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Twilio (NYSE:TWLO)
Q3 2021 Earnings Call
Oct 27, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and thank you for standing by. Welcome to the Twilio Q3 2021 earnings conference call. [Operator instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference is also being recorded.

[Operator instructions] Without further ado, I would like to welcome one of your speakers for today, Mr. Andrew Zilli, vice president of investor relations and treasury. Sir, the floor is yours.

Andrew Zilli -- Vice President of Investor Relations and Treasury

Thank you, Carl. Good afternoon, everyone, and thank you for joining us for Twilio's third-quarter 2021 earnings conference call. Our prepared remarks, earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.twilio.com. Joining me today for Q&A are Jeff Lawson, co-founder and CEO; George Hu, our outgoing COO; Marc Boroditsky, CRO; and Khozema Shipchandler, COO.

As a reminder, some of our commentary today may maybe in non-GAAP terms. Reconciliation between our GAAP and non-GAAP results and further information related to guidance can be found in our earnings press release. Additionally, some of our discussions and responses may contain forward-looking statements, which are subject to risks, uncertainties, and assumptions. In particular, our expected business benefits and financial impacts from our acquisition, particularly Segment and Zipwhip; and our partnerships and investments, including the associated transactions; the impact of recent and future privacy changes on certain third-party platforms on us and our customers; our outlook for the quarter ending December 31, 2021; our ability to achieve our targets for non-GAAP gross margin over time and annual growth rate over the next three years; and our ability to manage changes in network service provider fees that we pay in connection with the delivery of our communication on our platform and the impact of those fees on our gross margin are subject to change.

Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. A description of these risks, uncertainties, and assumptions, and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10-K and subsequent reports on Form 10-Q. 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 and circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. With that, I'll hand it over to Jeff for a brief statement, and then we'll open the call for Q&A. 

Jeff Lawson -- Co-Founder and Chief Executive Officer

Thanks, Zilli. Before we begin Q&A today, I wanted to take a moment to thank our COO, George Hu, for the amazing contributions he's made in Twilio over the past five years. With George's leadership, we really figured out the color of our first go-to-market, which is an incredibly challenging feat given nearly no other companies have a go-to-market that is as unique or as efficient as ours. George has set us off on a new trajectory and built a tremendous team, starting with his direct reports, all the way down the go-to-market organization.

And I can't wait to see what you build next, George. I'm also incredibly excited for Marc Boroditsky, who'll be taking over George and continue driving our full progress. Marc has built the Twilio sales team from [Inaudible] to zero to the powerhouse of challenge it is today. He's got the admiration and respect of his teams and a vision for how to continually evolve and grow our go-to-market with developers, enterprises, partners, and digital leaders.

I'm excited for the next chapter, Marc. Now, on to questions.

Questions & Answers:


Operator

Thank you, sir. [Operator instructions] Our first question comes from the line of Meta Marshall from Morgan Stanley. Please ask your question.

Meta Marshall -- Morgan Stanley -- Analyst

Great. I appreciate the question and congratulations on the quarter. You know, understanding you had a couple of hundred basis point headwind from political traffic that contributed to the deceleration in organic revenue growth we saw in Q3, but what do you think is kind of the biggest contributor to the slowdown in organic growth and what kind gives you that continued confidence that you can grow 30% the next three years and then we're -- we kind of understood to be an organic number? Thanks. 

Khozema Shipchandler -- Chief Operating Officer

Yeah. Hi, Meta, this is Khozema. I would say, first of all, again, 38% organic. We feel great about our overall growth performance in the quarter.

Obviously, we're at about 65% on an inorganic basis. And then if you just look at the graph of the growth across industries, across use cases, across geography, and across customers, I mean, we have a lot of confidence in the go-forward capabilities of the business. I would also add that we have a really strong quarter performance from Segment. And so, when we put all those different pieces together, we definitely see our ability to continue growing at elevated levels for the foreseeable future, and we feel really confident in our ability to deliver in the 30%-plus organic growth that we talked about last year over the next three years.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Fred Havemeyer from Macquarie. You may ask your question. 

Fred Havemeyer -- Macquarie Group -- Analyst

Hey. Thank you very much. You know, could you talk about your overall M&A philosophy? You know, how do you approach that build versus buy versus partner debate at Twilio? And then generally, when you're looking across the landscape -- the market landscape, how do you think the M&A appetite is progressing in the CPaaS market and, you know, in the customer engagement market? 

Jeff Lawson -- Co-Founder and Chief Executive Officer

Thanks, Fred. This is Jeff. I'll take the question. So, first, on your question on the M&A philosophy, which has really remained unchanged in the history of the company, which is, you know, we've got our insights about the market, on where it's going and what our customers need from us.

