Twilio Inc. (TWLO) Q2 2019 Earnings Call Transcript

TWLO earnings call for the period ending June 30, 2019.

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Twilio Inc. (NYSE:TWLO)
Q2 2019 Earnings Call
Jul 31, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to Twilio's Second Quarter 2019 Earnings Conference Call. My name is Chantal and I will be your conference operator for today's call. [Operator Instructions]. Later we will conduct a question-and-answer session.I will now turn the call over to Andrew Zilli, Vice President of Investor Relations, Mr. Zilli, you may begin.

Andrew Zilli -- Vice President of Investor Relations

Thanks, good afternoon, everyone. My name is Andrew Zilli and i'm the new Vice President of Investor Relations for Twilio. Thanks for joining us for our second quarter fiscal 2019 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 today are Jeff Lawson, Co-Founder and CEO; George Hu, COO; and Khozema Shipchandler, CFO. As a reminder, some of our commentary today will be in non-GAAP terms. Reconciliation between our GAAP and non-GAAP results and guidance can be found in our earnings press release.

Additionally, some of our discussion and responses today may contain forward-looking statements, which are subject to risks, uncertainties and assumptions. Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially from those 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-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 events or circumstances after today, or to reflect new information, or the occurrence of unanticipated events except as required by law.

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

Jeff Lawson -- Chairman and Chief Executive Officer

Thank you and welcome to the team, Zilli and thanks everyone for being on the call today. We celebrated an important milestone in Q2, crossing the $1 billion annualized revenue run rate with industry leading growth at our size. I want to thank our customers who placed their trust in us, and helped us to reach this milestone and thank you to Twilions around the world for relentlessly focusing on our customers' success along the way. And while at the time to be excited about all the progress we've made and joining the exclusive ranks of cloud software companies that have reached this milestone, we see this as just the beginning.

We have the opportunity to change communications and customer engagement for decades to come. This is day one, and we're just getting started, these results were driven by strength across our core platform. Our developer first approach continues to drive success as every company becomes a software company, and looks for new ways to engage with customers across multiple channels. And we believe, no one is as well-positioned as Twilio to support companies through this transition.

The second quarter was also our first full quarter with Twilio SendGrid and we're thrilled with the feedback we've heard from customers and the initial traction we're seeing. While it is obviously still early in our journey together, a few customers are already seeing the value of combining email with SMS for their customer engagement. We couldn't be more excited about the combination of Twilio and SendGrid and the value we are creating for customers around the world.

And just a couple of weeks ago, we introduced the new automation and email testing features within the Twilio SendGrid marketing campaigns product. These new features provide frustration-free workflows and integrated tools to build emails across one time campaign and transactional emails. Congratulations to the Twilio SendGrid team on continuing to innovate on this product for our customers. The integration of SendGrid continues to progress well as we combine our teams and drive to enhance our cross-selling opportunities. While this effort will continue through the remainder of this year, we've had some great cross sell wins already which George will talk about in a moment. The SendGrid acquisition has been a big event for Twilio, but let's not forget the other big news story, which is Flex. Our approach is resonating with many types of customers, even in these early days. As we expected, the first implementation of the Flex are among digital native companies who are looking to build and move quickly, and we continue to make progress with these great readopters. We're also early in numerous sales cycles with larger enterprises that have large existing footprint to augment or replace.

This is a huge opportunity in a market that is ready for disruption and Flex has shown tremendous potential as customers have told us that we're on the right path. We're very excited about what's ahead, and we continue to invest in new solutions because customer engagements that drives communications is an area, customers have shown us is ripe for innovation. And this innovation is driving significant impact for organizations of all types, as they look to find new ways to engage with their customers and improve their customer experience.

I'm going to steal a little bit of George's thunder here and talk about our relationship with the Veterans Affairs Medical centers or the VA, which we expanded in Q2. You may recall we first discussed our work with the VA in Q1 of 2018, as we help power their VEText platform that sends appointment reminders via SMS the patients. The ROI for the VA has been incredible, driving savings of more than a $110 million from the ripple effect of reducing missed appointments such as loss facility time and doctor and nurse time. And because of this great success, the VA expanded its relationship with us in the second quarter with enablement of its new feature, [Phonetic] open thought management which dynamically offers and reallocate canceled and available appointment slots to veteran patients waiting for earlier appointment.

This feature was tested at a small number of locations and is now being rolled out nationally, to support the Veterans across the country. I bring up this story and stories like this because this is why we started Twilio, by making communications more accessible for developers, we're helping customers like the VA modernize which in turn is saving the government and taxpayers money while driving better healthcare experience for our veterans. And this is just one example of many organizations of all sizes and in all industries need to harness the power of communication, and we continue to deliver new ways to bring these companies and their developers into tent [Phonetic]and make them successful on the Twilio platform. And we are constantly looking for new ways to expose this vast array of companies to our platform and get them started on the path of innovation.

In May, we announced TwilioQuest3, the next incarnation of our interactive self-paced online learning games, which will be launched next week at Signal, inspired by the classics of the 16-bit era, this world playing game helps developers and non-developers alike. We are in the power of code and how easy it is to build outs with Twilio. Today more than 44,000 people have signed up for Twilio Quest, nearly 70,000 objectives have been completed and more than 5 million experience points have been earned by developers who have used Twilio Quest to learn Twilio.

We've also ramped up our enterprise hackathons. When we go on site at our customers' offices to engage more employees and developers and help them build more solutions using the Twilio platform. In fact, in Q2, we held events that customers like U-haul and a major airline and we're already seeing the impact on activity of builders inside those companies and several others.

And we're offering Superclasses, a self-paced day of hands-on technical training where engineers from Twilio product teams come together to teach best practices to our customers. What started at Signal is now part of our engage events around the world, including in Nashville, Chicago, Melbourne, London and more. In fact, in the second quarter, we hosted developers across nine events, along with two online Superclasses bringing this experience to developers we otherwise wouldn't be in person and of course, we'll be hosting another Superclass this year at Signal, with coding exercises, presentations, office hours, and the ability to test brand new Twilio products before their release to the public. We're continuing to expand our reach and bringing organizations of all sizes and all industries on to our platform, because from what we can tell, every company can benefit from better communications and better customer engagement.

