Twilio Inc. (NYSE:TWLO) Q1 2024 Earnings Call Transcript

Twilio Inc. (NYSE:TWLO) Q1 2024 Earnings Call Transcript May 7, 2024

Twilio Inc. misses on earnings expectations. Reported EPS is $-0.30577 EPS, expectations were $0.6. Twilio Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to the Twilio Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Senior Vice President of Investor Relations and Corporate Development, Bryan Vaniman.

Bryan Vaniman: Good afternoon, everyone, and thank you for joining us for Twilio’s first quarter 2024 earnings conference call. Joining me today are Khozema Shipchandler, Chief Executive Officer, and Aidan Viggiano, Chief Financial Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described.

Many of those risks and uncertainties are described in our SEC filings, including in our most recent Form 10-K and our forthcoming Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements except as required by law. With that, I’ll hand it over to Khozema and Aidan, who will discuss our Q1 results and then we’ll open the call for Q&A.

Khozema Shipchandler: Thank you, Bryan. Good afternoon, everyone, and thank you for joining us today. Twilio had a solid start to the year, exceeding our Q1 guidance, delivering $1.047 billion in revenue and $160 million in non-GAAP income from operations. Our team has executed well across the board in Q1, as evidenced by a record quarter of non-GAAP gross profit of $566 million, a 54% year-over-year increase in our non-GAAP income from operations and another strong quarter of free cash flow of $177 million. We are in the early stages of reinvigorating the business and are optimistic about our progress thus far. In fact, we’re executing with greater discipline, rigor, and focus on innovation than ever before. In the last five quarters, we’ve begun delivering significant non-GAAP operating profitability.

In the last four quarters, that’s been paired with significant free cash flow and we are committed to additional operating leverage and accompanying free cash flow. In the meantime, we are also making new targeted R&D investments that we expect to reaccelerate growth over time. In March, we announced an accelerated target for GAAP operating profitability to Q4 2025, and we also announced that the Board authorized an additional $2 billion of share repurchases, bringing our total share repurchase authorization to $3 billion. This is a reflection of the Board’s confidence in our strategy and the opportunity ahead. As of today, we’ve repurchased approximately $1.5 billion of shares and we’re targeting to complete the remaining $1.5 billion of repurchases by the end of this year.

At that same time, we also completed our operational review of Segment. And the team is focused on executing the plans we outlined, including more focused product innovation, embedding Segment’s capabilities into communications products, and a commitment to getting Twilio Segment to break-even on a non-GAAP operating income basis by Q2 2025. We are making progress in each area. Across the board, we’re innovating and releasing new products, many of which are underpinned by CustomerAI, our predictive and generative AI layer. Finally, we welcomed a new bench of leaders to Twilio who will play an important role in shaping the next chapter of our Company as we operate with greater financial discipline, operational rigor, and focus on innovation.

And now, let’s turn to our business highlights. Our Twilio Communications business had a strong first quarter with revenue of $972 million, up 7% on an organic basis year-over-year and representing 93% of our overall revenue. During the quarter, Communications landed meaningful customer wins, released new products, and deepened our relationships with ISVs, partners, and resellers. With this disciplined approach, we’re focused on growth levers that we believe will drive reacceleration in both the short and long term. In the short term, our growth will be fueled by expanding our network of ISVs and global partners, driving more self-service and cross-sell momentum, and extending the value that we’re delivering to customers. In Q1, we signed a seven-figure partner agreement with China Unicom, one of China’s wireless carriers who will re-sell a majority of our Communications products for its enterprise customers across Singapore and Hong Kong.

We also signed a partnership with Bloomreach, a leader in the marketing automation space, and will be working with them to co-sell Twilio products. Over the long term, our focus on innovation will unlock more value for customers, creating stickier relationships and ultimately expand Twilio into new markets and larger deal sizes. We made progress on a number of our AI products and are driving better synergies with our Communications and Segment products. In Q1, we announced Agent Copilot, our first of three launches in 2024, where Twilio will natively embed Segment into Twilio’s Communications products. With Agent Copilot, we’ve embedded Unified Profiles powered by Segment within Flex, giving agents deeper insights into their customers’ behaviors and preferences.

