or whether it's offices, but they need a lot of flexibility and elasticity to those deployments. That's where we see customers adopting SIP Trunking.

And so SIP Trunking is a really nice business for us, and particularly because it gives us also a nice foot in the door for customers who aren't yet in the cloud, to upsell them something that they do already consume for their on-prem installations and then can often lead to them becoming interested in more Twilio's products, for example, maybe it leads to a contact center conversation down the line.

And so that's what we think about the opportunity. And because of SIP Trunking is based on SIP standards, customers can plug our SIP Trunking product into a wide variety of deployments, whether it's the cloud deployment, whether it's something on-prem, the SIP standards mean that we can interact with a wide variety of hardware or software and cloud-based solutions that customers are buying.

Parker Lane

Great. Thank you for that and congrats on the great results.

Operator

Your next question comes from the line of Ryan Koontz from Rosenblatt Securities. Your line is open.

Ryan Koontz

Hi, thanks for the question. What if we could spotlight your international go-to-market efforts, from my kind of limited perspective, I think you'd be hiring local feet on the ground or behind the screen with local contacts, targeting developers that are in country or are you using more like a channel approach where these are channel partners that have developers on staff to go after local companies or are you using some of the bigger ISPs? I wonder if you can help us kind of understand a little bit. Thank you.

George Hu

Sure. Well, I think that the point on developers is spot on. Everything we do at Twilio starts with developers. It is really the source of our efficient go-to-market. It's the source of our entry point into customers. And so when we think about going into any market, whether it's domestic or international, we start with developers.

And so our developer team is a global team. We have events all around the world, whether they're some of the engagements, this past year being virtual, of course. But if you follow our developer event list, you'll see them not only physically in certain -- in all these geographies, but also in all the digital channels that are relevant for developers all around the world, and we certainly see our developers active and producing content and trying to reach developers in multiple places and languages. And I think also, we could do even a much better job of that. So, I think there's a huge greenfield opportunity for us to do even more with developers out there.

Behind that -- those efforts, we followed up with our account teams that work with our strategic customers, as well as emerging customers in these markets. We've hired some fantastic leadership, both prior to and as well as within 2020 and that's helping the broader nature of the other regions, whether that be EMEA or Asia-Pacific or Latin America. We just see immense opportunity in all of them.

And so that is the playbook for now. And then when you add in the partners, which is, I would say, even more nascent, probably internationally, but still a strategy that we're investing in and following up on, I think that is a winning formula. And certainly, that, of course, does leave room in the future for channel as well, but that's our starting point.

Ryan Koontz

Great. Really helpful, George. Thank you. And is there a different competitive environment in these different regions you go into, or is it fairly homogenous?

George Hu

Well, I think that certainly, every market is a little bit different, frankly, and the dynamics are a little bit different. But the thing that's consistent is the need for digital transformation, the energy and focus on the developer, and that plays well in all markets. And so that's where we're, I think, the point of consistency for us.

Ryan Koontz

Cool. Thanks a lot, guys, congrats on the quarter.

Operator

Your next question comes from the line of Alex Kurtz from KeyBanc Capital Markets. Your line is open.

Alex Kurtz

Yes. Thanks for taking the question. Jeff, if we were to look at your international business and the opportunity there to be a multiyear growth driver, what's the biggest one or two levers that you could pull, whether it's investments this year for next year or maybe there's something happening right now with your developer ecosystem that could really accelerate it because, obviously, it's a go-to-market model that can reach every country, every region. So, would love to hear you frame that out.

Jeff Lawson

Yes. Absolutely. Thank you for the question, Alex. So, I think there's a lot of levers that we can pull, and we have been pulling. I think number one is the go-to-market investments that George and team have been making to grow our presence abroad, including hiring great leaders for the theaters, which we have. And so very proud of the progress we've been making on the go-to-market front.

The second thing I would say is product and continuing to grow our product presence in all these places. And obviously, we serve customers all around the world. We need to talk to their customers all around the world, so we have a very naturally global product just out of the gate.

But then continuing to invest in those products to make them even better for the local audience is something that we've continued to do for many years, including things like adopting other channels like our investment in WhatsApp as a channel that enables customers to communicate with their end users over WhatsApp instead of, say, SMS. That's a great unlocker of global market as well, and we're very pleased with the progress we've been making with WhatsApp as a channel, as a lever, to grow our international presence.

Alex Kurtz

Thank you.

Operator

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

Patrick Walravens

Great. Thank you. And Jeff, let me add my congratulations to Karyn Smith. Was my boss when I started out as a lawyer and was the most confident organized boss I'd ever had? But here's my question for you. Most companies slow down as they get bigger, but that really doesn't seem to be the case with Twilio, like if you just look at your Dollar based net expansion rate. So, what's your secret? How are you maintaining that level of energy and drive as the company keeps getting bigger?