I also wanted to give a quick update on the effort to help stop global calling. I touched a bit on this scourge of global calling in the last earnings call, and the efforts we've taken since inception to prevent this type of activity on our platform. Yeah, global calling continues to be an issue for all of us. Since our last call, the FCC, FTC and Congress have all taken additional steps to help stop unwanted global calls from reaching consumers, and we've expanded our efforts as well, joining the alliance for telecommunications industry solutions or ATIS and serving and its Board of Directors participating in its global call working groups and supporting technical solutions like STIR/SHAKEN.

And we'll continue to work with lawmakers, policymakers, and the broader ecosystem to find the right solutions. We'll be talking more about this at Signal. And speaking of Signal, it's coming next week. Our developer and customer conference takes place August 6th and 7th at the Moscone Center here in downtown San Francisco. We have some exciting announcements ahead. So please join us for two days of learning, networking, and fun. I hope to see you there.

Before I turn it over to George, I wanted to mention a couple of other highlights from the quarter. In June, we had Jeff Immelt, former Chairman and CEO of GE and current venture partner at New Enterprise Associates to our Board. Jeff brings nearly 20 years of executive and board room experience to Twilio, and will help guide us as we expand our enterprise and international business on our path to $2 billion and beyond.

Also in June, we received the Great Place to Work certification with 94% of our employees saying Twilio is a great place to work, and 97% of employees are proud to say they work here. Thank you to all Twilions for creating such an amazing culture. It's an extremely important part of our company, I'm really proud of what we've created. And with that, I'll hand the call over to George.

George Hu -- Chief Operating Officer

Thanks, Jeff. Our go-to-market efforts continue to drive the strong growth we saw in Q2, as we execute on our core platform strategy as well as extending our reach to the enterprise and internationally. We remain focused on expanding Flex's presence in the market as well as cross-selling Twilio SendGrid. Jeff highlighted some of the great things our marketing and developer evangelism teams are doing. So let me focus on the success we saw from the sales side in Q2.

One of our core theme has been expanding into the enterprise and our investment there continues to bear fruit. This quarter we formed a new relationship with Enterprise Holdings, a parent company of National, Alamo, and Enterprise Rent-A-Car which has more than 10,000 neighborhood and airport locations, and more than 2 million vehicles in its global fleet. Enterprise is aiming to improve customer engagement by using new channel such as SMS, IVRs, and social to ensure customers have a seamless experience before, during and after the car rental experience.

We also introduced a new relationship with a Fortune 50 retailer that is embracing the build mentality to improve their customer engagement, moving from buying 80% of their software to building 80% of their software. This is another great example of how every company is becoming a software company. Their first new Use Case add SMS as a channel for order confirmation, tracking information, pickup and delivery alerts and alike. We look forward to supporting them throughout their journey.

Internationally, we extended our relationship with TransferWise, a money transfer company that moves more than GBP 4 billion every month. They recently added their new borderless service, which allow customers to hold over 40 currencies at one along with a TransferWise Debit Mastercard. The new PSD2 regulations which we added to (ph) support for in our Authy product last quarter, TransferWise, turned to Twilio for two-factor authentication via Authy push, SMS and voice.

This is a great example of how Twilio continues to innovate and add value for our customers. We are taking to make progress with Flex, signed a new deal with TripActions, a technology-enabled corporate travel management platform. With their tremendous 5x year-over-year growth, TripActions found that they needed a new solution to scale and fit the needs of the business. TripActions is known for their customer centricity and proactive support, and wants to deliver an excellent user experience starting with chat and voice. And they knew that they could accomplish that with a fully customizable contact center platform that Flex offers.

On the partner front, we launched our Twilio Build program last year to support our strategic ISVs and SIs for building on our platform. We are beginning to see a large amount of inbound interest from the SI community in general, are particularly as it relates to Flex, but some of the largest consulting firms seeing Flex as a disruptor to the traditional call center market.

We have also been investing in our IoT business and we're seeing some really exciting (ph) use cases as cellular IoT continues to expand its reach. We started with traditional machine-to-machine use cases like fleet tracking, but we progressed in the new markets like smart cities where we are now powering the disruptors, whether it's a micro mobility with (ph) Gimp scooters who have formed a new relationship with in the quarter, for smart waste management with Sensoneo or property management with Dwelo. The adoption of our IoT connectivity products reminds of how our programmable communications cloud products inspired developers enterprises to embed new Use Cases.

In short, we are seeing increased traction, and our focus on this offering starting to pay off. As Jeff mentioned, this was our first full quarter with Twilio SendGrid, and we are making great progress with our joint go-to-market efforts. In the quarter, we expanded our relationship with [Indecipherable], an automated marketing platform and a great SendGrid customer. After hearing interest from their customer to engage via SMS, they added Programmable Messaging capability for product promotion, [Indecipherable] and abandoned shopping cart usages. While it's still early, this is a trend that we continue to see in the market, and we are well positioned as a platform to support marketing campaigns across multiple channels.

To close, we are executing well on our growth investment as we expand our presence in the enterprise and in international markets, and continue to drive success for developers and companies of all sizes in multiple industries around the world.

With that, let me pass the call over to Khozema to discuss our financial results.

Khozema Shipchandler -- Chief Financial Officer

Thank you, George, and good afternoon everyone. We delivered another strong quarter of growth in Q2 as customers continue to choose Twilio as their customer engagement platform. And we saw great performance with Twilio SendGrid in its first full quarter. Let me take you through some of the details from the quarter.

Base revenue including Twilio SendGrid grew 19% year-over-year to nearly $257 million in the second quarter. Twilio stand-alone organic base revenue growth was 56%. Note that these results do not include any benefit from the A2P fees that we discussed on last quarter's call, as there was a delay in the implementation timing, which I'll discuss later.