By accessing the real-time data from Unified Profiles, Agent Copilot assists in intelligent routing to agents and provides them with actionable insights for each customer interaction, automating and enhancing agent productivity while reducing resolution times. Agent Copilot and Unified Profiles are currently in public beta and customers like Universidad Uk are already leveraging these capabilities within their contact centers. As a result, they’ve driven a reduction in handle time by 30%, and by using our embedded AI automation tools, they’ve been able to deflect 70% of support cases in just two months. While it’s still early, these results are impressive as it illustrates how our customers are able to quickly realize tremendous business value at scale when combining segment within our Communications capabilities.

Our customers also continue to realize tangible benefits when using our other customer AI innovations, including Voice Intelligence, which has gotten a great response from our initial public beta customers. With Voice Intelligence, brands like PGA of America are leveraging transcriptions for their customer support interactions within their Flex instance, getting valuable data insights from call recordings. Of the hundreds of customers that have deployed Voice Intelligence, over half are using Language Operators, which allows brands to trigger an action based on any keyword allowing for better personalized communications. We also recently introduced language operators that uses Generative AI and large language models to determine the best sentiment for the overall conversation, so brands can get a better sense of where escalations or customer churn may take place.

And we’re continuing to embed AI capabilities into our Verification products. We currently have over 11,000 customers leveraging Verify Fraud Guard, and in Q1 alone, Fraud Guard blocked more than 62 million fraudulent messages. We are not only saving our customers money, but we’re also ensuring our customers’ end users have a seamless experience. During the quarter, we signed a competitive deal with Bluesky, a social media app which recently launched its app to the public. They chose Twilio’s Verify API to ensure a seamless and secure sign-up process for new users. At launch, the company saw an impressive amount of sign-ups, gaining almost 800,000 new users in one day. And Fraud Guard not only helped save the company hundreds of thousands of dollars, but it ensured new users received secure authentication.

Now, turning to our Twilio Segment business. For Q1, Segment revenue was $75 million, up 2% year-over-year. It was a challenging quarter, but we came out of our Segment operational review in March with greater clarity around a shortlist of priorities that we believe will address the underperformance of Segment. We will continue to focus on rationalizing our investments to right-size Segment’s cost base, accelerating time to value for customers by using AI to automate onboarding, and enhancing data warehouse interoperability, delivering three products in 2024 that natively embed Segment into Communications and capitalizing on CustomerAI momentum. In the month following the review, we’ve already made meaningful progress against all of these areas, and we believe that we have the right set of plans in place to turn this business around, address churn and contraction, and improve its financial performance.

We are also committed to getting Segment to breakeven on a non-GAAP operating income basis by Q2 2025. During the quarter, we deepened our partnerships with Databricks and Snowflake. With Databricks, we launched a new bidirectional integration that allows customers to seamlessly ingest and activate data. We are on track to deliver further enhancements to our data warehouse interoperability offerings across partners in Q2. And as mentioned earlier, we delivered focused product innovation like Agent Copilot that demonstrates Segment’s value when it’s natively embedded into Communications. CustomerAI Predictions is continuing to get adopted by new customers. And since its GA in Q3 2023, more customers are realizing the benefits and positive material impact to their businesses.

For instance, XP Inc., a Brazilian investment management company, said that since implementing CustomerAI Predictions and by using our out-of-the-box tools, they’ve been able to save their team four weeks of data science work and improved audience engagement and conversion rates. Looking ahead to Q2, we’ll bring our second product that natively embeds Segment into Communications into Beta, which further demonstrates the value we can deliver to our customers by combining Segment data with our Communications products. Before turning things over to Aidan, I want to take a moment to welcome the new leaders that have joined my management team. During the quarter, we welcomed Inbal Shani as our Chief Product Officer for Twilio Communications; and Thomas Wyatt as our President of Segment.

And yesterday, Chris Koehler joined as our Chief Marketing Officer. We’ve also taken a thoughtful approach to evolving our governance practices. First, we welcomed Andy Stafman, a Partner at Sachem Head Capital Management to Twilio’s Board of Directors. And second, we announced in early April that we plan to hold an Investor Day within the next 12 months, at which time, we’ll share an updated medium-term financial framework and set of targets. And finally, we recently submitted a proposal for the declassification of our Board, which will be voted upon at our Annual Shareholder Meeting in June. In summary, we’re making a lot of progress in a very short period of time, and we’re continuing to drive significant change. We’re maturing as a Company and as a team.

We’re making deliberate decisions with discipline, rigor, and focus to deliver attractive levels of growth and profitability over the medium term. While we’ve started to see positive impacts from some of these changes in our recent financial results, others will take longer to bear fruit, but we are confident that the opportunities we pursue will create meaningful value for all of our stakeholders and allow us to deliver on our commitment to drive durable profitable growth over the long term. And with that, I’ll turn it over to Aidan.