And as a result, we have a roadmap of the things that we want to accomplish for our customers to unlock this vision of being the leading customer engagement platform, which I see as the greatest interface software opportunity of our time. And when we look at the things that we're going to go build, whether it's the teams, we have to go higher, or technology we have to build, if we see a team out there who's amazing or we see a product out there that's, you know, really exactly what we might go to ourselves, then we might say, hey, we can achieve this vision faster by bringing that team or that product onboard and accelerating our ability to [Inaudible] and that's really how we've always looked at it, which is to accelerate our ability to achieve our vision by becoming the leading customer engagement platform. And I think you had a second question? 

Fred Havemeyer -- Macquarie Group -- Analyst

Yeah, the second question there was just, generally, how do you see the just overall M&A appetite for Twilio in this market and generally across the, you know, entire CPaaS market? Certainly, there's been quite a bit of M&A from other CPaaS centers out there. 

Khozema Shipchandler -- Chief Operating Officer

Hey, Fred, this is Khozema. I would say that -- I mean, we actually had a really strong balance sheet and a lot of cash on it. I think the way that we look at it is exactly the way that Jeff described. It means we'll be opportunistic if an opportunity presents itself.

I think we obviously have been acquisitive over the last several years. We did Segment, of course, last year kind of around this time, and then we've done, you know, some assets in more of the messaging space since then. But it's not like we see something in front of us that we necessarily have to do. We want to be selective about the opportunities.

We obviously -- certainly, see where valuations are today as well. But I think more than anything, we just feel great about the technology stack that we've already got and feel really, really confident, especially coming off of a really strong Signal conference.

Fred Havemeyer -- Macquarie Group -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Rishi Jaluria from RBC Capital Markets. Your line is open.

Rishi Jaluria -- RBC Capital Markets -- Analyst

Hey, guys, this is Rishi Jaluria from RBC. Thanks so much for taking my question. George, it's been great to work with you, and all the best to the next chapter. And, Khozema, congrats on the promotion or -- and new responsibilities.

I just wanted to ask one question, which is, you know, from a macro perspective, you know, look -- seems like a really strong demand environment. But how should we think about the puts and takes of maybe some of the benefits that we saw from, you know, lockdowns last year potentially fading and maybe the return of travel, and specifically business travel, especially given that most industries seem to still be having that put on hold? Just how are you thinking about stuff like that coming back? Thank you.

Jeff Lawson -- Co-Founder and Chief Executive Officer

Hey. So, Rishi, this is Jeff. I'll answer. I mean, you know, first of all, I agree with you.

This is a strong environment for companies who are undergoing digital transformation. And those transformations have been accelerated by the pandemic. And, you know, something that I think is really important to understand here is that this is not like a left turn or the digital interactions that got put in over the state, of course, of the past, you know, year or two was not a deviation from like the future the role has time forward. It was just an acceleration.

We're bringing forward a lot of the innovations that were happening, right? Think about telemedicine, right? You saw telemedicine like take a decade leap in its adoption. And that is going to continue, I believe, to be the trend. When I look at -- you know, do you want to drive across town for every doctor's visit? No. Like you can see a doctor in 15 minutes on a video call.

You may go back to work. That's a better experience. They would assign places like curbside pick up or online ordering, and all these sorts of things. Like this has been an acceleration of the natural digital transformation of the world.

It's just going faster. When you see that environment exists, businesses are going to continue to drive those roadmaps because the competitive environment demands it and customers getting accustomed to these efficiencies and these good experiences. And that creates even more demand for digital. So, I think it's a [Inaudible] for how customers are now differentiating themselves digitally in this market.

And our customer engagement platform now enables this. And we think about it, like I talked last week at Signal, our big customer conference, about how while the pandemic has accelerated like so many companies. How many company have we talked to? Two hundred fifty thousand customers. And the digital acceleration that this topic has accelerated their digital presence, their digital roadmaps.

But guess what it has also accelerated? The digital giants. You know, Amazon, Netflix, Facebook, Google, etc. And so, while those companies saw their futures accelerated, so does the giant digital companies, and that has increasingly raised the stakes for every company to execute at a first-class level in the digital. I mean, the platform that we're building, the supply of customer engaged in the platform is designed to give all those other companies the ability to listen to their customers, understand their customers' first-party data, and use that data to build a great understanding of the customer, personalize the journey and make it relevant, and therefore, win their customers' hearts, minds, wallet.

And you can think about it, when I talk to customers, everybody out there says, you know what I want to do? I want to acquire a customer once. I want to delight them with an amazing product and experience and make them a loyal repeat customer for life. And that's what Twilio enables the companies to do. And that statement I think has elevated because of the pandemic, which is all part of this digital acceleration that we're experiencing.

So, yeah, there's a strong environment out there. And I think that that is going to continue. I don't think this is an aberration. I think it's an acceleration. 

Rishi Jaluria -- RBC Capital Markets -- Analyst

All right. Got it. Thank you.