Twilio SendGrid contributed approximately $46 million to base revenue growing 28% year-on-year on an organic basis. Despite the difficult compare from the incremental GDPR related volume they saw in Q2 of last year. Our dollar-based net expansion rate was 140% in the second quarter, a strong sign of the value that we are delivering to our customers. This is being driven by our investment in our go-to-market teams, and our ability to drive success across our customer base with the expansion of current use cases or the delivery of new use cases. Also, recall that this metric will not be impacted by the SendGrid acquisition until Q1 of 2020.

We ended the quarter with nearly 162,000 active customer accounts. Our top 10 active customer accounts contributed 13% of total revenue in Q2 compared to 14% last quarter, and 17% in Q2 of 2018. Gross margin came in above 59% in the second quarter, up slightly from Q1. This was primarily driven by having three months of benefit from Twilio SendGrid in the quarter, versus only two months in Q1. Additionally, with the delayed implementation of the A2P Fees, we didn't experience the expected impact to gross margin in the quarter. These are great results, but it's important to remember that expanding gross margins is not our strategy today.

We remain focused on revenue growth and gaining market share as we have since going public. Historically, (ph) we said you expect gross margins in the mid '50s, but with the benefit from SendGrid, we expect to see our margins in the mid to high '50s for the foreseeable future. And keep in mind, there are other items that can cause fluctuations in our gross margins including product, country, and customer mix, network service provider fees, FX and more.

Let me quickly touch on the new Verizon A2P channel which I referenced a moment ago. The launch was delayed despite our earlier expectations of the of mid-May timing. As we have discussed, we plan to pass this feed through to customers, which will add to revenue but depress gross margin rate, though we don't expect any impact to the gross profit per message. Accordingly, the guidance we provided in our first quarter call included revenue of $1.5 million for the expected impact over the second half of Q2, and $89 million for the full year. However, due to the implementation delay, we didn't recognize any A2P related revenue in Q2. The latest information we receive suggest the implementation is still delayed. The due to the uncertainty around the exact timing, we are now adjusting our guidance to remove any expected revenue benefit for Q3 and the full year. If and when these fees are implemented, we will provide the benefit to revenue on the respective quarter's earnings call. I would also reiterate my commentary from the last call that we do believe it is likely that the other carriers will ultimately implement similar plan, but we do not have any updated information on the timing of such plan.

Finally, consistent with the commentary on our last earnings call, we expect to generate a modest non-GAAP operating loss in Q3 due to Signal which takes place next week. Keep in mind that Signal was held in Q4 last year, which will also impact the year-over-year compares for both quarters. Our strategy remains to reinvest in growth to take advantage of the opportunity ahead of us. We're operating the company slightly above break-even. With that in mind, we expect to return to a modest level of non-GAAP profitability in Q4. To close, we delivered a strong second quarter, and our focus on growth investments is setting us up well for the second half of the year and beyond.

And with that we'll open it up for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions]

Your first question comes from Nikolay Beliov with Bank of America. Your line is open.

Jacqueline Chung -- Bank of America -- Analyst

Hi, thanks for taking my question. This is actually Jacqueline Chung on for Nikolay. Two questions for you. One, why is the expansion rate down from 146% in Q1 to 140% in Q2? And the base revenue guide up was only slightly up on a larger Q2 beat. Is that due to tough second half comps and Verizon or is there some other reason in the business?

Khozema Shipchandler -- Chief Financial Officer

Yeah, let me take the second. This is Khozema. Thanks for the question. Let me take the second part first and then I'll get to the first part in a moment. So, in terms of the second part of your question in terms of the base rate in the overall race. So the way to think about it is, is that in essence we kept the guidance effectively the same, at the same time we took out about $9 million of Verizon revenue from the year, right. So if you kind of think about it on an apples-to-apples basis were effectively raising for the year with that out of the year, and so we feel pretty good about the inputs of the business and how our growth is progressing, but that's really the the mathematical reason for that.

In terms of the first part of your question, I mean in terms of the expansion rate overall I mean we feel great about 140%. I mean I think it's a real strong testimony in terms of the way that our business model is progressing, (ph) DDNA is one of those metrics that has fluctuated all that bit up and down in the past, but I think it's been reasonably consistent with prior periods. It is down a little bit relative to the prior quarter. But again, I mean I think we feel really good about the inputs of the business.

We've always said that the expansion rate will fade a little bit over time. Just given the fact that we've got older cohorts that are starting to grow at a slower rate, but that's pretty consistent with our prior commentary.

Jacqueline Chung -- Bank of America -- Analyst

Got it. Thank you so much.

Operator

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

Bhavan Suri -- William Blair -- Analyst

Thank you, hey guys, thanks for taking my questions. I guess, I mean may be I will just sort of start with Flex. I think George you touched a little bit on Flex here in the quarter, I guess. I'd love to understand what kind of demographics of the customers are you seeing as the early sort of Flex adopters, any sort of patterns or trends you obviously you've talked about sort of (ph) Shopify and the few others like that, but sort of those a very early sort of white-glove type customers, of the people you are targeting guys you sort of got part of the pipeline. Is there any sort of trend of pattern or commonality on customers size, type of company, things like that. I'd love you get a little more color on what you're seeing that sort of [Indecipherable] in the pipeline.

George Hu -- Chief Operating Officer

Yeah, great question. I mean I think that's a great question, because certainly we are seeing right now the early wave of adopters and those companies tend to be digital disruptors, disruptive companies build on cultures, more nimble companies looking to explore new technologies, and I think TripActions is a great example of that. Also, we are also targeting enterprises, but as Jeff mentioned, those are going to be longer sales cycles that we are having those conversations as well, but you know kind of the early wins are more of that digital or early disruptive company type build our culture.