Aidan Viggiano: Thank you, Khozema. In Q1, we exceeded our guidance on both revenue and non-GAAP income from operations and delivered our fourth consecutive quarter of solid free cash flow generation. Q1 revenue was $1.047 billion, up 4% reported and 7% organically year-over-year. Communications revenue was $972 million, up 4% reported and 7% organically year-over-year. And Segment revenue was $75 million, up 2% year-over-year. Our Q1 revenue growth was impacted by the crypto headwinds that we’ve referenced the past several quarters, as well as the sunsetting of the software component of our Zipwhip business that we discussed during our Q4 2023 earnings call. These represented a combined 210 basis point headwind to our organic revenue growth in Q1.

Excluding these items, consolidated Q1 organic revenue growth was 9% and communications organic revenue growth was 10% year-over-year. We have now lapped the crypto headwinds and do not expect a material negative impact to revenue growth from these customers moving forward. We continue to expect modest headwinds throughout 2024 from sunsetting the software component of our Zipwhip business, which we estimate to be roughly 100 basis points in Q2 and 80 basis points for the full year. We also previously announced the sunsetting of our Video product. However, based on customer feedback, we’ve extended the transition support timeline through 2026. As a result, we no longer expect notable headwinds from Video in 2024. Our Q1 dollar-based net expansion rate was 102%.

Our dollar-based net expansion rate for Communications was 103%, a modest improvement quarter-over-quarter. Our dollar-based net expansion for Communications was 105% excluding crypto and Zipwhip software customers. Our dollar-based net expansion rate for Segment was 92%, driven primarily by elevated churn and contraction. As discussed during our operational review in early March, we are focused on improving customer time to value and we’re also investing in data warehouse interoperability, both of which we believe will improve Segment’s churn and contraction over time. We delivered record non-GAAP gross profit of $566 million, up 8% year-over-year. This represented a non-GAAP gross margin of 54.1%. This was up 180 basis points year-over-year and 170 basis points quarter-over-quarter.

The margin improvement quarter-over-quarter was primarily driven by lower international messaging mix and lower hosting fees as a result of larger credits on our cloud spend, which benefited both Communications and Segment gross margins. As a reminder, we continue to manage the business towards gross profit dollar growth. Q1 non-GAAP gross margins for our Communications and Segment business units were 52.2% and 77.6%, respectively. As a reminder, we are migrating a part of Segment’s architecture to new infrastructure providers this year to recognize greater efficiencies. During this transition, we will incur some overlapping vendor expenses. As a result, we expect Segment’s gross margin rate to decline throughout the year until the migration is completed.

Q1 non-GAAP income from operations was $160 million, up 54% year-over-year. As we mentioned last quarter, this included $19 million of sequential incremental expenses associated with our new employee cash bonus program, which we initiated to reduce stock-based compensation expenses over time. Our Q1 non-GAAP operating margin of 15.2% was up almost 500 basis points year-over-year and down 80 basis points versus the prior quarter, driven by 180 basis point impact from the new employee cash bonus program. Q1 non-GAAP income from operations for our Communications business was $249 million and the Q1 non-GAAP loss from operations for our Segment business unit was $21 million. Q1 GAAP loss from operations was $44 million, which included $10 million of expenses associated with restructuring charges.

Stock-based compensation as a percentage of revenue was 14.9% in Q1, excluding approximately $2 million of restructuring costs, down 40 basis points quarter-over-quarter and 100 basis- points year-over-year. We generated free cash flow of $177 million in Q1, inclusive of $23 million of restructuring payments. This was up $292 million year-over-year and over the last 12 months, we’ve generated free cash flow of $655 million. I’m really pleased with our continued progress on free cash flow. It’s been a key area of focus for the team over the last several quarters and reflects our ongoing work to drive efficiency in the business. As a reminder, in March, we provided fiscal year 2024 targets of 5% to 10% organic revenue growth and $550 million to $600 million of non-GAAP income from operations, inclusive of an estimated $90 million of incremental expenses associated with the new employee cash bonus program that was introduced to reduce stock-based compensation expenses over time.