Operator

Your next question is from the line of Samad Samana of Jefferies. Please ask your question.

Samad Samana -- Jefferies -- Analyst

Hi, good evening. Thanks for taking my questions. Jeff, I may want to kick off for you. As you mentioned, the Signal conference, the company rolled out Engage and you've rolled out Frontline, you know, long before that.

I'm just wondering if you're starting to see -- as you've rolled out more of these solutions on top of the core platform, if you're seeing any difference in the adoption on day one from customers or if you're seeing kind of more bundling of the solutions upfront and how that's actually driving volume inside of the business as well?

Jeff Lawson -- Co-Founder and Chief Executive Officer

Yeah, that's a great question for our chief revenue officer today. 

Marc Boroditsky -- Chief Revenue Officer

Thank you, Jeff. And thank you, Samad, for the question. Definitely affecting the adoption that we have seen in the recent quarter. As an example, Flex has inspired our partners to consider building the next generation of their offering for contact centers on the Flex solution.

And likewise, with the announcement of Engage last week at Signal, I had a number of conversations with [Inaudible] that are looking at, again, changing their offering overall. Probably the one that aligns the most to your question, Samad, is the successfully seen with our partner, Waterfield, who has built a plugin for Flex and made it possible for us to sell it into more of the market. And this past quarter, we saw a small company that needed a full solution on day one at docking Flex as their first solutions on Twilio, which gives us great confidence about the potential that Flex represents from SMB, all the way to [Inaudible] 

Samad Samana -- Jefferies -- Analyst

Great. This one is for Khozema. I don't want to put you on the spot with a math question but I appreciated the additional disclosures, but I still had a follow-up. So, if I adjust for political revenue in 3Q, it really implies closer to low 40s organic growth.

One, I just wanted to see if that's correct. And then, you know, the guide implies, again, kind of low 30s if you take out political revenue. How should we maybe contextualize that with that go-forward 30%-plus growth as well as you look forward?

Khozema Shipchandler -- Chief Operating Officer

Yeah, thanks very much, Samad. Believe it or not, I actually can do a little bit of math on the fly. I think the [Inaudible] is about right. I mean, I think we continue to see elevated growth across the business as we've talked about earlier.

You know, the reality is that we gave 65% inorganic, 38% organic. I think if you do the math that you've just implied, we're about the ballpark that you've just described. The guidance that we put out for Q4, I mean, we feel really, really good about it. We see a nice setup certainly for Q4.

And as we look out based on a lot of things that Marc just referenced a moment ago, as well as some of the things that Jeff talked about relative to Signal, I mean, we see a tremendous amount of opportunity in front of us and have, you know, a really, really strong conviction that we can deliver 30%-plus over the next three years. So, I think we just feel really, really good about broad-based strength across the business. 

Samad Samana -- Jefferies -- Analyst

Great. Appreciate you all taking my questions. Thank you. 

Khozema Shipchandler -- Chief Operating Officer

Sure. Thanks, Samad.

Operator

The next question is coming from the line of Derrick Wood of Cowen. You may now ask your question. 

Derrick Wood -- Cowen and Company -- Analyst

Thanks for taking my question. George, good luck in your next endeavor. Khozema, I know it's probably early, but anything you want to share in terms of what your early priorities will be as you move into the COO role? And then I -- you've had a new CRO for a year, Marc, I know you're on the call. Can we assume from a direct sales go-to-market standpoint we shouldn't anticipate too much change or should we be thinking about just taking the time to make bigger tweaks to them all?

Khozema Shipchandler -- Chief Operating Officer

I think I'll go first Derrick and then -- this is Khozema, and then I'll turn it over to Marc. Look, I think from my standpoint, you know, in large part, the role, the -- an expansion of additional responsibilities that I already had. And so, I see it more as a continuation of things that we've already been doing. I think, in general, you know, we want to -- or I want to in the role really help the operating team win as much as possible, as efficiently as possible, as fast as possible, and to create the infrastructure and support that this new [Inaudible] the company so that, you know, all of our great teams inside the go-to-market and engineering teams can, you know, innovate and then obviously distribute all the great products and services that we've got.

So, I don't think there is like really a sea change in the context of my role. I'm, you know, obviously super excited to take it on. Even more so, I'm humbled and feel really privileged to be a part of the team. And, you know, I want to continue to help Jeff and manage team win.

Marc?

Marc Boroditsky -- Chief Revenue Officer

Thanks, Khozema. And thank you, Derrick, for the question. A little background. It's really now for seven years since the acquisition of my last company, Authy.

And as Jeff referenced in his preamble, it was just a handful of sales [Inaudible] at the time here at Twilio. And when George joined five years ago, I had the great privilege to build out the go-to-market strategy that he has been executing on since. And as you've identified, Derrick, we're expecting to continue forward with the strategy that we have today. We've got a fantastic team in place.