Bhavan Suri -- William Blair -- Analyst

Got it, got it. That's helpful, thanks. And then, I guess I'm trying to -- just a follow-up to the previous questions in consumer, not so much on sort of the taking the Verizon piece out. But just to think about it, the beat through last year, and I know you told us to beats can be sort of the exceptional size we saw last year. I was wondering if you thought about your guidance philosophy and you've been a little while now, has that changed at all in terms of how you're guiding or thinking about visibility given sort of -- that even if we take that out that the level of the beats or the level beats above just, maybe a modeling more [Indecipherable] in the world last year? I was just wondering if there had been a change in philosophy or how you think about visibility or it's just the natural sort of law of large numbers type thing going out?

Khozema Shipchandler -- Chief Financial Officer

Yeah, hey, Bhavan, thanks for the question. So again, I just emphasize again the lack of the Verizon element to the year that we took out that we previously had in, and I would say look overall, no real change in philosophy. I think the inputs to our business continue to remain really strong. I think one dynamic since last year is that our ability to forecast the impact of customer growth keeps improving. And so I think you're just not seeing the significance of the beats maybe be the same as they were previously as we've really started to grow out our sales machine.

I think the other dynamic is that, well I talked about the Verizon piece already. So that's really the just of it.

Bhavan Suri -- William Blair -- Analyst

Okay, great. Thanks for taking my questions. I appreciate it.

Khozema Shipchandler -- Chief Financial Officer

Sure.

Operator

Your next question comes from Michael Turrin with Deutsche Bank. Your line is open.

Michael Turrin -- Deutsche Bank -- Analyst

Hey, there. Thanks. Wanted to spend a little bit more time on Flex and partners with implementations moving along and is there any more color you can add in terms of where we are in terms of engaging and expanding with the partner community? And then secondarily, how important are partners in helping bring Flex to market, especially on the larger enterprise side where it sounds like that's kind of the next opportunity after this builder-driven culture that is below [Indecipherable] to start?

George Hu -- Chief Operating Officer

Yeah, I think it's a great question, and partners are critical to our Flex strategy. It's one of the reasons why we've been investing in our ecosystem. In fact, we just brought over a fantastic new VP of our SI community over from Salesforce. So we're really excited about that. And I think we're expecting what we what or we're seeing what we expected to see which is that our partners are getting up to speed, they are learning how to deploy the technology. They're doing it successfully. And we have a lot of light house accounts now being deployed by partners with multiple partners in our (ph) Geos being developed right now, so that we can have the coverage we need.

And eventually, we'd like to grow even larger sizes of transactions and partner sizes. So good progress, good momentum and if you're coming to Signal you can meet many of these partners, they'll be there. Great companies like Proficient, (ph) Pursedeo are continue to grow and this early names throughout early are growing and developing. So everything is on track. Thanks.

Michael Turrin -- Deutsche Bank -- Analyst

Thank you. It just can we spend another minute on PSD2, that's the second quarter, you've mentioned that. Any update in terms of timeline and demand? Are vendors aware of this is coming? Is this similar to GDPR? Are they also aware you you can help them and meeting with this directive?

Jeff Lawson -- Chairman and Chief Executive Officer

This is Jeff. I'll answer. I mean PSD2 obviously presents us with an opportunity because you've got that you essentially regulating authentication of transactions, and we've got a great solution for it with our Authy product. And so of course our go-to-market teams are using that as a vector to what companies know that we have a solution in the market. We have TransferWise this quarter was the customer we mentioned on the call, who adopted us for PSD2 and yes, we think this presents a great opportunity for us. Yet another vector for a more customers to adopt Twilio.

Michael Turrin -- Deutsche Bank -- Analyst

Great, thanks. Looking forward to the Signal show next week.

Jeff Lawson -- Chairman and Chief Executive Officer

Thank you.

Operator

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

Heather Bellini -- Goldman Sachs -- Analyst

Great, thank you. Thank you very much. Hey, Jeff, I was wondering there is so much debate in the market going back and forth about

calls and I know you've done blog post and you've talked about it before, but can you just give us an update on the revenue exposure. Just I think it would benefit a lot of people who are even listening in. And then I just have two follow-up questions on Flex, if you don't mind.

Jeff Lawson -- Chairman and Chief Executive Officer

Yes, absolutely. So, Heather [Indecipherable] debate going on. I don't even like debate, I just hope you'd say that. As far as exposure to Twilio virtually nothing we evolve in our platform for since inception to not welcome those types of customers onto our platform and so we are an open platform, so I can say that it's absolutely zero vigilant about ensuring that people who do adopt Twilio, if they have the wrong motivations are using as long that we don't allow them to continue to operate as quickly as possible.

Heather Bellini -- Goldman Sachs -- Analyst

Can you just share with people how you're able to do that to get them off the platform, if you do find them because that's the other thing we hear a lot about. So sorry -- but sorry to ask for more elaboration there?

Jeff Lawson -- Chairman and Chief Executive Officer

Yeah, sure, I mean as far as the mechanics, we have in terms of service and an acceptable use that allow us to just shop as customer [Speech Overlap]

Heather Bellini -- Goldman Sachs -- Analyst

Yeah, exactly.

Jeff Lawson -- Chairman and Chief Executive Officer

Yeah. So -- yeah, you can look at the metrics you see sort of things like answer rates and call durations and use some AI to look at those traffic patterns. We've also been operations team that's obviously looking at these cases and it's just a matter of pattern matching for people and machines to see the patterns that exist in those behaviors and (ph) with them up.

Heather Bellini -- Goldman Sachs -- Analyst

Okay, very helpful. Thank you. And then on Flex. My questions were, one, I guess, do you have any pipeline goals that you can share with us for the year? You've always said like 2019 would be the year of pipeline building. And then, I'm wondering if you could share with us kind of how long the implementations are taking, and if you kind of think about the competition now that the product has been in the market for longer, are you seeing any change in who you're coming up against in (ph) RPS ?