And Khozema as mentioned, we accelerated our target for GAAP operating profitability from fiscal year 2027 to Q4 2025. We also committed to driving Segment breakeven on a non-GAAP income from operations basis by Q2 2025. Finally, we’re continuing to make good progress on our $3 billion share buyback program, having repurchased over $720 million since our last earnings call in February. This brings our total repurchases to date to approximately $1.5 billion. We intend to complete the remaining $1.5 billion of authorized repurchases by year’s end, which should meaningfully reduce our outstanding share count over the next few quarters. Moving to guidance. For Q2, we’re initiating a revenue target of $1.05 billion to $1.06 billion, representing year-over-year growth of 1% to 2% on a reported basis and 4% to 5% on an organic basis.

We’re also reiterating our full year organic revenue growth range of 5% to 10%. Turning to our profit outlook. For Q2, we expect non-GAAP income from operations of $135 million to $145 million. This is down sequentially, primarily due to incremental payroll expenses associated with our standard varied increases that go into effect in Q2, consistent with prior years, as well as increased marketing and travel expenditures. However, given our outperformance in Q1, we’re raising our full year non-GAAP income from operations guidance to $585 million to $635 million. Additionally, we are continuing to focus on improving our free cash flow profile, and we anticipate that full year free cash flow generation will be in-line with our full year non-GAAP income from operations.

As we look ahead, we’re investing in initiatives to reaccelerate growth. At the same time, we’ve accelerated our path to GAAP profitability. We’re generating significant free cash flow and [Technical Difficulty] share buyback program. I’m excited to continue to build on the progress we’ve made to deliver improved outcomes for both our customers and our shareholders over the coming quarters. And with that, we’ll now open it up to questions.

See also 20 Best Business Ideas According To Reddit and 12 Best Artificial Intelligence Stocks to Buy Now According to Wall Street Analysts.

Q&A Session

Operator: [Operator Instructions] And our first question comes from the line of Jim Fish with PSC.

Unidentified Analyst: Hey guys. This is Quinton on for Jim Fish. Thanks for taking our question. Maybe first, how are you looking at kind of the bifurcation between budgets or demand strength across, call it, your mid-market in commercial versus your more enterprise customers at this point? Is the willingness to spend very similar across those two verticals or are you seeing significant strength or weaknesses across one or the other?

Khozema Shipchandler: Yeah, I would say that in general, we’re seeing kind of demand volume kind of hang in there across the board. I think that the growth profile that we’ve seen with most customers continues to be pretty good. There is a couple pockets I’d say, especially with respect to internationally terminating traffic, where we’re seeing a little bit more weakness. But I think that, as you look at most of the industries that we end up serving, we are seeing year-over-year growth. Obviously, there’s some noise in our business with respect to what we’ve got in terms of Zipwhip and the concept that creates. And I think in general, like, we’ve oriented our sales team around gross profit dollars as Aidan mentioned in her remarks.

And we’re trying to maintain the price discipline that we’ve always talked about in prior calls like these. I think kind of the wrap around the whole thing is that we’ve seen volume stabilize for some period of time. We haven’t seen them quite inflect upwards, and I’d say in particular, that’s a call out for international. I think on the flip side, there’s a number of things that we’re working through. both short-term and long-term kind of growth initiatives, and we feel pretty good about those, but those are going to take some time to kind of play out. I think in the short term cross-sell is an area that we’re particularly focused as well as with ISVs that should drive Incremental growth over time, and in the meantime, we’re really focused on cash flow and additional operating leverage.

Unidentified Analyst: And then, Aidan, maybe for you. Gross margins here was a bright spot for sure. Can you talk about why this wouldn’t be a kind of sustainable uplift understanding some benefit from product mix, but why couldn’t we see this kind of upside continue through the rest of the year? Thank you.

Aidan Viggiano: Yeah, sure. So, we saw gross margins up 170 basis points quarter-over-quarter with both business units up as well. So, a couple of dynamics, first, on the Communications side, which is the business that carries Twilio at this point, they were up 150 points quarter-on-quarter. Part of it was what you said, which was the favorable mix between the US and international. Khozema just mentioned, we did see lower international terminating traffic. So, that has a benefit to gross margins because we know gross margins as we communicated in the past, are lower internationally than domestically. We also had in this quarter, as I said, in the prepared remarks, some benefit from credits related to hosting spend that benefited Q1 by about 80 basis points.

We don’t expect this to continue. And so, I’d say the combination of those two things, the hosting credits not continuing as well as the fact that mix isn’t necessarily controllable by us is kind of how I think about gross margins going forward, Quinton.

Operator: Thank you. One moment please for our next question. And our next question comes from the line of Mark Murphy with J.P. Morgan.