We're well-positioned to continue to execute against the already successful execution that we have in development. We're continuing to progress our success in the enterprise. And we're expanding our overall international footprint. As I mentioned earlier as well in the examples that I gave, we're making great progress as part of community, engaging them to build out the business together.

Derrick Wood -- Cowen and Company -- Analyst

That's helpful. If I could follow up on a financial question. Back to you, Khozema. You know, gross margins have certainly been topical with investors.

Interesting slide you gave on the bridge to the A2P fees, but if you can just take a second to kind of really unpack that and kind of what's been causing the pressure? You know, how we should be thinking about gross margin, you know, in the next few quarters, and what it's going to take to get to that 60% long-term target? Thanks.

Khozema Shipchandler -- Chief Operating Officer

Yeah, thanks for the question, Derrick. I mean, I think the bridge with respect to the A2P fee dynamic, at least, is self-explanatory, right? You can see that it flipped almost 200 bps relative to what we would otherwise have reported were it not for those fees. I think more broadly, you know, what we've seen is currently a fantastic problem, which is that our messaging business has been growing at a really accelerated rate. And, you know, we gave you some information last year, for example, during our Investor Day that basically illustrated the relative gross margins of our different products and services.

And so, as the messaging business grows at this accelerated rate, it makes the margin rate down a little bit, which, honestly, is a trade that we're more willing to take given the fact that we are focused on gross profit dollar expansion so that we continue investing the business. In terms of the latter part of your question in 60%-plus, I mean, we still have a lot of conviction in that 60%-plus longer-term framework. And I think where that's going to come from is the accelerated growth that we're seeing in our application service category. And I think Segment is obviously the most recent example of that.

I think the sort of the promise of Engage and what we described at the Signal conference last week, as well as the fact that Segment had a fantastic quarter sequentially, you know, coming off of Q2 into Q3. It gives us a lot of confidence that that business will perform well and continue to underpin a lot of different things that we want to do with the rest of the business. And obviously, we're very excited about the progress of Flex, too. And so, I think it's a combination of those things that lead us to continue to believe in that 60%-plus long-term target.

Operator

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

Michael Turrin -- Wells Fargo Securities -- Analyst

Hey, there. Thanks. Good afternoon. Appreciate you taking the questions.

George, certainly wish you the best. Know from just a number of these calls, you've been instrumental in things like instrumenting the go-to-market and the partner initiatives there. Can you just maybe broadly, as a team, talk more about continuity just on the go-to-market side given we're heading into the year-end. We can appreciate that Marc has been with you for some time but maybe just adding additional context for investors and, you know, that evolution and, you know, just the confidence in sustaining the tremendous pace that the business has been able to perform at for a number of years now. 

George Hu -- Chief Operating Officer

Thank you, Michael. This is George. Thank you for the kind words. And certainly, it is a difficult decision for me.

I'm so incredibly excited about Twilio and its future, I think especially coming off of an amazing Signal where I talk to so many customers that are just excited about this customer engagement platform vision and Segment. But what gives me confidence is the tremendous leadership team we have here. I've been working with Marc now for a number of years, four years, and Marc has done an amazing job. He's really built this entire sales machine and delivered the numbers quarter after quarter.

He's an incredible leader. He has hired all the great talent we have in sales team. And I know that he's just going to be [Inaudible] forward. I think there's going to be a ton of continuity.

And I think that Marc is also going to evolve the organization and get to the next level also. I also -- you know, Marc, chime in, I also want to really congratulate and acknowledge Khozema. He's going to be an amazing COO for Twilio. He's been an amazing partner in these.

One the smartest people I've ever worked with. A great leader. And he's going to do phenomenal, phenomenal things for the next chapter for Twilio. 

Marc Boroditsky -- Chief Revenue Officer

Thank you, George. And, Michael, thank you for your question. Right now, the expectations are very solid around the team and how we're going to be progressing into -- how we're going to be progressing with the plan that we got in place. This plan has not -- this plan has been developed over the last five years, with George and I in lockstep.

When George joined, he brought expertise that is very familiar to me from my previous enterprise experience, and he supported us in building out a plan that allowed us to reach to the enterprise from the model that specifically developed to self-serve and helped us to build out the overall local footprints and, ultimately, our partner initiative. These are all things that are in his life at great stages of success. I am very confident that the team that's in place that we will continue this trajectory. 

Michael Turrin -- Wells Fargo Securities -- Analyst

That's all very helpful. If I could just ask a follow on, just gross margins were actually -- I know you've gotten a couple of questions here, Khozema. They're actually slightly up. I think many investors are expecting that we might see just continued headwinds given the international business is now a third of overall.

Are we at a point where things like Segment and Zipwhip are starting to provide the counterbalance or anything else you'd call out? You also added a slide on just gross profit growth. So, is that a metric maybe just to highlight in terms of just the conversations around these dynamics?