George Hu -- Chief Operating Officer

This is George. So, we are not comment on our pipeline targets, but on the second part of your question, certainly, we are seeing deployments that are coming in the kind of months category I would say because remember that Flex an application platform that developers are building on. It's not a SaaS product. So we're seeing time frames in the months roughly depends obviously on the customer. And in terms of the competitors we're seeing, I would say it's not materially changed. I mean a lot of our customers are comparing us legacies, some are comparing as SaaS products, that really just depends. I wouldn't say we've seen a meaningful shift there.

Heather Bellini -- Goldman Sachs -- Analyst

Okay, thank you.

Operator

Your next question comes from Mark Murphy with JP Morgan. Your line is open.

Mark Murphy -- JP Morgan -- Analyst

Yes, thank you very much. Jeff, If you look broadly across your base of about 160,000 customers, can you compare and contrast the pace of activity you're seeing with SMS, text notifications versus in-app types of notifications, and I'm just curious if they're finding that in-app is not feasible to try to reach their broadest audience or are they somehow examining it?

Jeff Lawson -- Chairman and Chief Executive Officer

Yeah. Thanks, Mark. I mean I think the SMS has been really powerful medium for companies to reach their customers for a very long time, because you don't require a user to download a mobile app, you don't require them to push OK, when you have the notifications alert. What you need is a phone number and their permission, and you're able to reach pretty much 100% of your customer base. And that's a really powerful medium to reach customers, no matter what OS you're on, no matter what country you live in, and so while it does depend a bit on the use case what we saw when push notifications first came out and what in 2010, I think there was a question of, like, "Oh well, is that going to replace SMS?" and I think time has proven out that people are declining push notifications, however thoughtful meaningful SMS embedded into business processes and into contact flows especially two-way is a fantastic way for companies to engage with their customers, and that's been driving the tremendous growth that we've been seeing in SMS now for more than a decade.

Mark Murphy -- JP Morgan -- Analyst

Okay, great. And as a quick clarification, Khozema, if we were to adjust for your removal of the incremental A2P revenues for this fiscal year, it looks like you are actually raising our revenue guidance for the year by almost $20 million. I just want to clarify that seems like an accurate way to think about it.

Khozema Shipchandler -- Chief Financial Officer

I think if you do the total that sounds pretty close. I think if you look at base, it's probably closer to high-single digits.

Mark Murphy -- JP Morgan -- Analyst

Understood. Okay, thank you very much.

Jeff Lawson -- Chairman and Chief Executive Officer

Thanks for the question, Mark.

Operator

Your next question comes from Brent Bracelin with KeyBanc. Your line is open.

Brent Bracelin -- KeyBanc -- Analyst

Thanks, good afternoon. I guess the first one for Jeff or George, it's sounded interesting that you landed a Fortune 50 retailer, my question here is how prevalent is this concept of aggressively moving toward a build versus buy, going from 80% buying to 80% kind of building, it seems like a pretty big material move. Is this kind of an anomaly or do you think there is more active discussions in dialog that you're having with customers that this can be more of the normal, over the next few a couple of years? And then I have a quick follow-up for Khozema, if I could.

Jeff Lawson -- Chairman and Chief Executive Officer

I would say that this particular customers -- the magnitude, this shift is the norm. But I do think that we've been saying for a long time now, and I think it's really true that every company is becoming a software company. And I do think there is an aggressive demand for atleast globally for innovation through software, and we're riding this wave of customer engagement, digital transformation that by large companies realize that differentiate themselves, they need to build software, they can't you do something off the shelf, and they also have very custom processes in companies that and legacy systems that integrate with that require software developments. Now something of that's happening through SI, something that's happening in-house, but I think companies are realizing that the promise of [Indecipherable] cloud app deployed and it's going to give me a differentiated perfect solution, it's just not reality.

So, I do think that as a trend that we are benefiting from and I think one of the reasons we're so excited about our future is that this marriage of the customer engagement demand plus the energy around building differentiation, I think we sit at the intersection of those two really important trends.

Brent Bracelin -- KeyBanc -- Analyst

Helpful color there and then I guess and rest is all follow up. Yeah, go ahead.

George Hu -- Chief Operating Officer

I was going to add to it. I mean I think that's one of the core hypotheses the way it was operated under since our inception, is that as we have an increasingly digital world every company needs to become a software company, and we've seen that borne out, if you look at the brands that are on our earnings calls, that we're talking about our brands, companies on our website, these [Indecipherable] for our customers, it is increasingly every kind of company and it's fascinating because you see it are borne on competitive dynamics,right.

So when one company takes this approach and starts building, and creating great customer experiences than other competitors in the market will feel they need to actually have a great customer experience too. And so it is a matter of natural evolution I think of the market of every company needing to compete in a digital world, and having to hire developers and to build their way into the future. And so I think that's a really powerful trend that's kind of what I want to put a little exclamation point on it, because it is certainly one you see headlines. I haven't read the headline in 15 years of like such and such company outsourcing all the IT. That's the headline from 2000 not from 2019.

Khozema Shipchandler -- Chief Financial Officer

Yeah. And just of the back of what Jeff has said, I think in this specific example, this new customers, number one competitor has been a Twilio customer for a long time, and also has been building solutions. I think it's not a coincidence that this competitor -- this customer now has seen that and is moving on to Twilio because they see some of this energy in the market.

Brent Bracelin -- KeyBanc -- Analyst

Very helpful color. Thank you, all. I guess as a follow-up to come this increasing kind of build versus buy decision, Khozema. The base business did crossover a $1 billion run rate for the first time. And while -- I don't know, a lot of billion dollar business is growing at a 50% plus organic growth profile, I was just hoping you could walk us through the growth levers, how you're thinking about just growing that base business given you've crossed over now that billion dollar kind of run rate threshold, and how should we kind of think about your ability in the levers to sustain kind of high growth, maybe not 50% growth, but how do you sustain growth at that level? Thanks.