Mark Murphy: Thank you very much. Khozema, I was thinking back prior to the business review, our sense was that the Segment business could preserve some of the AI optionality because you can combine that with Comms as you mentioned in that — the broader CustomerAI vision. Just recognizing it’s sluggish overall in that business, is Segment seeing some usage for pulling customer data into LLMs and I’m also wondering about that because you did mention the Databricks, Connectivity, and I was just trying to understand what kind of projects those are and if you’re seeing more of that in the pipeline. And then I do have a very quick follow-up.

Khozema Shipchandler: Yeah. Good question, Mark. So there’s kind of two dynamics there. So I think the first is that, with respect to Segment, specifically, like, one of the things that we committed to as part of their operating review was to make sure that we were able to combine some of the data elements of Segment with the Communications capabilities that we have. We launched that product. It’s called the Agent Copilot. That Agent Copilot uses something that we refer to as Unified Profiles. And so, basically, what that allows for is, is the ability for an agent to be able to absorb information during the context of a call for that data to be stored subsequently and then for us to be able to create a flywheel so that every subsequent interaction with that consumer and then with consumers more broadly for one of our customers, they’re able to get value out of that.

Fundamentally reduced costs, have a better customer experience, and that kind of creates a generative flywheel if you will where Segment is continually used through the Unified Profile, and that data is then subsequently fed back into the Copilot, and then that flywheel just kind of keeps on turning. And so, that’s how I kind of think about the optionality with respect to Segment. We committed to three products actually during the course of the year, we’ve delivered one. We kind of alluded to the second one being on track for the upcoming quarter. So, we feel pretty good about our progress there too. And then I think more broadly, like, there’s a number of generative AI elements, both within Communications as well as Segment and those things are happening nicely.

The other part of the question that you asked about was Databricks. And with Databricks and Snowflake actually, one of the priorities that we also laid out as part of the operating review was to establish greater data warehouse interoperability with those folks as well as the other big data warehouse players that are out in the market. And so, the way that you should think about some of the announcements that we made as part of the release today is that, fulfilling on that exact same roadmap that we articulated about a month and a half ago, we’re making the progress that we intended to make. We’re starting to see traction with those two players in particular, you asked about Databricks, that allows us to basically seamlessly offer data back and forth on behalf of our customers who may be already Databricks users.

And so we think that that’s additive, not just to Segment, but increasingly to the entire enterprise as we leverage the combined capabilities of Segment and Communications.

Mark Murphy: Okay. That’s very clear and compelling. I’m going to hold off on my other question and try to preserve some time for others. So, thank you and talk soon.

Khozema Shipchandler: Okay. Thanks.

Operator: Thank you. One moment please for our next question. And our next question comes from the line of Meta Marshall with Morgan Stanley.

Meta Marshall: Great. Thanks. Maybe following up on Segment, understanding kind of the product rollouts that are happening, but maybe just we’re about 60 days in to new leadership there. Just any thoughts of new leadership as they’ve gotten in and how to improve the go-to-market there, that would be helpful. Thanks.

Khozema Shipchandler: Yeah. Good question, Meta. So, I’ll just kind of answer your question more generally and then more specifically about Thomas and I think leadership that he’s brought. So, I think, in terms of the business, we — we’ve started to take steps in terms of our path towards the non-GAAP operating profit target that we established for Q2 ’25. And we feel like we’re on track for that. We’re making good progress. That path isn’t necessarily going to be linear. And while we’re seeing good progress in terms of bookings, that’s going to take some time to kind of catch up and ultimately show up in the revenue line. And so there’s like sort of some dynamics there. In the meantime, we’re going to control our costs and be very focused about the R&D areas of prioritization.

In terms of go-to-market, before I get to Thomas, we are starting to see some green shoots. There’s a couple of customers that we referenced in our TalkTrack. I think we’re very excited about the nature of those customers, what they do, our ability to grow with them. I think in particular, what we’re very excited about is our ability to deliver time to value for those customers significantly faster than I think where we’ve been historically. I think in the past, that had taken us up to six months in some cases to be able to get to value initially. And I think we’re starting to see some — in several instances actually where we’ve been able to achieve that in as fast as 30 days. I think Thomas has been an awesome addition to the leadership team.

Quite frankly, with respect to all of our leaders, I feel very, very strong about our leadership bench overall. But in terms of Thomas, specifically, given his deep knowledge of the product, just given his background where he focused both on sort of product as well as marketing, which is useful because the marketer often tends to be the buyer in some of these instances. I think that’s been a real accelerant in terms of the progress that we expect. And I think just in general, it’s provided some stability and focus, which is also something that we’re very geared towards with respect to Segment.