Jeff Lawson

Well, thank you for the question. Sorry, I missed that. Were you saying Karen was your first boss?

Patrick Walravens

She was, yes, at Cooley Godward. She was my boss. How funny is that?

Jeff Lawson

No way, that's hilarious. All right. I dig that. That's a hilarious anecdote. So, your question about maintaining momentum at scale. Well, I mean, I think, first of all, thank you for the question and I'm honored and flattered. But like it's really about the team that we're building and it's not the market we're serving.

So, the team that we're building, obviously, having great leaders throughout the company and organizing ourselves into small teams. And each small team feels itself like a start-up that's pursuing an opportunity to serve our customers.

And I think that small team structure enables us to innovate and to continue to drive new products for our customers and to truly keep our ear to the ground to keep our teams close to customers.

And the second thing I would say is it's great to operate in a very large market because in a large market, there's so many opportunities to serve customers and so many directions you can take.

And that's closely related to our platform business model, which is, in a platform business model, we provide building blocks that customers can use to build a wide variety of things in their customer engagement journey.

And then based on their activity and what we hear customers coming to us and what they're building, they often show us unsolved business problems that they need solved because of the very nature of the fact that they're building on our APIs.

And so that provides us some tremendous visibility into the big unsolved problems that our customers need solved, which then drive our roadmap further. And you get things like Frontline and Flex and a number of the other products that we've built in recent years.

And so all in all, I think those things all come together to build what we call this generational opportunity. And it's like, like that -- those things when we get to the platform business model, the team, the structure and the ability for us to innovate and get those products out to customers. It's like if you got a quiet belly, you want to gallop. So, that's what we're doing.

Patrick Walravens

Great. Thank you.

Operator

Your final question this afternoon comes from the line of Ittai Kidron from Oppenheimer. Your line is open.

Ittai Kidron

Thanks. Made it. Couple of questions. George, I wanted to dig in a little bit about the sales capacity. Clearly, you've expanded it quite substantially last year. Maybe you could talk about two things. First of all, how the productivity of the ramp is? And how consistent is it across the hired base?

And then second, from a customer standpoint, when you focus on the G2K, how is the starting point with them changing? Meaning, how many of them are still starting with one product versus thinking about you right from the bat as a platform and think about you as a multiple use case right as a starting point?

George Hu

Great questions. On the first one, I just think it really speaks to the size of our opportunities and the size of the market movement that we've seen very, very strong productivity, even as we've invested in our sales capacity. And certainly, we've made the normal where you maybe even outsized investments in things like sales enablement and all those kind of things that you do as you try to scale sales force.

But I largely attribute it to, A, a great team; and also B, just a fantastic market that we're playing in. So, I couldn't be more thrilled with how our sales team is performing. It's just -- it's a real fantastic result.

In terms of the G2K adoption, I would say that we're making more progress in G2K. You've seen in the numbers. We're still starting with a lot of them through the developer. And I think that it's unlikely we're going to abandon that hastily. I mean that is just the heart of what we do. And so a lot of times developers come in and they want to start with one product. They want to start with one use case.

And honestly, we don't see a negative in that. We think that, that is, frankly, our competitive advantage, and it leaves just a huge untapped opportunity for us going forward. Are there more enterprises that are -- we're meeting with and saying, hey, we want to kind of talk to you at a more strategic level, day one? Absolutely.

I've had multiple of those conversations recently. But I don't want to state that as like the new go-to-market core motion for us because I think that the developer motion is so fruitful and so universal as some of the other people in the call have mentioned.

Ittai Kidron

Got it. Makes sense. Maybe a follow-up for you, Khozema, on the hiring side. You seem to be chasing a tail here, and you're not able to catch up. Needless to say, I mean, for a business growing so fast, I understand. But I guess the question is, what is it that needs to be done internally to remove whatever bottleneck exists to finally catching up with your plans? And what is the risk that you not being able to catch up with your plans at some point catches up with your growth trajectory?

Khozema Shipchandler

Yes, I don't think there's an internal issue, and I don't think there's actually a lot that we have to do internally to necessarily solve it. I mean, obviously, we had a concern with the global pandemic last year, right? So, that was hard and just in terms of navigating the dynamics around hiring and stuff like that.

So, I think we'll catch it up more or less through the first three quarters of this year, and then I think we'll be back on track. So, I'm not particularly worried about it, Ittai.

Ittai Kidron

Very good. Again, congrats, guys, great quarter and keep it up. Thanks.

Khozema Shipchandler

Thank you.

Operator

That concludes Q&A today and also concludes today's conference call. Thank you everybody for joining. You may now disconnect.