Khozema Shipchandler -- Chief Financial Officer

Yeah, thanks for the question, Brent . So I would -- that's a broad question, so let me give you a few answers. I think the first thing is that -- in general, I mean we feel great about the diversity of the customer base. So one of the things that we pointed out in the discussion earlier is that as we look at our top 10, I think that was a number that was more concentrated in the past and as the go-to-market machine with George has really been unleashed. I think we've seen more and more use cases across a broader range of customers. And just the diversity of that base has been really, really good for us, so I think that's one. Another, is that we really good contribution across all the different product lines. And so I wouldn't per se point to any one of them is being a particular outlier. I think we've seen great growth, for example, of course in messaging and voice, but at the same time, I mean, we're really excited about some of the newer products and we have a lot of discussion about Flex for example, but there's also wireless, and obviously with the addition of SendGrid, we're quite excited about the growth from that business as well.

So I think from our perspective, whether or not we're able to kind of sustain it at that high '50s growth rate, I mean, I think we feel really good about the inputs of the business in kind of their entirety, and we feel great about crossing sort of the $1 billion run rate mark. But in general, I mean we feel like we're going to be able to continue to grow the business really across all fronts. There's a lot more work that we can do on the product side, internationally, certainly is one thing I didn't touch on that. I think we're excited about too. But in general, I think we feel great about where things are headed.

Brent Bracelin -- KeyBanc -- Analyst

Thank you.

Operator

Your next question comes from Ittai Kidron with Oppenheimer. Your line is open.

Ittai Kidron -- Oppenheimer -- Analyst

Thanks and good numbers, guys. I guess, Khozema, I just want to go into the net expansion discussion which we started the conversation with. I think you made a comment that, you know, clearly it's very healthy, but you also expected not to decline materially going forward. You're not going into the second half of the year where you have very tough year-over-year comps on the expansion rate, so help me understand how you can kind of keep it that level or we should see least near term a little bit more greater moderation in that figure, just given the year-over-year comps here?

Khozema Shipchandler -- Chief Financial Officer

Yeah. Maybe just to comment on the first part of the question. I did not say that I expect it to decline materially. So I just want to clean that piece of it up. In general, I mean I think the read the way that we think about it is, is that the expansion rate overall. It's an industry-leading rate at about 140%. It's down a little bit, no doubt about that, but I think at 140%, we feel like it's a really strong testament to our business model and the fact that we're able to maintain it at that level at our size and scale is really profound.

So I think in general, I mean if you look at the expansion rate historically, it's fluctuated a little bit. It's gone up and down. It's been incredibly strong over recent periods. Year ago for example was 137%, so it's up a bit from there. I think in general, I mean, our go-to market model has been incredibly strong. We're driving deeper relationships with customers. The one thing that we've always said and maintained over the last several calls is that expansion rate will fade over time. It's not that it's going to be a precipitous drop. But it will fade over time and that's just the kind of the law of large numbers kicking into the way that the business is going to grow, but I wouldn't take that as anything other than the business is just becoming a lot larger. But in general, we feel great about our growth prospects.

Ittai Kidron -- Oppenheimer -- Analyst

Right. Good. Just a follow-up, I don't know that you've mentioned on the call, maybe I missed it, but what was non-US revenue in the quarter? What percent?

Khozema Shipchandler -- Chief Financial Officer

Our non-US revenue is 29%.

Ittai Kidron -- Oppenheimer -- Analyst

Thank you very much. Good luck.

Khozema Shipchandler -- Chief Financial Officer

Thanks.

Operator

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

Will Power -- Baird -- Analyst

Great, thanks. Yeah. I just -- a couple of questions, first, maybe, just to circle back to SendGrid and the integration progress, great to hear some examples of the cross-selling opportunity, but I wonder if you could just kind of qualitatively help us understand kind of what inning we're in that cross-selling opportunities. So you think about go-to-market from the legacy [Indecipherable] team and developers and Twilio and enterprise side there, you know, kind of what percentage of those folks are actively selling either email or SMS depending on the organization and kind of what's the roadmap from here on that front?

George Hu -- Chief Operating Officer

Yeah, this is George. We've made -- I think, excellent progress in terms of integration are on track with our plan, when it comes to how we -- how we've been planning to integrate our go-to-market forces. We today have a sales force that is able to sell the full range of Twilio and Twilio SendGrid products to our customers, and we've also brought in the existing SendGrid go-to-market teams to create one unified customer experience.

We're not all the way there yet, but I think we're certainly on track from what we planned, and I think you're seeing that in some of the data points we've given you and I'm very, very pleased with the team and what they've accomplished.

Will Power -- Baird -- Analyst

Okay, great. And maybe toward actually just maybe a follow-up for you on some of the earlier comments on IoT. I wonder if you could talk about how you're thinking about the size of that market opportunity. It sounds like we're very early innings but one cannot become more substantial and what is 5G potentially mean to that? Does that open up more conversations, are you starting to see that yet?

George Hu -- Chief Operating Officer

I think we're -- well, let me take a step back. I think at a big picture level, obviously we're excited about the opportunity in programmable wireless. We're seeing many of these early adopters come and build on the platform. I think that we are fulfilling on the promise that truly really stands part, which is opening up the innovation potential of a major communication space to all developers, not just the biggest companies in the world. So we're seeing companies of different sizes but especially really innovative and newer companies building on the Twilio platform and choosing us, and we are investing in the product and I think you've seen that at Signal, and we'll talk about it more this signal, but we're just on I think a very healthy trajectory. So we're excited to share some of those wins on this call.

In terms of back to 5G, I mean obviously for the customers that we're having these conversations with, we are talking to them about all the evolution we're seeing in the market, including 5G. We launched some of our products that are taking advantage of some of the innovation in the market like our Narrowband IoT product we talked about last Signal. So it's definitely an evolving market but obviously some of these things like 5G are still early. We're not -- we're more having conversations at this point, but certainly a very exciting space and that are fired about the opportunity.

Will Power -- Baird -- Analyst

Okay. Great, thanks.