Meta Marshall: Great. Thanks so much. I’ll pass it on.

Khozema Shipchandler: Thanks.

Operator: Thank you. One moment please for our next question. And our next question comes from the line of Taylor McGinnis with UBS.

Taylor McGinnis: Yeah, hi. Thanks so much for taking my question. I’m hoping that you could provide a little bit more color on what’s driving the slower organic growth guide in — 4% to 5% in 2Q. So it looks like crypto revenue in 1Q is actually higher than 4Q. So that, combined with some of the other headwinds that you might be lapping, you would think that that would lead to accelerating growth. So can you just maybe comment on why that might not be materializing? And at the start of 2Q, has there been any deterioration in the macro or anything in the demand environment that might be driving some of that? Thank you so much.

Aidan Viggiano: So, I’ll start, Taylor, and if Khozema wants to add to that. So, a couple of things to call out. So we have largely lapped crypto at this point. We don’t expect it to be a headwind in Q2. We do have some product-specific dynamics that we called out for. So as we’ve said, so for Segments revenue with 2% in Q1 from a growth perspective, we expect it to be muted for the year. As Khozema said, we’re working on a number of different initiatives there, but they’ll take time to kind of show up in our financial results. We also have some noise from the end of life of our ZipWhip software product. That will be a headwind to growth. It will be about 100 basis points of a headwind in Q2, roughly 80 basis points for the year.

And then I can say more broadly we’ve continued to see volumes stabilize, as Khozema mentioned, in our Communications business. And we are seeing year-over-year growth in most of the industries that we operate in, but we’re not yet seeing total volumes kind of inflect or growth reaccelerate. And I’d say that trend is more evident with our internationally terminating traffic. So we’ve seen lower internationally terminating traffic volumes, which is reflected in kind of what we talked about with gross margins being a little bit higher, as I mentioned earlier. We’re really reorienting the teams around gross profit, and we’re maintaining price discipline as we pursue certain international markets. And so, we saw gross profits grow by 10%. We think that’s the right way to run the business.

But we are seeing lower traffic there. So, that’s having a bit of an impact. But we’re not standing still, as Khozema mentioned. We have a number of short and long-term growth initiatives underway. I’m not going to reiterate all of the actions and the opportunities that he’s talked about. The last thing I’ll say is that regardless of where we are in the growth range, we’re going to continue to deliver the profits and cash flow. We’ve proven over the last year that we can drive significant profitability and cash generation in this business. And while we’re working to reaccelerate growth, we’re confident in our ability to get there on both profit and cash, as evidenced by the incremental guidance that we gave on total year free cash flow today.

And I’d say we’re also willing to be opportunistic and repurchase our shares when we believe they’re undervalued.

Taylor McGinnis: Great. Thanks so much.

Operator: Thank you. One moment please for our next question. Our next question comes from the line of Alex Zukin with Wolfe Research.

Alex Zukin: Yeah. Hey, guys. Thanks for taking the question. I guess maybe any kind of changes in the competitive environment internationally and then domestically, again, sounds like a stabilization in messaging volume. Is that more of a mix shift towards SMS and personalized messaging? Is it brand calling? Curious what’s helping kind of drive that NRR stabilization. And then just a quick follow-up.

Khozema Shipchandler: Hey, Alex. I’m just going to repeat back the question because we had a little bit of difficulty hearing you. So the way that I heard you ask it was whether or not we were seeing any changes in the competitive environment, international or domestically, that it sounds like to you that there was stabilization in messaging volumes. And then is there more of a mix shift towards SMS, personalized messaging, basically what’s kind of driving NRR stabilization? Did we hear the question right?

Alex Zukin: Yes, you did. Thanks.

Khozema Shipchandler: Okay. So in terms of the competitive environment, maybe I’ll just take that one first, I wouldn’t say that we’ve seen any real changes there. I think that, as Aidan alluded to in her prior answer, we have seen a little bit of softness in terms of internationally terminating traffic. I think from our perspective, like, we always want to maintain price discipline about the way that we think about those markets. And so that’s kind of what we’ve seen. Otherwise, the volumes across the board have been more or less stable, but they haven’t inflected. And I think that’s kind of impacting some of the growth dynamics as we look forward. There’s a bunch of new stuff in the hopper that we’re kind of thinking about and executing against.