Khozema Shipchandler -- Chief Operating Officer

Yeah, I would say, you know, the inclusion of a gross profit slide isn't necessarily an indication of anything new. You know, we've been saying for a while now, Michael, that, you know, we've been focused on gross profit dollar expansion. Obviously, that gives us a lot of fuel to be able to reinvest back into the business. We just thought it would be helpful in terms of providing some additional color.

Same thing kind of on the gross margin slide, which is, you know, I'm not sure there's really kind of a story behind the story other than, obviously, the A2P got closed off a little bit, and you can see that in the bridge that we provided. I think, generally speaking, you know, as I said earlier, like we feel great about like "problem" that we have in that, you know, we have this incredibly fast growth messaging business, which has mixed the overall gross margin of the company down. But to your point, whether it's some of the newer acquisitions or Flex or Segment, you know, we do have a number of things that can provide fuel for a gross margin uplift over time. We're not just guiding into that today per se, but we do have a lot of confidence in our long-term framework of 60%-plus over time. 

Michael Turrin -- Wells Fargo Securities -- Analyst

Thank you. 

Khozema Shipchandler -- Chief Operating Officer

Thanks, Michael.

Operator

The next question comes from the line of Ittai Kidron from Oppenheimer & Co. Please ask your question.

Ittai Kidron -- Oppenheimer & Co. Inc. -- Analyst

Thanks. Jeff, I'd like to start with you on Twilio Engage. Super excited for that announcement. I guess help me think about the ramp here.

You know, when Flex came out, you know, you were very conservative, but it clearly did very good out of the gate. You have already an established customer base here with Segment. Is there an opportunity for this business to ramp faster than one would think? And is there -- do you need to make any adjustments on the go-to-market approach in pushing this product? 

Jeff Lawson -- Co-Founder and Chief Executive Officer

Thank you, Ittai. This is Jeff. So, let me give you some forward-looking projections about the list, just kidding. You asked me about the ramp-up.

I mean, like, obviously, you know, I can't tell you anything specific about the product. You know, I know that the ramp is slightly steep. But what I can say is that we have two things. Number one, I think there's a lot of demand in the market for his product, right? Digital growth and digital personalization or how businesses are building their businesses is a tremendous opportunity.

And that opportunity is actually accelerated by quite a few changes going on in the world with IDFA tags and third-party cookies, and all those things getting changed because companies can rely on what's honestly shenanigans, like even in the changes that have been going on whether it's cookies or IDFA tags, like these privacy changes are on the right side of history. And so, what Twilio is providing is the antidote to all those changes, which is a personalization and marketing system that starts with first-party data, that starts with a company understanding, making sense of the first-party signals they get from their customer and the data of approach they're going to use that signal, use that first-party data to then go personalize and build great relationships with their customer across all these touchpoints, whether it's marketing, contact center, or sales, you name it, or whether it is a couple of these different channels, you know, messaging, voice, email, in an app, out of the web, etc. That's the heart of how companies are going to win the hearts, minds, and wallets of their customers. And the changes in privacy provide a really nice tailwind, I think, in the macro sense of what companies need to do in order to continue growing the relationships with their customers and continue growing their customers.

So, that's the first thing. And then the second thing I want to point out is I think there's a very natural synergy with not one but two go-to-market that Twilio has, right? It's a natural upsell from our messaging product because it makes our messaging even more colorful. And it's a natural upsell from Segment, which allows you to do something new and interesting off your data, which is actually faster. And so, I'm really looking forward to as that product when we're talking GA in 2022.

I'm really looking forward to like how we can bring that product to customers, and everybody is excited about the product. 

Ittai Kidron -- Oppenheimer & Co. Inc. -- Analyst

Very good. Maybe a follow for you, Khozema, on the retention rate. Maybe you can -- I'm sorry, the net expansion. Maybe you can kind of say -- walk us through a little bit perhaps of the puts and takes of that metric going forward.

I know you still have the political activity, which I guess would weigh on that number next quarter. But I think you're also going to celebrate the anniversary of Segment, which will include in -- I don't remember if Segment was above or below average on that standpoint. Can you help us think about what would be the right way to think about how net expansion rate is going to change over the next, call it, three, four quarters?

Khozema Shipchandler -- Chief Operating Officer

Yeah, a couple of things there, Ittai. Thanks for the question. So, first of all, I mean, we feel great about 131% net expansion rate. You know, the business is growing at really elevated levels.

And just given the size that we are and our run rate, I'm feeling great about it. And, you know, 131 is kind of in the range of what we've been over the last several quarters. So, really good [Inaudible] across the business. I mean, we don't guide on expansion rate as you know.