Operator

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

Meta Marshall -- Morgan Stanley -- Analyst

Great, thanks. Just diving, a little bit more into Flex. You mentioned augmenting kind of being a way and then enter into customers and just wondering if there's any kind of easier use cases that you found and kind of pitching in some newer customers understanding, it's early days, and then maybe second, just any customer interest or any impact of business from the rollout of RCS chat. That's it from me. Thanks.

George Hu -- Chief Operating Officer

I'll talk about it, this is George. Not on Flex and I'll touch on RCS a bit although Jeff maybe want to -- may want to expand on RCS some more. Certainly, look I think when you have an innovative product like Flex, there is just natural points that are easier for customer adoption greenfield use cases, use cases where companies are naturally outgrowing their previous generation of technology, I think that's the TripActions is a great example of the latter. And those are the ones you're going to see faster traction on and I think those are some of the ones we've talked about already. And over time, I would expect that we would see more of that replacing legacy use cases. But you know, the early adopters, are going to be ones in more in the motive, new deployment or outgrowing previous technology.

In terms of RCS, we're definitely having conversations. But I wouldn't say it's a big needle mover at this point. Jeff, do you want to add anything to that?

Jeff Lawson -- Chairman and Chief Executive Officer

Yeah, I mean I think what you can think about with RCS is it is a -- the biggest change to SMS that's occurred in what 40 years, which is, it is essentially the same dynamics as SMS, but it adds a lot of new capabilities, the channel that enables you to do new things such as transact on the channel with recommended actions (ph) buy buttons , photo carousels, I mean it really turns messaging into essentially an app replacement for a whole lot of use cases.

And so we think this is going to further accentuate the power of messaging for companies to engage with their customers, when you can not only for example send notifications or do a two-way chat with a customer that actually present them with the option to buy it now right here, or to send them images and maps and really if you think about all the companies that have mobile apps that you don't download, but you would engage in a lightweight chat with when you don't have to download anything to be able to accomplish many of the same goals, such as making purchases or engaging with support, getting returns, getting information, whatever it is, that's the power that RCS and some of these other new channels are going to bring to the world of messaging, and I think that there is something of a secure trend forming of messaging becoming a more and more important medium for companies to engage with their customers and RCS will take some time to play out because your carriers have to roll it, your handsets will have to support it. You have either OS upgrades or handset replacements that consumers need to do to get full support. And so it's going to be this very somewhat messy matrix actually of carrier support and handset support of who actually can benefit from it, and that's where platform like Twilio comes in very as a convenient solution for our customers, because it means that they can take their SMS that they're doing with us today, and as each individual user is capable of taking advantage of RCS upgrade that conversation to the most feature capabilities of that particular customer.

And so we can bridge customers in a very seamless way as the leader in this space with SMS, and bridging our customers into the role of RCS and beyond. And so it's a very -- we're very optimistic that this is going to be a fantastic medium for our customers to further engage with their customers, because they can do more powerful things.

Meta Marshall -- Morgan Stanley -- Analyst

Got it. Thank you so much, guys.

Operator

Your next question comes from Rich Valera with Needham. Your line is open.

Richard Valera -- Needham & Company -- Analyst

Thank you. Question on Flex. I know it's early days, but I'm wondering if you could characterize what a typical engagement process looks like for Flex, any sense of the timing from sort of engagement to a sale? And then if you could give any color on whether customers are tending to prefer the usage based model over the traditional sort of per user model? Thanks.

George Hu -- Chief Operating Officer

Good questions. So obviously you know we -- since we GA'd the product in the fourth quarter of last year, any transactions that we're talking about in Q1, Q2 timeframe we're going to have sales cycles are typically in the -- a couple of months range typically weeks to months depending on the customer scenario. We are working on longer term ones. Obviously, those are not -- and you got a longer sales cycle, we're not going to be talk about at this point in time. And you might be remind me the second part of your question again?

Richard Valera -- Needham & Company -- Analyst

The use of the pricing models of customers or are leaning toward the traditional or that the usage based?

George Hu -- Chief Operating Officer

We're seeing both. Actually, it's interesting we are seeing truly like interest in both options both viable important options in the marketplace and we're getting an interesting level of traction. I would say on the agent our model. I think it's in-line with the kind of the general brand and value prop that Twilio has in the marketplace. So we're excited to see that.

Richard Valera -- Needham & Company -- Analyst

Great. Just a quick follow-up if I could on a modeling question. The bridge between the unchanged non-GAAP income from operations of $5 million to $8 million and the higher EPS is that just interest income, if you could just clarify what the bridge is there?

Khozema Shipchandler -- Chief Financial Officer

I didn't hear the last part of the question, I'm sorry.

Richard Valera -- Needham & Company -- Analyst

The bridge, your non-GAAP income from operations, I think, is unchanged quarter-to-quarter for the year. It sort of $5 million to $8 million but the EPS went up and just trying to understand the bridge there.

Khozema Shipchandler -- Chief Financial Officer

Yeah, it's basically other income.

Richard Valera -- Needham & Company -- Analyst

Got it. That's what I thought. Okay, thank you.

Operator

Your next question comes from Nandan Amladi with Guggenheim Partners. Your line is open.

Nandan Amladi -- Guggenheim Partners -- Analyst

Hi, good afternoon. Thanks for taking my question. So this might be a question for Jeff or George, kind of a philosophical one. Historically you've marketed to developers more of a grassroots kind of effort. Now with these pre-packaged products like Flex you're not only selling to enterprises but you're also engaging a system integrator community. So how is your go-to-market motion and as a result, you're marketing -- dated marketing efforts changed?

Jeff Lawson -- Chairman and Chief Executive Officer

Well, this is Jeff. I'll take the philosophical portions of it and then maybe I'll let George talk about the go-to-market implications, if there are any. But in essence, since I don't see this is having change. Our approach is still really to engage with developers first and to get developers on-board Twiliio, and then they bring us in to accounts of all sorts of different varieties, whether it's the tech disruptors that were many of our early customers or now even bigger enterprises who are building software and hiring the same developers. Developers are really where our go-to-market and our awareness often starts.