And so, I think it's a little bit premature for me to, you know, kind of talk about where I anticipate that end up being in Q4 or beyond. But I will say is that we do intend -- we disclosed in our remarks earlier that Segment and we'll include as part of Q1 being the first full quarter kind of post the anniversary of the acquisition, and, you know, we'll publish those results and include Segment at that time. But, you know, we'll have to kind of wait to see for that quarter.

Ittai Kidron -- Oppenheimer & Co. Inc. -- Analyst

Very good. Good luck. 

Khozema Shipchandler -- Chief Operating Officer

Thanks, Ittai. 

Operator

Our next question -- sorry. Our next question comes from the line of Parker Lane of Stifel. Please ask your question.

Parker Lane -- Stifel Financial Corp. -- Analyst

Yeah, hi. Thanks for taking my question. Jeff, I was wondering if you could talk a little bit about the stickiness of the incumbent platforms in the CRM markets. And when you look at the B2C component there, how much appetite do you think there is for disruption of those legacy platforms, particularly as some of your competitors out there in the newer markets are launching their own CDP offerings? Thanks.

Jeff Lawson -- Co-Founder and Chief Executive Officer

Yeah. Thanks, Parker. This is Jeff. So, yeah, we're really excited about Segment, which is obviously the No.

1 CDP in the market. We're getting excited about Twilio Engage, which is built on top of it. And, you know, what's interesting? When I look at the market, I just see a huge hole in the market for a platform that is helping B2C companies really understand their customers and then execute on that understanding by personalizing every company journey and empowering their employees with great engagements. And the CRM market is a great one, but that's really about B2B.

It's not configured to do this. B2B CRM really starts with salespeople entering notes, which is just a completely different starting point than what B2C companies need. And so, the opportunity that we're going after and what our customers are looking for is how do B2C customers with volumes of data, how they take that data, understand it, and act on it across all of the different applications and all the touchpoints that they have. And that's a fundamentally different market that nobody has really cracked at.

And that's the opportunity for Twilio's customer engagement platform. And that's the opportunity that customers are pointing us toward because of what it has resulted. And so, that's what we see as the market -- how the market is going then. 

Operator

The next question comes from the line of Mark Murphy from JPMorgan. You may now ask your question.

Mark Murphy -- JPMorgan Chase & Co. -- Analyst

Yes. Thank you very much. Jeff, question on Twilio Engage. What can you see as the differentiation or the line of demarcation there if we compare it to some of your partners who provide cross-channel experiences where they're using push and in-app and SMS and email, and then I believe some of them then send their messaging traffic queue? If you could just help us maybe a little compare and contrast.

Jeff Lawson -- Co-Founder and Chief Executive Officer

Yeah, thanks, Mark. You know, [Inaudible] is a really great landscape. And we have -- you know, there's many companies out there doing all sorts of interesting things. And what we're seeing is that the customers are really asking for a data approach to their growth automation, an approach that starts with data and then move out from that data into understanding customer, building profiles, and then building action from the data.

And that's where Segment has always played and that's where Segment's strength is. So, ultimately, we're serving an unmet need when customers come to us, and, hey, can Segment be used to build this journey and then, ultimately, run this campaign. And that's a really neat thing about Segment, is that, you know, not only do we allow marketers to create this rich segmentation. You know, you've heard it at Signal about how into it, you know, when they went from like 30 or [Inaudible] from three Segments to take their whole customer base cut to three Segments to now like 450, and that's increasing the engagement in our customer based from 20% to 50%.

We now heard the story that Marc and I had told at Signal last week, which is amazing. And so, Segment also allows the marketers to use all the data points to see the measure or the effectiveness of their campaign, which I think is another inching point of Engage. So, instead of measuring, you know, a bunch of emails on just, you know, were they delivered, were they opened, were they clicked on, Segment allows marketers to optimize for what actually drives revenue. You know, get a result in people buying things, which, of course, is the ultimate goal.

So, what we're hearing from our customers is that the data-first approach, which starts with having great data by your customers, that unlocks all sorts of new ways for smart growth marketers to do their job. And hopefully, one that the market has to get helpful. 

Mark Murphy -- JPMorgan Chase & Co. -- Analyst

OK, I think I understand, yes. So, the CDP is the basis there. I had a quick follow-up maybe for Khozema or Jeff. We -- I think the sequential organic growth in revenue was a bit less than some of the prior quarters.

Although interestingly, I think that the same thing happened a couple of quarters after you acquired SendGrid in Q3. So, I guess we've seen that. Can you just touch on that? Was -- you know, is that voice or video or something else? And just given you're reaffirming this 30%-plus growth for three years, the -- can we presume that you have visibility into some better kind of sequential build into Q4 and early next year?

Khozema Shipchandler -- Chief Operating Officer

Yeah, Mark, hey, this is Khozema. I'll take the question. I mean, I wouldn't read too much into like product mix dynamics that we feel really good honestly about the sequential growth and just kind of the overall growth of the company and our scale and based on our products then. And I think, you know, as we talked about, I think, earlier in this call, you know, if you look at some of the things we announced at Signal and the fuel that's going to provide us move forward, which is fantastic about, you know, the overall growth prospects of the business.

So, in terms of, you know, the setup on the 30%-plus, I mean, you know, we provided guidance obviously for Q4, and we feel really good about that. And we see continued strong growth into the future. And, you know, that 30%-plus that we provided last year, we certainly see that on an organic basis over the next three years as well.

Operator

The next question comes from the line of Matt Stotler of William Blair. You may now ask your question.

Matt Stotler -- William Blair -- Analyst

Hey, guys. Thank you for taking the questions here. I guess one, just looking at the revenue growth performance in the quarter. So, if you look at the relationship between dollar-based net expansion, which to your point has been, you know, incredibly consistent, this kind of range on a multiyear stack.

When you look at the difference between that and your organic growth that you guys reported, the relationship between those two essentially gives you some sense of the incremental revenue that you're generating from new customers in any given quarter. This quarter, that contribution seemed to be the primary source of the step down in organic growth sequentially. They're going from 50 to 38. Can you just talk about anything that you're seeing in terms of what might be driving that lower contribution from revenue from new customers organic basis this quarter or anything that you're seeing in the market that could help to -- help us to make some sense of that? 

Khozema Shipchandler -- Chief Operating Officer

Yeah, this is Khozema, Matt. I can talk about it from a financial perspective, and then maybe Marc can talk about it in terms of the customer adoption perspective. I'd say there's nothing specifically that I would necessarily unpack in terms of new customer growth. I mean, as you saw in the quarter, we had very strong adds in terms of new customers.

We had a great expansion rate in the quarter. We had strong overall revenue growth, both on an inorganic and our organic basis. I think the math that you're trying to do is kind of directionally accurate, but there is, you know, a certain amount to unpack there, which is essentially off line. But I think, in general, I would say we feel great about the overall prospects for the business.

We feel great about the setup for Q4 and, you know, have a lot of conviction in our 30%-plus organic revenue growth over the next three years. Marc, do you want to add to that maybe from a customer adoption perspective? 

Marc Boroditsky -- Chief Revenue Officer

Certainly, Khozema. Matt, thank you for the question. From an adoption standpoint, we had a terrific Q3 across all aspects of the business. As I think you know, we have a very diversified business that is relevant, is a variety of economic conditions, which allows us to continue to deliver these strong results.

What's even more encouraging, especially on the heels of Signal, is the kind of reaction that we're getting through messages that we shared here today and as Jeff elaborated on around the customer engagement platform, the value of the solutions like Twilio Engage, and the progress we're experiencing with Flex, and candidly, just excitement around a data-first model. Everybody's looking for ways to deal with the new challenges that they're facing the market around first-party data. You know, the results we've heard, really solid excitement that gives us confidence around the business that it is.

Matt Stotler -- William Blair -- Analyst

Got it. That's helpful. And then maybe just one more on -- just a quick one on the gross margin front. So, the bridge you gave is very helpful, right? Kind of taken out the A2P fees, and understanding that.

Was very helpful. You also signed a new commercial agreement with Syniverse earlier this year, which seemed like it would provide maybe a little bit of a tailwind to gross margin. Is that something that was embedded in the results this quarter or is that something that you can talk about in terms of how we're learning going forward? Thank you.

Khozema Shipchandler -- Chief Operating Officer

Yeah. I mean, Syniverse, there's nothing really to talk about yet. We do expect that investment to take place before the conclusion of the year. But I -- it's not affecting our initial results yet, Matt. 

Matt Stotler -- William Blair -- Analyst

Got it. Thanks again.

Operator

The next question comes from the line of Catharine Trebnick of Collier Securities. Your line is open.

Catharine Trebnick -- Colliers International -- Analyst

Hi, thank you for taking my question. Could you break down where you think your biggest competitors are at this point with the newly announced Twilio Engage? Thanks. 

Jeff Lawson -- Co-Founder and Chief Executive Officer

Hey, Catharine, this is Jeff. I'll take the question. So, you know, really, our competitive set has always been very diverse. You know, there's typically not one competitor that we see in a whole lot of different situations.

And a lot of that is because of our unique developer-first approach. You know, developers bring Twilio into such a wide variety of companies to solve such a wide variety of things that they're building, and that leads us into the company in a way that's not like a traditional like, you know, [Inaudible] like thing. So, many of our deals are like that. And so, that's the historical of Twilio.

And, you know, going forward and looking at the new products, our customer engagement platform, which is, you know, it's really a new category. There are products that are meeting the needs of the market and that's why we're building. And so, when I look at what we're building and whether it's actually our Engage or whether it's on, you know, Segment CDP like, you know, the No. 1 CDP in the market.