And I think you see this point out in most of these deals and we're talking about, even when they are Fortune 50 companies, the developers are often the ones we're saying, "Hey, Twilio is the answer to how we can solve this problem, let's get started". And oftentimes, it starts by building that prototype with very little friction, and that so we get the momentum going in these accounts. Now when you have a bigger customer, a Fortune 50 customer you're less likely that they're going to say, "Great, we just want to put it on our credit card and go live", usually there is a sales process in contracts and another, say sign and things like that, and of course, we're going to engage in those conversations. But often, it's the developer who first brings us in.

Now you asked about Flex as well and I would just say that Flex is still a developer product, and while developer is not going to single handedly purchase the contact center, the developer again becomes a big influence in the decision when you're looking at this world of, "Gosh, we've got to integrate all these systems together, we've got to create this great customer experience, we need developers, we need code to do that". And the developers can say, "You know what I heard about this Flex thing. Let me go give it a try". And again they can provision a Flex instance very quickly self-service. They can build a prototype with very little friction, and show the business what's possible, and then that often begins the engagement and begins the conversation with the customer about how to bring Flex into their environments and to roll it out in a bigger way, which again leads to a sales conversation. So that would be my take is that we've layered sales, and the sales motion to a) target the enterprise and focus on customer success, but it comes on the back of the developer momentum that we've always had and we continue to have growth.

George Hu -- Chief Operating Officer

This is George. I agree with. Jeff. I also see us augmenting that with some new motions to reach developers historically we haven't reached before. I'll tell you the story. Yesterday, I've got a friend of mine who texted me and said, "Hey, my company just asked me to spin up at Twilio app by end of day-to-day". And so I just and I just want to let you know that because he was at Twilio, and I kind of -- I called him later and was like, " Tell me the story, what happened?". And it turns out that this -- what happened was that our sales team (ph) as the work is account, in fact, wanted to executives of the customer at one of our New York customer dinners, and that this is an example where it's kind of the opposite of our typical deployment mode which Jeff talked about which is that the developers inside this corporate IT department had not been exposed to Twilio interestingly enough.

And because we had worked with them at the enterprise level there was kind of a buying at the enterprise architecture level that they want is Twilio, and then the (ph) master is given to the developers and they were starting to use it. And we're seeing that motion also to augment this amazing bottoms up motion that Jeff talked about. In fact, we've done some enterprise hackathons which Jeff mentioned in some of our customers to kind of to add to that kind of most . So I think that one of the exciting things -- I think is a whole world of enterprise developers that we have not yet reached with our tradition emotion, and I think it gives me your optimism around more upside potential for the company, and I had kind of always been waiting to see when this friend of mine would start to use Twilio, and you know, yesterday was the day. So I think that this go-to-market motion that we're layering is bearing fruits, and is not only augmenting the bottoms up motion, but also creating new emotions and so the company for organizations where the developers are more kind of wanting to adhere to our corporate standard. So I think it's really exciting opportunity ahead of us.

Jeff Lawson -- Chairman and Chief Executive Officer

Great salesman, George, like wait -- I'm going to wait for [Indecipherable] to tell me if they have discovered Twilio.

Nandan Amladi -- Guggenheim Partners -- Analyst

Thank you, guys.

Operator

Our final question will come from Rishi Jaluria with DA Davidson. Your line is open.

Analyst

Hi guys, this is Hanna on for Rishi. Thank you for taking my question. And first, it's great to hear Flex is doing so well so far. I was just wondering if there are any major lessons that you took away from your second quarter of having it generally available, and if there's anything that surprised you there?

George Hu -- Chief Operating Officer

Yeah, I think that we're always learning about the product. I think that one big lesson was how to effectively start to bring partners for one of the previous questions into the motion and bring them in earlier, I think that was a good lesson learned, that we started to apply better in the second quarter. I also think that we're getting -- I think much better as understanding kind of the -- how to make a customer successful frankly and we've started to build up some of our own internal teams when it comes to [Indecipherable] architecture

or expert services to help certain customers.

So I think we're getting better with the success formula. I think we're getting better in terms of our sales targeting, and we're finding the motion, but I think it all sits under the backdrop, we think we've got a great value proposition in the market and we're excited about the interest we're seeing.

Analyst

Great, that's really helpful. And then, I just want to go back to international performance which you briefly mentioned. On last quarter you mentioned hiring new leaders in Latin America and Japan, and I was wondering if you could comment on how those two regions are performing and then, general international performance may be strengths in specific regions you're seeing?

George Hu -- Chief Operating Officer

Yeah, I think that obviously we have hired and builds -- invested internationally it's one to kind of the three, kind of major distribution initiatives we've talked about beyond our coverage strategy, which is enterprise international and partners. So we've hired great leaders like David Parry-Jones for EMEA, got a great leader in Asia Pacific -- that's [Indecipherable], and we hired another great leader for LATAM recently. So I think we're starting to see that our investment in coverage and the leadership in those areas is working. Obviously, it set against the backdrop of like strong growth in North America as well.

So it's nice to be in a business where we're growing across multiple product lines, multiple geographies but definitely we are investing in international and we're excited about the early results.

Unidentified Participant

Great, thank you guys.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Andrew Zilli -- Vice President of Investor Relations

Jeff Lawson -- Chairman and Chief Executive Officer

George Hu -- Chief Operating Officer

Khozema Shipchandler -- Chief Financial Officer

Jacqueline Chung -- Bank of America -- Analyst

Bhavan Suri -- William Blair -- Analyst

Michael Turrin -- Deutsche Bank -- Analyst

Heather Bellini -- Goldman Sachs -- Analyst

Mark Murphy -- JP Morgan -- Analyst

Brent Bracelin -- KeyBanc -- Analyst

Ittai Kidron -- Oppenheimer -- Analyst

Will Power -- Baird -- Analyst

Meta Marshall -- Morgan Stanley -- Analyst

Richard Valera -- Needham & Company -- Analyst

Nandan Amladi -- Guggenheim Partners -- Analyst

Analyst

Unidentified Participant

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