On top of it, there'll be a product that customers have been asking for, which is, you know, a data-first approach to marketing. And so, you know, I just don't see it as a direct head to head. I think we're building something new, both in terms of each of the individual products. You know, I think Flex is different than what's out there in the market.

We're solving a problem that customers say they have, and that's why we built Flex. Same thing with Engage. Same thing with Frontline. And these are the consumer's relief of our customer engagement platform, which, as a whole, is certainly solving a really unsolved problem for B2C companies, which is how do I understand my customers and engage with them.

And there's no way you solve that problem at a possible level.

Catharine Trebnick -- Colliers International -- Analyst

All right. Thanks. I'll ask more on the next call. Appreciate it. 

Operator

The next person to ask a question is Pat Walravens of JMP. You may now ask your question. 

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you. Hey, Jeff, so, you know, as we're looking into 2022, and hopefully, it's pretty different than 2021 was. I'm curious what you think your top two or three strategic imperatives are.

Jeff Lawson -- Co-Founder and Chief Executive Officer

Thanks, Pat. So, I know, obviously, we've been really progressing the Twilio engagement platform, our customer engagement platform. And so, you know, one of our first priorities this year was making sure that we, you know, brought to market Twilio Engage and it's been at a great -- you know, it's a great traction, which we gated all last week at Signal. I've also been really prioritizing the company, our teams because we're obviously in the second year of the pandemic.

These are difficult times for every team out there. And so, really prioritizing the well-being, the productivity, and the growth of our team. And our team has grown tremendously to help push the pandemic. And then, of course, our customers.

And, you know, customers' needs are evolving at this time and really setting many new customer challenges of sending those customers in our direction to help solve those challenges, whether it's the pandemic, whether it's privacy, in the IDFA changes, there could be changes, and just the many things that companies are having to deal with that the world is rapidly evolving, and those companies have to become builders and have to build those relationships with customers and keep up with the evolving landscape. Those are things that are pushing customers toward us and giving us a lot of insights about how we can further serve them. And I've been very focused on that as well. So, again, those are probably the three big areas, which is, you know, our products, our teams, our customers, which is the, I think, the right things first that you have to be focused on.

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you.

Operator

Our last question comes from the line of Taylor McGinnis of UBS. Please ask your question.

Taylor McGinnis -- UBS -- Analyst

Hi. Yeah, thanks for taking my question. With gross margins flat this quarter relative to last and given all the A2P fees you have had this quarter, how much of that was potentially driven by a mix shift from a slowdown in messaging versus maybe more durable factors and efficiencies that you guys might be seeing? So, was that just all mix shift related or is there something else driving that?

Khozema Shipchandler -- Chief Operating Officer

Yeah. Hey, Taylor, this is Khozema. I'll take a question. I wouldn't say there was necessarily any one factor.

I mean, I think what we're seeing is continued strength in the messaging business. And so, there's not really like an underlying story relative to that product that we continue to feel great about the growth prospects there as they did over the first half of the year and certainly in Q3 as well. I think, equally, we feel very excited about the performance of Segment, and we continue to see higher growth in our application services category. Any given quarter, I mean, any one of the kind of product mix dynamics or international or even customers to some degree are going to influence what the gross margin rate is in that particular quarter.

So, for now, we're really concentrated on gross profit dollar expansion. And obviously, over time, we do intend to work that gross margin number up if [Inaudible] come from and makeshift into those application services and certainly stand by our longer-term target of 60%-plus gross margin.

Taylor McGinnis -- UBS -- Analyst

Great, thanks.

Khozema Shipchandler -- Chief Operating Officer

Thanks, Taylor. 

Andrew Zilli -- Vice President of Investor Relations and Treasury

Very well. Thank you, everyone, for joining today. That will end the call for us. We look forward to chatting with you throughout the rest of the quarter.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Andrew Zilli -- Vice President of Investor Relations and Treasury

Jeff Lawson -- Co-Founder and Chief Executive Officer

Meta Marshall -- Morgan Stanley -- Analyst

Khozema Shipchandler -- Chief Operating Officer

Fred Havemeyer -- Macquarie Group -- Analyst

Rishi Jaluria -- RBC Capital Markets -- Analyst

Samad Samana -- Jefferies -- Analyst

Marc Boroditsky -- Chief Revenue Officer

Derrick Wood -- Cowen and Company -- Analyst

Michael Turrin -- Wells Fargo Securities -- Analyst

George Hu -- Chief Operating Officer

Ittai Kidron -- Oppenheimer & Co. Inc. -- Analyst

Parker Lane -- Stifel Financial Corp. -- Analyst

Mark Murphy -- JPMorgan Chase & Co. -- Analyst

Matt Stotler -- William Blair -- Analyst

Catharine Trebnick -- Colliers International -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Taylor McGinnis -- UBS -- Analyst

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